Sales and Distribution
About GlaxoSmithKline GlaxoSmithKline Consumer Healthcare Limited (GSKH) is an India-based company that operates mainly in the food processing industry. The Company manufactures and markets malted milk food products, malted food products and biscuits. GSK is the leader in Indian Health Drink Market. It has four brands – Horlicks, • Boost, • Viva and • Maltova • Glaxo Smith Kline is actually a single-product single-brand company. They acquired Viva and Maltova brands from Jagatjit Industries to become the only company in the white beverage segment. Horlicks is the most dominant player in the category.
According to retail audit unit ORG Marg, GSK with four brands in the category has a 75 percent volume market share (Press Trust of India). The company enjoys market leadership in 90,000 Tonnes Indian malted milk food market.
About Horlicks Horlicks has been a popular brand in India since 1930. It was re-launched in 2003 and included a new look for the brand targeting its core consumer, children up to 14 years old. Traditionally it has been positioned as "The Great Family Nourisher”. New products have been developed specifically for India, catering different segments of the Indian market. In India, over 2 billion cups of Horlicks are drunk every year. Horlicks is the only drink clinically proven in India to make kids ‘taller, stronger and sharper’. The Horlicks available has been scientifically developed and specifically caters to the nutritional needs of the Indian diet. Horlicks alone enjoys 50% of the Health Food Drinks market. In South India, which is milk deficient, Horlicks is consumed as a substitute to milk. Horlicks was first invented as to substitute milk as baby food. However, in North India, it is consumed as a taste enhancer, although now it’s being recognised as a health food drink p roven to make kids ‘taller, stronger and sharper’ .
Health Beverages Industry Health beverages can broadly be divided into two categories, namely 1. Milk food beverages (also known as milk food drinks) 2. Fruit juices The Rs. 14.4 billion malted foods market is composed of two segments - brown and white. 1. White beverages (such as Horlicks, Viva, Complan) and 2. Brown beverages (such as Bournvita, Maltova, Boost, Milo etc). While the brown drinks are held to be as energy boosters, the white drinks are regarded as milk substitutes. The consumption pattern of malted beverages differs according to usage patterns across geographic zones. In the southern and eastern regions white beverages are preferred as substitute for milk. The people in the east prefer for sweetness of taste, taste, the southern region prefers more cocoa based based beverages. All the brands target SEC A and B households with one or more children. The decision- maker is the mother though “pester power” plays a significant role and is the reason for the school level promotions undertaken by all the brands. “The mother is like a gatekeeper, who allows the entry of the product into the house because of its nutrition values. The child is only the user.” The penetration of malted food in India is a low 6.1 per cent. Over the last few years, there have been a number of attempts to expand the health-beverages business. In view of the tremendous growth potential, many multi-national corporations (MNCs) as well as domestic players have made aggressive investments in this sector, but there are very few players left in this sector in India, today. Malted beverages with nutritional attributes control around 70% of the total market and energy drinks (brown beverages) account for the rest.
The Major Players • • •
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GlaxoSmithKline’s Horlicks Cadbury's Bournvita Nestlé’s Milo Heinz's Complan'
The market is dominated by GlaxoSmithKline with about 70 per cent share. Cadbury and Heinz have about 12 per cent each, and Nestle only 3 per cent. In South and East India, Horlicks is the market leader. In North India, where it is seen as a taste enhancer, it faces competition from Bournvita and Milo. GlaxoSmithKline (Horlicks, Boost, Maltova, Viva) Heinz (Complan) Cadbury (Bournvita) Nestle (Milo)
69% 13.8% 12.9% 3.4%
Consumer Behaviour Energy drinks or milk drinks are perceived as a luxury. This explains the slow off-take. While white beverages are hailed for their therapeutic offerings, consumers look at browns as mere taste additives. Brand loyalties are not very strong as the key target, children, are always looking for new products. Promotion campaigns such as freebies and contests also play an important role in influencing brand choice. These campaigns are mainly targeted at children who force their parents to buy these products. Free gifts like crystal jars, pet jars and sippers also attract consumers.
