1EVALUATION OF THE ROI AND CSD ROAD MAP IN LOW PER CAPITA MARKETA DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OFTHE REQUIREMENTS FOR THE AWARD OF MBA DEGREE OF BANGALORE UNIVERSITY. Submitted By: Saurabh Nagar Reg.No-05XQCM6081 UNDER THE GUIDENCE OF: Prof. Ramgopal Srinivas SENIOR PROFESSOR, MPBIM, BANGALORE M.P.BIRLA INSTITUTE OF MANAGEMENT ASSOCIATE BHARTIYA VIDYA BHAVAN. BANGALORE-560001 2005-2007
2 DECLARATIONI, Saurabh Nagar, do hereby declare that this project report entitled“CSD road map in low per capita market and ROI” is an originalresearch work carried out by me under the guidance of Prof RamgopalSrinivas, Senior Professor, M P Birla Institute of Management,Bangalore (Internal Guide). The contents of this report have not beenpublished before and they reflect the work done by me duringorganizational training component of MBA Program of MP BirlaInstitute of Management, Bangalore from 20/03/07 to 07/05/07 withPepsiCo India Holdings(Pvt.) Ltd.I also declare that this dissertation has not been submitted toany University/Institution for the award of anyDegree/Diploma.Place: BangaloreDate: 7th May 2007 (Saurabh Nagar)
3 GUIDE’S CERTIFICATEI hereby state that the Dissertation entitled “CSD road map in low per capitamarket and ROI” is the project work carried out by Mr. Saurabh Nagarunder my guidance and supervision.Place: Bangalore Prof. Ramgopal SrinivasDate: (Professor MPBIM)
4 PRINCIPAL’S CERTIFICATEThis is to certify that this report titled “EVALUATION OF THE OI ANDCSD ROAD MAP IN LOW PER CAPITA MARKET” has been preparedby Saurabh Nagar of M.P.Birla Institute Of Management is partialfulfillment of the award of the degree, Master of Business Administration atBangalore University, under the guidance and supervision of ProfRamgopal, MPBIM, Bangalore.Place: Bangalore PrincipalDate: (Dr. N. S. Malavalli)
5 ACKNOWLEDGEMENTThis project report is the result of a six-week long study at Pepsi under thesupervision of Mr. Elangovan Sanbandam (SAM) and Mr. Yogesh Rathore(PAM). I thank them for giving us such an opportunity to work with theorganization and his trust which allowed us the freedom and flexibility tostudy every aspect of the distribution network and distributors, with hardlyany restrictions on the access to confidential software and data.I would like to express my gratitude to Mr. Rakesh Shukla (ADM) whohelped in arranging the project for us and guiding us at every step wheneverwe need assistance.I would like to thank Mr. R P Gupta for his patience and the precious timehe spent with us in the last four weeks of the study, explaining thefundamentals of the Microsoft Excel and the implementation part of it in thecompany.
6I also wish to acknowledge the contribution of the route agents, distributorsand the CE and whose valuable time, opinions and suggestions helped usimmensely.I must thank Prof. Ramgopal Srinivas for his encouragement before westarted the project and his guidance during the course of the study. Withouthis wealth of knowledge, and the reassurance that he would be there forguidance and support, I would not have been able to gather the courage toembark on this journey into the unfamiliar world of ROI.Last but certainly not the least, I wish to acknowledge the efforts and thehelp of all the PepsiCo staff at Lucknow to the entire process and withoutwhose help this project would not have been possible. (Saurabh Nagar)
8 CONTENTSExecutive Summary PAGE NO.LIST OF ABBREVATIONSINTRODUCTION 12The OrganizationMarketing StrategiesPromotionFOBO DistributionCOBO DistributionIntroduction to the StudyAREA OF STUDY AND METHOLODGY 22Area of StudyMethodologyField ComponentsOffice ComponentData SourcesDISTRIBUTION NETWORK 27IntroductionChallenges 2007-2009OBSERVATIONS AND RECOMMENDATION 47Sample DistributionREGION WISE DISTRIBUTION 49CITY/DHQ/UPC WISE DISTRIBUTION 50ObservationsRecommendationImpact
9Contemporary GTMSS model proposed 65ANNEXURE: 67• Select Bibliography including websites used.• Interview Schedule
10 EXECUTIVE SUMMARYThis project is a study of Pepsi’s Distribution programme (PDP) inUTTAR PRADESH and UTTARANCHAL and the Return onInvestment (ROI) of the existing Distributor of Pepsi.Other than general overview of the current distribution network, theproject aims to look into the details of how investment is being used bythe distributor and the Company to increase their profit or earnings,thereby increasing the productivity and efficiency of the distributor.Based on the findings of a Six-week study, this report identifies certainloopholes in the distributor’s policy as well as in company policy.Finally, the report provides possible solution to the above problems inthe form of recommendation as well as certain suggestion for moreoptimal use of distributors.