Market Prospects The growth opportunities in this area are tremendous. However, the growth rates have been slow so far, hovering around 6 per cent per annum, in terms of volume. The total market size is estimated to be 82,000 tonnes per annum. About 65 per ce nt of the total beverages market consists of white beverages The malted food beverage industry is popularly known as the health beverages sector. It is estimated to be a Rs 9.40 million market and is growing at the rate of 12-14 per cent per annum. Historically, malted beverages have had a strong association with milk, which also explains its strong presence in the southern and eastern regions of the country. These regions suffered from milk deficit and malted beverages positioned themselves as substitutes for milk. Operation Flood, launched in the 1980s, changed the scenario. Undertaken by National Dairy Development Board, Operation Flood made milk available in all parts of the country and the demand for white drinks was hit. With a view to revive demand for the brands, malted foods were repositioned as strength and energy drinks with a nutritional thrust. And this positioning stands valid till date. Apart from the availability of milk, another significant reason for medium growth rates of malted food industry lies in its limited acceptability and/or reach in Indian society. Malted foods have primarily been used in upper and upper middle-class families, which constitute a small proportion of the Indian population. However, over the last few years, there have been clear indications of a recovery.
Several factors are responsible for this. Chief among these is the demand for better products and an increased acceptability of malted products. This demand has contributed to the growth in consumer options in terms of variety of taste and products. Other factors include • • •
Improved standard of living, Increased awareness and health c onsciousness amongst people, and Product availability at reasonable prices.
This trend is in keeping with the patterns observed across international economies where the growth of middle-class has driven the uptrend in food industry in general and health beverages in particular. As an obvious outcome, this proliferation is bound to have an impact on the supply chain, making it more complex. Speed and reach will become critical and differentiation in supply-chain capabilities would determine the success of competing companies.
Future Threats Nido is Nestle's brand in the milk food segment. The brand is recently making lot of noises in the media. Nido is a milk powder fortified with Calcium and Vitamins. Nido is the updated version of Nestle's Milk for Growing Children. The USP for Nido is that it is fortified with Calcium and Vitamin D which helps the kids develop strong and healthy bones. Nido faces direct competition with the ordinary milk and milk based beverages. The brand competes with Junior Horlicks and a host of other nutritional foods available in the Indian market. In terms of promotion and positioning, Junior Horlicks is miles ahead of other brands. But there is a difference between Nido and Horlicks in the sense that Nido is a milk food while Horlicks is Malt based beverage. So the competition is essentially Industry competition rather than direct brand competition. The brand takes the differentiation from other milk brands by having 25 essential nutrients that growing children needs (comparison with 23 nutrients of Complan) .Nido is addressing competition from both ordinary milk and brands like Horlicks, Bournvita, Complan and the like.
2006: ‘Year of Horlicks’ Horlicks showed and impressive growth of 12.8% supported by: Intense market research and product development activities • Aggressive advertisement and various sales and marketing initiatives. • Operate with minimum trade pipelines • Sells as per the market demands • Maintains a very efficient supply chain. •
Variants of Horlicks
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Horlicks Ninja which is available in four flavors- Chocolate, Vanilla, Elaichi and Standad Junior Horlicks 1-2-3 for pre school kids. It provides 100 percent daily quota (in two serves) of essential micronutrients and has DHA (an essential omega 3 fatty acid) for optimum brain development. This is the first time in India that a health drink specially designed for pre school kids has DHA added to it. Mothers Horlicks was launched in the Indian market, especially designed for pregnant and breastfeeding mothers. It is fortified with DHA. Scientific studies have shown that DHA and its cousin, arachidonic acid, or ARA, improve brain and eye development in infants. Other studies show that women who supplement their diets with DHA during pregnancy and while nursing could improve psychomotor development in their children.