11 LIST OF ABBREVATIONSADC Account Development CoordinatorBSD Bottled Soft DrinkCE Customer ExecutiveCEMU Central Market UnitCOBO Company Owned Bottling PlantCOP Central Order ProcessingD DistributorEDS Each Dealer SurveyFMCG Fast Moving Consumer GoodsFOBO Franchise Owned Bottling PlantGIS Geographical Information SystemMDM Market Development ManagerMT Empty (Empty Glass Bottle)NOMU North Market UnitPET Polyethylene Terephthalate (recycled plastic)PJP Pepsi Journey PlanRDP Rural Development ProgrammeRSP Rural Sales PromoterSAP System Applications and Products in data processing. It is the name for the both online financial software and for the company that developed it.SD Sub DistributorSKU Stock Keeping UnitTDM Territory Development Manager
13The Organization:PepsiCos beverage business was founded in 1898 by Caleb Bradham,a New Bern, North Carolina druggist, who first formulated Pepsi-Cola.Today, PepsiCo is among the largest consumer products companies inthe world, with revenues of over $28 billion and over 150,000employees. The PepsiCo principal businesses include Frito-Lay snacks,Pepsi-Cola beverages; Gatorade sports drinks, Tropicana juices andQuaker Foods. PepsiCo brands are available in nearly 200 countriesand territories and generate sales at the retail level of about $78billion. PepsiCo offers product choices to meet a broad variety ofneeds and preference - from fun-for-you items to product choices thatcontribute to healthier lifestyles. PepsiCos mission is "To be theworlds premier consumer Products Company focused on convenientfoods and beverages.PepsiCo India:Pepsi is one of the most well known brands in the world todayavailable in over 200 countries. The company has the largest andfastest growing businesses in India and China, which include morethan a third of the worlds population. This reflects that India holds acentral position in Pepsis corporate strategy. India is a key market forPepsiCo, and at the same time the company has added value to Indianagriculture and industry. PepsiCo entered India in 1989 and isconcentrating in three focus areas . Soft drink concentrate . Snack foods and vegetable Food processing
14The company entered the Indian market through a joint venture withVoltas and Punjab Agro Industries. With the introduction of theliberalisation policies since 1991, Pepsi took complete control of itsoperations. One of PepsiCos key strategies was to develop acompletely local management team. Pepsi has 19 company ownedfactories while their Indian bottling partners own 21.Marketing StrategiesIndia forms a key market in PepsiCos global strategy. However,despite a huge market of a billion people, the soft drink industry, witha per capita consumption of two bottles, was vastly underdeveloped.Pepsis marketing problem went beyond the normal 4Ps of operatingeffectively in a market. To enter India, Pepsi faced a 6P marketingproblem, with Politics and Public opinion constituting the 2 additionalPs. Pepsi played the 6Ps very effectively. It delivered an export/importsurplus to the then foreign exchange starved government by offeringto develop agricultural exports from Punjab. In this way, it was able tooffset the cost of importing concentrate into the country. Parallely,with its trend-setting advertising, innovative on-ground marketing andintrusive distribution system, Pepsi, today, has brought to its fold astaggering 200 million consumers. Brand Pepsi is the largest singlesoft drink brand in India. Pepsi is recognized as The iconic youthbrand in this part of the world. After flooding cities and large towns,Pepsi is now penetrating the rural market.Pepsi launched in India as Lehar Pepsi - The choice of a newgeneration. In the year 1993, Coca-Cola was planning a re-entry into
15India. Having been for years the cola that Indians grew up drinking,the threat of such familiarity, albeit somewhat dated, had to becountered. The task was, therefore, to reiterate faith and retain loyalconsumers. To ride on the passion generated by its verysuccessful launch, Pepsi followed with its first Hinglish Yehi hai rightchoice baby. Aha! commercial. The Cola Wars had come to India.Aha! created a new idiom. Pepsi further built empathy and stature bysigning on a host of youth icons of the time. It is, however, Shah RukhKhan, arguably one of Indias biggest cine stars, who continues toendorse Pepsi to date and epitomizes the brands connect withmovies, music and Bollywood.The 50th year of Indian independence was an opportune period forPepsi to celebrate the spirit of youth. Freedom to be was Pepsissalute.1998 was the year of the Generation Next. With its finger constantlyon the pulse of the nation, Pepsi revisited its raison deter - theconsumer. The brand was given a new vision - in tune with theconsumer experiences and their attitude to life - Yen dil maangemore was the new brand expression.The Product Pepsi and its other BrandsThe Cola franchise also includes Diet Pepsi, the first diet cola to belaunched in India. Catering to emerging needs of the calorie and figureconscious, Diet Pepsi is the image variant in the portfolio.
16Cola is not the only product PepsiCo brought to India. The PepsiCobrand stable includes Mountain Dew, Mirinda, 7UP, Slice, Aquafina andTropicana forming a part of the wide spectrum of beverages offered.Mountain Dew, introduced in 2003 has succeeded in creating anentirely new category. Pepsis launch of Americas number one sellingbottled water, Aquafina, fuelled the dull and boring Indian packagedwater industry with a distinctive brand position that reflectedconsumer lifestyle and status.PromotionThe bottled soft drink category needs to be driven withcontinuous excitement. Early on, Pepsi India identified threebroad platforms: cricket, movies and music to give expressionto its core value of excitement.While cricket had always been the most popular sport in India,with new technology coming into cricket from coverage to sportsgear to day/night versions of the game, it was set to acquire thestatus of a religion in the sub-continent. Pepsi picked up theopportunity early on by not only contracting the rights to allTests and One Day Internationals (ODIs) played in India,but also signing up top performers early such as SachinTendulkar and Rahul Dravid and creating some very cuttingedge and memorable advertising campaigns with them.
17Channels of Operations (Distribution Network)The entire country is divided into four zones in marketing ofbottled soft drinks (BSD). These are namely: . North Market Unit (NOMU) . South Market Unit (SOMU) . Central Market Unit (CEMU) . Western Market Unit (WEMU)Pepsi Co. Ltd. operates through two channels in the beveragessector namely Franchise Owned Bottling Operations (FOBO) Company Owned Bottling Operations (COBO)FOBO DistributionIn case of FOBO distribution the production and distribution process inhandled by the franchisee and the company appoints a franchisemanager to look into the FOBO operations. The FOBO structure is asfollows: Pepsi Foods Ltd. Syrup Providing Franchise Bottlers Franchises investment in plant, machinery and glass Trucks for distribution
18 PepsiCo India Marketing Company (Sales and Marketing) The various regions covered by the FOBO channel in India are as follows: o Jammu and Kashmir o Delhi and National Capital Regions o Western Uttar Pradesh o Rajasthan o Goa o Madhya Pradesh. o Orissa. o Andhra Pradesh. o North Eastern States. o Bihar. o JharkhandCOBO DistributionThe COBO distribution channel is further classified as DIRECT through Carrying and Forwarding (C& F) Agents INDIRECT through DistributorsThe regions of India which are served by the COBOdistribution channel are: Eastern Uttar Pradesh. Punjab Haryana Himachal Pradesh.
19 Gujarat. Maharashtra. Karnataka. Kerala. West Bengal. Tamil NaduUP - COBOUP - COBO covers six territories of Uttar Pradesh, namely Kanpur. Lucknow. Allahabad. Gorakhpur. Uttaranchal. Bareilly
20 Figure 1.1 Map of six districts of UP-COBOUttar Pradesh has three production centers or plants in the followinglocations: Jainpur located at a distance of about 48 Kms. from Kanpur It is a three line plant . Sataria located at about 52 Kms. from Allahabad. It has two lines of production. Bajpur located at a distance of 120 Kms. From Bareilly. The plant has two lines of production.
21Introduction to the StudyThis eight-week study was conducted for UP-COBO andUTTARANCHAL-COBO to understand the distribution system employedby the PepsiCo. Especially with regard to all segment setup. Since the entirearea of operation was too large to be studied in such a short span of time, thestudy is based on observation in several CITY, DHQ and UPC in UttarPradesh and Uttaranchal.To maximize the ROI (Return on Investment) for the distributor particularlyin the small slab size and in the process increasing the turnover for thecompany. The aim of the study was primarily to evaluate the existingearning of the distributor and the existing distribution system.During the course of the study, distributors had to be acquainted with andtheir working along with the working of the CE and RSP had to beobserved. Based on these observation and inputs from the distributor, thestudy attempts to identify loopholes policy acquired by the distributor andhow to better use the company policy for maximizing the earning of thedistribution Channel.
23Area of StudyThe study was conducted for the distribution network and distributorsROI in the six territories in Uttar Pradesh and Uttaranchal which comeunder UP-COBO namely Lucknow, Gorakhpur, Kanpur, Allahabad,Varanasi, and Uttaranchal. A detailed study was conducted inLucknow, Kanpur, Varanasi, Allahabad, Uttaranchal territoriescovering city, DHQ and UPC.
24The market of India is increasingly being recognized as the richestpotential market by MNC’s and other companies looking to expandtheir operations. In the UP-COBO area alone there are 71 districts.MethodologyIn order to understand the distribution system used by Pepsi, the initial phaseof the project involved three weeks of field work in city, urban as well as inrural markets. A PJP was prepared which provided an insight into theworking of urban distribution network through rotes rides in Pepsi truckswithin Lucknow and visits to rural market with an RSP to observe theprocess involved in supply.Following the field visit, the summarizing of all the data collected onMicrosoft Excel was observed. During this phase, some inconsistencies inthe data were found and further visit to the places were undertaken to verifythe data.During the field work and office work, interviews and informal discussionwith the Staff members (TDM, ADC, SAM, PAM, CE, ME), distributorswere conducted in order to learn more about the distributors and theirnetwork and understand problem from different prospective.Finally, an attempt was made to combine the learning in both phases byactually summarizing all the information collected (volumes, manpower,
25vehicle used, area occupied, outlets etc) and then drawing conclusion toidentify the problems and loopholes in the process of distribution. Thisdetailed study and analysis of data was conducted for certain distributors inall the six territories.Field ComponentsDuring the first phase of the project which lasted three weeks, a survey isbeing done of some distributors which include distributors of all Slab size inorder to gain an understanding of their investment so as to calculate the ROI.Over a period of 2 days, rout rides with road agents in Pepsi distributiontrucks on the Hazratganj, Lalbagh, and Nishatganj routes provided an insightinto the problems and peculiarities of FMCG distribution as well as the salespromotion schemes and the tracking of daily sales volumes. During theseroutes rides, CE-work formats were filled which gave an overview of themarket situation on various routes.Following this, a two week stint of observation, data collection andinterviewing in the UP market was undertaken in order to study thedistribution network, the success of company’s policy and the penetration ofPepsi in the market. This two week phase also provided a comparison of themarketing strategies and success of coke marketing vis-à-vis Pepsi’s, theproblem associated with distributors.During this stage of the fieldwork, interviews and the informal chatsprovided a lot of information and market survey in few distributors provide astrong base to draw various conclusions.