SKU’s of Horlicks Horlicks Ninja (Chocolate, Vanilla, Elaichi, Standard) 1 Kg: Jar and Carton • 500 gm: Jar and Carton • 200 gm: Carton • Junior Horlicks 500 gm: Jar and Carton • 200 gm: Carton • Mothers Horlicks 500 gm: Carton • 200 gm: Carton •
Emerging Trends for Horlicks Vending Machine It is one of the strongest Emerging Format to meet the demand of fast pace of life. Have your food “Anywhere & Anytime” concept. It is basically promoting ‘making pleasurable nourishment available to consumers on the go’. There are nearly 500 vending machines, placed at institutions such as school, corporate & hospital. Horlicks vending machines continue to do well and have helped the thrust on growing out-of-home business. Top line growth continues to be supported by aggressive advertisement and various sales and marketing initiatives whereas several initiatives were implemented to reduce operating costs in the business. The Company continues to operate with minimum trade pipelines, selling as per the market demands, and maintaining a very efficient supply chain.
Demand Forecasting There is no scientifically designed technique used by GSK for accessing the demand. The demand is assessed on the basis 60% Value Based and the rest 40% is Gut based.
Value based includes Previous year same time sales • Last three month sales • Current trends • Competitors’ drives • Consumer promotion schemes • Two way process for demand assessment. Distributor tells his demand requirement to the company and then the top level sets his targets
Factors Affecting Demand • • • • •
During summer vacations, demand for Horlicks is lower than during school days. In summers, kids consume more Horlicks as a cold drink with milk. Mothers’ Horlicks is sold through doctors’ prescription, only at chemists. Horlicks Lite is sold only at confectioners. At bunk outlets, only small SKU’s of Horlicks are sold.
Seasonality The demand for Horlicks goes up in the rainy season as doctors prescribe Horlicks when people fall ill. The sales are lean in November and February.
Marketing The earlier approach to marketing was simple enough: make sure the product is visible - on store shelves and through mass media advertising - and it will more or less sell itself. With the evolution of modern retail, though, the emphasis is shifting to in-store displays and promotions - probably also because for the first time, the space for such initiatives is available. But manufacturers no longer have the last word on what will happen at the store. Modern trade has a significant say in promotions, perhaps because it offers far superior results with a much faster lead time. With increase in the retailing boom shelf visibility and consumer appeal is becoming very important. Modern trade outlets call for instant consumer attraction. The key consideration for any new packaging design is pack appearance and ability to engage consumers. Modern trade outlets are fighting for consumer attraction.Differentiated shapes or attractive graphics are the need of the day.
Consumer appeal and convenience Horlicks is really focusing in developing its SKU’S to attract customers and get immediate attention as soon as a customer walks in a retail outlet. Horlicks is also trying to build each SKU according to consumer convenience by introducing products as shown below.
Junior Horlicks Unique cute baby elephant packing
Inbuilt handle in cap for ease in carrying.
Easy to Tear. Laser etched pouches.
Easy to hold packing Format.
We have studied the Sales and Distribution of Horlicks in North Delhi and parts of Central Delhi.
The Sales Management
At GSK, the highest level sales management is called has a Country Sales Head. The CSH is responsible for long term marketing or sales planning. He is also a part of the top management team for strategic planning and coordination between various functional areas. Under the CSH are the middle level sales managers, called Regional Sales Managers. GSK has four RSMs for the North, East, West and South regions. The RSMs implement the strategies and action plan approved by the CSH. Under each RSM are several Branch Sales Managers, under whom there are Area Sales Managers. Under the ASM, there are Sales Officers. In certain smaller areas, there is no BSM, the ASM directly reports to the RSM. The BSMs and ASMs are directly responsible to achieve sales goals across different products, by providing day-to-day supervision to Sales Officer. The Sales Officer has to monitor his assigned territory in city (area) and achieve sales objectives. The Sales Officer also acts as the link between the company and the distributors. Further, there are the Key Accounts Managers. In North India, the major Key Accounts for GSK includes Subiksha, Spencer’s, Big Apple, Big Bazar, Vishal Megamart and Reliance. A Key Account manager will typically handle all the Key Accounts in his region. He will forward the requirements of all these accounts to the respective RSM’s. GSK has four KAMs for Horlicks for North, East, West and South India. The Sales Organisation Structure of GSK is as shown below.