26After this fieldwork stage, another week in the field was required tocrosscheck some data which seemed inconsistent with earlier fieldobservation.Office ComponentFollowing the three week fieldwork, a short overview and informal trainingon the SAP software were undertaken in order to gain familiarity with thesoftware. Due to time constraints, a more detailed knowledge and workingwas not possible. After this introduction to Excel, summarizing of datacollected and volume tracking was done in order to understand the entireprocess of how data collected is useful in the calculation of ROI, someinconsistencies and doubts in the integrity of the data arose which promptedfurther field visit.Data SourcesPrimary data was obtained from interviews, surveys, discussions andinformal dialogue with employees, distributor, SD’s and retailersSecondary data was obtained from company records, database, companysales volume data, books and internet.
28 IntroductionIndia has a rural population of 741,660,293 (72%) (Census 2001) with UttarPradesh having a rural population of 131,540,230 (77%). A location isdefined as rural if at least 75 percent of the population is agrarian. Withsuch a large number of potential consumers, it is clear why multinationalcorporations would like to successfully penetrate the rural Indian market.The rural market is tempting since it comprises 74 per cent of the countryspopulation, 41 per cent of its middle class, 58 per cent of its disposableincome and a large consuming class. Today, real growth is taking place in therural-urban markets or in the villages with a population of more than5,000. In such an environment, being first on the shelf and developing aprivileged relationship with the retailer is a source of competitive advantage toconsumer good companies.Trends indicate that the rural markets are coming up in a big way and growingtwice as fast as the urban. According to a National Council for AppliedEconomic Research (NCAER) study, there are as many middle income andabove households in the rural areas as there are in the urban areas. There arealmost twice as many lower middle income households in rural areas as in the
29urban areas. At the highest income level there are 2.3 million urban householdsas against 1.6 million households in rural areas. According to Mr. D.Shivakumar, Business Head (Hair), Personal Products Division, HindustanLever Limited, the money available to spend on FMCG products by urbanIndia is Rs. 49,500 Crores as against is Rs. 63,500 Crores in rural India.With the rural market being extremely price sensitive, the soft drinkcompanies like Coke and Pepsi had to make sure that they strike the rightbalance as far as pricing is concerned. They tried to make their productsaffordable in terms of unit price. However, considering the price-sensitivenature of the consumers in these areas, it was only the glass bottlesthat allowed the price to be as low as Rs 7.Apart from pricing, reworking the pack size was also necessary. Theintroduction of 200 ml packs at highly affordable prices provided themwith a strong product offering, as international quality products weremade available at affordable prices. In fact, a powerful driver for boththe companies in the rural markets has been the 200 ml packs.But attractive pricing and convenient packaging is not enough to sellthe brand in these markets. The greatest challenge is to convince theconsumer the need to buy this product. The issue in the rural marketsis not spending power. In fact, most rural consumers have thespending power, but they have to be given a tangible reason to buy asoft drink when they have other options to quench their thirst, such aswater, lassi, nimbu-pani or a homemade sherbet.In case of Pepsi, they began their Rural Development Programme in2001 with the aim of increasing sales volumes by penetrating the ruralmarket of India which had been until then a largely untapped market.
30To do so, Pepsi employed Rural Sales Promoters or RSPs to identifypotential distributors, sub distributors and retailers and provide themwith the necessary knowledge and support from the company.A channel of distribution comprises a set of institutions which performall of the activities utilized to move a product and its brand fromproduction to consumption.The distribution network in any company involves a host of marketingintermediaries which perform a variety of functions. Each intermediarythat performs work in bringing the product and its brand closer to thefinal buyer constitutes a channel level. There are four channels ofdistribution depending on the market conditions, namely: Zero-Level Channel (Direct Marketing) One-Level Channel Two-Level Channel Three-Level Channel Retailer Distributor RetailerManufacturer Manufacturer Distributor Sub-Distributor Retailer
31 Various Channels of DistributionDistribution of Pepsi in UP-COBOAt PepsiCo, the rural distribution channel is a three level channelwhich employs distributors and sub-distributors to reach the retailerand finally the consumer.There are two ways of distribution in the company, namely.DIRECT ROUTE.INDIRECT ROUTEThe Direct Route has carrying and forward agents who makes theproduct available to the retailer which finally reaches the endcustomer.In case of Indirect Route, the plant dispatches the BSDs to thedistributor location directly. The distributor can either cater to his areaor if he wants to diversify his distribution, he supplies the BSDs to Sub-Distributors.
32 Figure 3.2 Channels of Distribution at PepsiIn case of rural areas, the Distributor prefers to have three to four Sub-Distributors because it becomes very difficult for him to cater to all thevillages and all the shopkeepers in his locality. With the help of SDs hecan forget about the villages which are very far off and concentrate onincreasing volumes in the nearby areas. The company aims to activate(sell Pepsi products in) all villages having a population of over 2500 inUP-COBO through this distribution network.At Pepsi, the Distributor is actually a dealer who buys empty bottles incrates in bulk. This depends on the volume of sales in the area. Also, heshould have a minimum stock of five days at his distributor point. The
33 same is the case with a Sub-Distributor. He can then refill the empty bottles as and when required. These refilled bottles he dispatches to either retailers or to Sub-Distributors.The Distributor places an order (or an indent) through the Customer Executive(CE) of Pepsi and the COP Cell (similar to a call center).Before the indent is actually placed the company has to receive a demanddraft for the amount of bottles to be refilled. The indent is entered into theSAP software which links the operations of the entire country. The distributoralso has to mention how much of Pepsi he wants and how much of otherflavors he wants. Once the indent is placed the Distributor receives hisproduct in a days time directly from the plant. Once the truck carrying theproduct reaches the distributor, he should send back the same number ofempty bottles back to the plant.The company is currently using a hub and spoke model for rural distributionwherein distributors are created in centrally located large villages or towns.The spoke is typically closer to the retail outlets and is serviced by a hubdistributor who is supplied directly from the plant or the companyswarehouse. This form of distribution allows for large loads traveling longerdistances and small loads doing a short distance which is cost-effective.These distributors receive the BSDs directly from the plant and return emptybottles in return. The distributors then supply the drinks in the surroundingvillages either with their own resources on their direct route or through sub-distributors who are appointed by the RSP and CE of the area in consultationwith the distributor. The SDs use all possible means of transport that rangefrom trucks, pickups, auto rickshaws, cycle rickshaws and hand carts to cart
34their products from the spoke to the retailer. At the time of this study, Pepsihad approximately 510 Ds and 730 SDs in UP-COBO coveringapproximately 6250 villages in the six territories and approximately 23,000retail outlets in UP-COBO.PricingThe following table gives the price as well as the different packagingavailable in Pepsi and its other brands of carbonated soft drinks. Brand Packaging Price Price (crate) Carbonated Drinks 200 ml 128 Glass 300ml Glass 8 172 330ml Can 18 402 500 ml PET 18 402 1 It Glass 108 2 It PET 43 369 Slice 250 ml 8 174 500 18 402 Aquafina 12 124 Soda 500 ml PET 10 216 300 ml 6 102 Table 3.1 Packaging and Pricing of DrinksThe distributor gets a discount of Rs 8 per crate for glass bottles and Rs10 per crate for PET bottles. An exclusive outlet gets a discount of Rs
3540 per crate. The price of an empty crate is Rs. 240 .One crate contains24 bottles (9 bottles for cartons of 2 lit PET). Competitive Scenario of Bottled Soft Drink IndustryBoth Coke and Pepsi are trying to gain market share in the Indian beveragemarket, which is valued at over $30 billion a year. Each company is comingup with new products and ideas in order to increase their market share. Thecreativity and effectiveness of each companys marketing strategy willultimately determine the winner with respect to sales, profits, and customerloyalty. Not only are these two companies constructing new ways to sell Cokeand Pepsi, but they are also thinking of ways in which to increase market sharein other beverage categories. Although the goals of both companies areexactly the same, the two companies rely on somewhat different marketingstrategies.Pepsi has always taken the lead in developing new products, but Coke soonlearned their lesson and started to do the same. Both companies have relied onfinding new markets, especially in the rural areas of India. These companies,in trying to capture market share have relied on the development of newproducts. In some cases the products have been successful. However, at othertimes the new products have failed. One solution to increasing market share isto carefully follow consumer wants in each country. The next step is to takefast action to develop a product that meets the requirements for that particularregion. Both companies cannot just sell one product; if they do they will notsucceed. They have to always be creating and updating their marketing plans
36and products. The companies must be willing to accommodate their "targetmarkets". Gaining market share occurs when a company stays one step aheadof the competition by knowing what the consumer wants.Below is a comparative scenario in terms of the brands availablein both the companies: PepsiCo India Coca Cola India Pepsi Thums-Up, Coca-Cola Mirinda Orange Fanta Mirinda Lemon Limca 7 Up, Mountain Dew Sprite Slice Maaza Aquafina Kinley Lehar Soda Kinley Soda Table 3.2 Competing products of Pepsi and CokeIn case of rural areas of Uttar Pradesh, the local players also posea threat to the beverage industry. During the peak months ofApril to June, companies like Bowler, Cyber are also a favoriteamong the locals. This is mainly because of the fact that the ruralpeople do not differentiate between the brands but only want a"black colored" soft drink. However, the threat of local brands toPepsi is not major as compared to the threat posed by Coke.
38IntroductionIn today’s business marketplace, effective use and flow of information is thekey to success. Business information parameters likes sales, customerinventory, potential market segmentation and demographic profile from thedefining factors for all the industrial segments like FMCG, Retail, Realestate, insurance, pharmaceuticals, etc. since most of this data has sales andother numeric values ,it become important to use Excel for analyzing themto get the conclusion from it.This study is being undertaken to help the company to take the decision thatwhether they need to consolidate the distributor of specific slab size or theyneed to reduced the distributorsThe situational analysis has been done and it is been find that UP regionwhich share the 16 % of total national population is consuming just 5.5 % oftotal Pepsi consumption in India and the rural market is not been yetpenetrated enough.Conventional study does not help in this situation because it says only thesales part and yet the basic or most important reason for the declined in sales
39is not been verified. With this study an attempt is made to understand thefunctioning of the most important link of the distribution network, thedistributor. ROI calculation helps in strengthening the relationship as well asthe earning of the distributor so as to attract the new players and motivatingthe existing ones.Overview of the MarketCompany data updated till August 2006 reveals that the company had adecreased in sales by almost 50% in last three years and rural markets arenot performing well for the company. Distributors are increased by almost48% during the last 3 years in UP state and they contribute as high as 20%of the total COBO distributor and yet account for only 5.5% if total sales ofpepsi in IndiaCalculation of ROI (UP-COBO)The company wants to increase its market share as well as to increase thequality of customer interface, for this it want to find the reason that cantrigger both of the above mention factors. So calculation ROI is beenundertaken.The first step that the company took was to design a questionnaire form thatwill be used to collect the necessary information after that company makesthe segments of the distributor depending upon their Annual Sales Volumes.The segments are as follows Less than 15k
40 Between 15k to 25k Between 25k to 50k More than 50kNow the company tracked the data through us by the way of certain trackingformats (excel sheets) we had to fill in. After that this information is beingsummarized and some useful inferences are been made. By analyzing thelast 5 years volume sales other important inferences are also made.
42SITUATIONDemographic Industry And Data Comparison
43Low per capita income resulting in Low per capita consumption No. ofdistributors as high as 20% of the total COBO distributorsDistribution & Volume Trends 2003 2004 2005 2006 06/03Distributors 481 603 712 710 48%Volume 1429 1675 1376 1084 -24%Avg. Vol. 29709 27778 19326 15268 -49% • 229 distributors appointed in the last 3 years • With the volumes declining and increase in no. of distributors the average volume per distributor has significantly droppedComparison with other FMCG companies • For the same period the no. of distributors for Cadbury in UP got reduced by 114 from 280 to 166. Revenue for them increased by 15% for the same duration • No of distributors of Dabur increase during the same period by 10 from 240 to 250. The revenue increase is of 15%.
44 Customer Interface & Emerging alternate business options 2003 2004 2005 2006Distributors 481 603 712 710CE + ST 50 50 50 50Distb./ CE 10 12 14 1440% increase in the distributor per CE has impacted the quality ofCustomer interface • New business opportunities with better returns coming up in the last few years putting additional pressure on our industry • Rapidly changing Channel landscape throwing up decent profile business opportunities in Urban areas
45 Challenges 2007-2009Healthy Distribution PartnerCustomer interface to facilitate execution excellenceEfficient and Effective DistributionContemporary GTMFuture oriented technology driven challenge
46 IS DISTRIBUTOR HEALTHY?Volume Size No. of Volume Avg. Vol. % of % of Dist. Avg Avg Avg Distributors Vol IPC CPC ROI<15000 493 3517395 7135 33% 69% 34 6 8.4%15001 to 24999 107 2022831 18905 19% 15% 27 7 10.1%25000 to 49999 78 2697545 34584 25% 11% 25 8 11.6%>50000 32 2550248 79695 24% 5% 23 7 14.2%Total 710 10788019 15194 100% 100% • Due to high seasonality and decline in volume in last 2 years IPC has gone up. • Avg. volume of 69% of the distributors is 7k. Net take home is insignificant. • ROI under pressure!!
48 Sample Distribution 17% 31% 26% 26% <15k 15-25k 25-50k 50k and aboveAbove Figure shows the percentage breakup of distributorsurveyed.
49 REGION WISE DISTRIBUTION 8% 10% 24% Kanpur Lucknow 12% Allahabad Varanasi Uttranchal Bareily 8% 38%Above figure shows the percentage breakup of distributorsterritory wise.
50 CITY/DHQ/UPC WISE DISTRIBUTION 40% CITY 51% DHQ UPC 9%Above figure shows the percentage breakup of distributor’sarea wise
51Sample survey of <15k volume distributorDistribution of VehicleFigure shows the average number of vehicle used by the less than 15kvolume distributor 1.4 1.2 1 During the Season 0.8 0.6 0.4 0.2 0 mechanised nonmechanised 0.8 0.7 0.6 0.5 During the off-Season 0.4 0.3 0.2 0.1 0 mechanical non-mechanical 0.8 0.7 0.6 0.5 During the mini season 0.4 0.3 0.2 0.1 0 mechanical non-mechanical
52 Man power distribution 4 3.5 3 2.5 2 1.5 1 0.5 0 season mini season off seasonAbove figure shows the average number of manpower used by less than 15kdistributor during the year.Sample ROI for <15K distributorsCPC 7 6 7 6 6 B<15K KHALID(L VSI Akhilesh Ali Shivam AVERAGEEarnings B1230 65038 93814 94822 80920 79165 KO) AGEIMCY( Agency(BL Enterprise Dist.NetVolume 18100 6500 1B294 8000 2B714 9959 328B8 1006B 27921 8500 24379 8605EarningsInvestmentROI 228421 7.9% 249295 6.5% 316552 8.4% 362684 9.1% 296474 9.4% 290685 8.4%IPC 35 31 32 36 35 34Expense 43130 48744 67100 61954 52999 54785
53 69% of the distributors fall under this category contributing 33% of the Unit volumeOBSERVATIONS• Investment is high. The pressure is high for new distributors while the old distributors look for monthly take home more than ROI.• Concern area is decline in volume.• Most of the distributors have alternative business. RECOMMENDATIONS • Super stockist model of distribution to be considered. • Consolidation of near by distributors and reduce the no of distributors. • Revisit the investment of the distributors and standardize. IMPACT • Flavor penetration to ensure share gain and lead to volume growth. • Distributor net take home / ROI will improve. • Effective glass management • Lower load size will improve the working capital and we can look at
54 reducing the glass investmentSample survey of 15-25k distributorsDistribution of VehicleFigure shows the average number of vehicle used by the less than 15-25kvolume distributors. 2 1.5 During the Season 1 0.5 0 mechanised nonmechanised 0.9 0.8 0.7 0.6 During the off-Season 0.5 0.4 0.3 0.2 0.1 0 mechanical non-mechanical
55 1.4 1.2 1 0.8 During the mini season 0.6 0.4 0.2 0 mechanical non-mechanical Man power distribution 6 5 4 3 2 1 0 season mini season off seasonAbove figure shows the average number of manpower used by 15-25k distributors during the year. Sample ROI of 15 - 25K distributors
5615% of the distributors fall under this category contributing 19% of the Unitvolume DOLLY COLD SAMKAT HANUMAIM RAJ J P TRADERS AVERAGE DRINK(KNP) MOCHAISI (LKO) EIMTERPRISES (ALL) ALL) 15K-25K Volume 16000 15000 15000 17000 23000 17200 Investment 449866 448929 421192 441220 545280 461297 IPC 28 30 28 26 24 27 Expense 111291 108857 107157 128600 158400 122861 CPC 7 7 7 8 7 7 Earnings 153120 148500 149100 168300 227700 169344 Net Earnings 41829 39643 41943 39700 69300 46483 ROI 9.3% 8.8% 10.0% 9.0% 12.7% 10.1%OBSERVATIONS• Investment is high and is a concern. The Expense is relatively high and scope of optimization is low. Over all take home / ROI is also a concern.• Concern area is also declining volume.• 70% of the distributors have alternative business.
57RECOMMENDATION• Consolidation of near by distributors and reduce the no ofdistributors. Primarily city??• Revisit the investment of the distributors and standardize.IMPACT• The average volume of the distributor would increase positivelyimpacting the ROI/Take home• Would reduce the average no. of distributors per CE therebyimproving the interface
58Sample survey of 25-50k volume distributorsDistribution of VehicleFigure shows the average number of vehicle used by the 25-50k volumedistributors 2.5 2 During the Season 1.5 1 0.5 0 mechanised nonmechanised 1.2 1 0.8 During the off-Season 0.6 0.4 0.2 0 mechanical non-mechanical 1.8 1.6 1.4 1.2 1 During the mini season 0.8 0.6 0.4 0.2 0 mechanical non-mechanical
59 Man power distribution 9 8 7 6 5 4 3 2 1 0 season mini season off seasonAbove figure shows the average number of manpower used by 25-50kdistributors during the year.Sample ROI of 25 - 50K distributors 25-50K RAMESH ASHU HARI SHYAM ZUM ZUM MEHNDI(LKO) AVERAGE FOOD MARKETING RASTOGI (LKO) AGENCY(KIN (KIMP) (KNP) IP)Volume 31000 38000 36500 35000 39000 35900Investment 746792 946841 924964 866070 987212 894376
60IPC 24.1 24.9 25.3 24.7 25.3 24.9Expense 209506 278860 253570 245640 366560 270827CPC 6.8 7.3 6.9 7.0 9.4 7.5Earnings 298220 380000 352225 355250 487200 374579Net Earnings 88714 101140 98655 109610 120640 103752ROI 11.9% 10.7% 10.7% 12.7% 12.2% 11.6% 78 (11%) distributors fall under this category contributing 25% of the Unit volumeOBSERVATIONS• Investment is high need to look at rationalization.• Overall earning is a concern, especially distributors with volume of 25-40 K.• Almost 75% of the distributors are dependent on Pepsi as a source of livelihood.RECOMMENDATIONS• Consolidation a must with near by distributors. Recommendedminimum volume size of a city distributor to be 50K• Extending Cheque facility against a BG??IMPACT• Consolidation would increase the volume thereby positively impacting
61 the ROI• Opportunity more in cities and DHQs, will have positive impact on HCV:LCV mixSample survey of more than 50k volume distributorsDistribution of VehicleFigure shows the average number of vehicle used by the more than 50kvolume distributor 6 5 4 During the Season 3 2 1 0 mechanised nonmechanised 3 2.5 2 During the off-Season 1.5 1 0.5 0 mechanical non-mechanical
62 5 4 3 During the mini season 2 1 0 mechanical non-mechanical Man power distribution 16 14 12 10 8 6 4 2 0 season mini season off seasonAbove figure shows the average number of manpower used by less than 15kdistributor during the year.Sample ROI of 50 - 100K distributors 50-100K Alka sales S.K(KANPUR) KUNDAM AVERAGE (Kanpur) ENT(LKO)Volume 52000 57500 58000 55833Investment 1316860 1240700 1334860 1297473
63IPC 25.3 21.6 23.0 23.2Expense 336960 392862 400960 376927CPC 6.5 6.8 6.9 6.8Earnings 522600 569250 591600 561150Net Earnings 185640 176388 190640 184223ROI 14.1% 14.2% 14.3% 14.2%32 distributors fall under this category contributing 24% of the Unit volumeOBSERVATIONS• IPC is relatively moderate can still look at rationalization• Opportunity to rationalize expenses too by variabalisation.• 100% of the distributors are dependent on Pepsi as a source of livelihoodRECOMMENDATION• Variabalisation to significantly impact the IPC / CPCIMPACT• Healthy distribution partners to ensure stability and continuity in thebusiness• Less churn will give us competitive advantage
64 CONTEMPORARY GTMOBSERVATIONS With SKU proliferation opportunity in the smaller distributors/ towns to push the growing SKUs further and improve range availability in the market For the smaller distributors minimum load size of 325 cases is high, therefore the indent frequency is low resulting in indenting the available SKUs. Opportunity of making more SKUs available by reducing the load size. Need to improve sales, given the momentum behind flavors, they can play an important role in boosting the volumes.Options evaluated... • Tele sell • Pre sell • Hybrid sell
65 SS MODEL PROPOSEDProposed action plan - Super Stockiest Model - To appoint SS in DHQs who would be feeding a minimum of 15 - 20 nearby small distributors - To firm up servicing frequency and minimum drop size (100 cases) to the distributors - Will reduce the investment of smaller distributors and improve their working capital - Will positively impact the glass turn - Will improve the lines per strike call - The order service time will improve significantly ~ Shadow ROI calculation - Part of the SS commission to be offset by freight savings To reintroduce Party vehicle of distributors
66SECONDARYHYBRID SELL• Simple but effective concept.• RA/DSM to sell the fast moving SKUs as per ready stock format andbook orders of the slow moving SKUs in a DSR and deliver it the next day.To institutionalize this practice across the unit to jump shift the volumeslow moving SKUs and improve the lines per strike call and Strike rateImproving the quality of interaction of CEs withDistributors• With flavors gaining ground, need to impact flavor reach on ground• Current distributor mentality to focus on fast moving SKUs• Consequently opportunities to scale up on other skus not tapped• With avg of 2000 outlets and 14 distributors + 25 SDs per CE, the span of control and impact is too large for micromanaging the process of range selling.• Need to train the distributor frontline (DSM) on range selling - span of impact would be 80 outlets per DSM• Need to find solutions for continuously training the DSMs.• Options of using QSMs for training and driving range selling• Focus of the CEs to remain on the high profile markets. Other markets to be handled by QSMs with primary responsibility of coaching DSMs and ensuring jump shift S&D KPIs.• Annual outlay of Rs. 30 L for 30 QSMs @ Rs. 8000 per month
67ANNEXURE:SELECT BIBLIOGRAPHY1. Online Researchwww.google.comwww.indiainfoline.comwww.businessstansard.comwww.expressindia.comwww.pepsico.com2. COMPANY REPORTS & RECORDSData culled from company reports and records provided by the company3. Magazines and Journals:1. Business World2. Business Today3. Advertising express4. Strategic Management.5. Effective Executive.6. Marketing White book7. Marketing Mastermind8. Journal of Marketing9. Journal of Finance
68INTERVIEW SCHEDULE:The following key issues are focused in the personal interactions with thedistributors: • Name of the distributor • Annual actual volume • Years of experience as distributor • Infrastructure • Vehicle • Number of outlets • Frequency of service per week • Godown --owned/rented • Sales mend--Self/RA • Salary structure • Alternate business, if any • Glass deposit--cases • Stock holding--cases -----x----