COUNTRY SALES HEAD
REGIONAL SALES HEAD
BRANCH SALES MANAGER KEY ACCOUNT MANAGERS AREA SALES MANAGER
SALES OFFICER
The Distribution Management
SALESMEN
Horlicks powder is manufactured in the factories, where it is packed in drums. It is then transported to the packaging stations, where it is packed into jars and cartons. Further, it is sent to company owned depots. Where there are no Company Owned Depots, Carrying & Forwarding Agents take charge of the stocks. From the depots or C&F Agents, the stocks are sent to the distributors, who in turn distribute it to the distribution centre, wholesalers or semi wholesalers or directly to the retailers. The retailers can also get the stocks from the wholesalers or can directly approach the semi wholesalers. Then there are the institutional buyers or government/army canteens who also get there stock from the C&F Agent where Horlicks is sold at a subsidised price. Further, there are the Key Accounts. These include Subiksha, Spencer’s, Big Apple, Big Bazar, Vishal Megamart and Reliance. The Distribution Centre of these Key Accounts gets their stocks from the distributors, from where it is sent to their various outlets.
Primary Manufacturing Stations
Packaging Stations
Company Owned Depots Or Carry & Forwarding Agents Canteens Stores Departments Distributors Distribution Centre Wholesalers
Semi Wholesalers
Retailer
Customer Primary Manufacting Stations (Factories)
GSK has three Primary Manufacturing sites located in different parts of the country. These three sites collectively have a workforce of 2700 people. 1. Rajahmundry, Andhra Pradesh 2. Sonepat, Haryana 3. Nabha, Punjab One contract manufacturing site is located at Jalandhar which is not company owned. The manufacturing capacity of these stations cumulatively is 100 kilo tonnes per year, collectively for Horlicks, Boost, Maltova and Viva. Currently, the three stations are operating at 75% utilization capacity. The plant at Sonepat is state-of-the-art production unit. With a workforce of nearly 250, the factory has the capacity to produce 26,100 tonnes of Horlicks annually. It also has modern spray drying technology. The automated design of the factory allows the final p roduct to be completely untouched by human hands. The plant at Rajahmundry site located in southern part of India manufactures nutritional powders viz. Horlicks Chocolate Horlicks and Jr. Horlicks. Its annual capacity is 21 kilo tons with 7 lines in operation. Rajahmundry site accredited ISO 9000, ISO 14001 and ISO 18001 certifications for quality, environment & safety management systems. At the factories, usually e ight to ten days of raw material inventory is maintained. Ten to fifteen days of
manufactured powder inventory is maintained At the manufacturing plant, there are different manufacturing lines. On each manufacturing line, the first
step is ‘mashing’ where poly carbohydrates are converted into mono carbohydrates by removing starch, which are easier to digest. The second step involves milk addition followed by evaporation, drying, milking and then grinding. The entire production is executed at ‘controlled conditions’. Various parameters are followed for controlling hygiene, moisture and temperature. Strict Quality Check is followed to obtain desired level of nutritional contents like fats, proteins, carbohydrates and other minerals. Also, laboratory testing is done at various steps at regular intervals as well as planetary. Manufactured powder is then packed into double layered poly liners and sealed into drums. While packing manufactured powder into drums, density of the powder determines the quantity that can be accommodated. Horlicks has a high density and about 185 kilograms can fit in a drum. Whereas Boost has a lower density and only 120 kilograms can fit in a drum. This is again done at controlled conditions. There are intermediate steps taken at each stage to ensure adherence to given quality standards. The batch numbers on the drums are put based on the manufacturing date. Usually, around five drums of powder come under one batch. These drums are then sent to the packaging stations in trucks or in train. The manufactured material is marked with the batch date so as to ensure the material which was ready first On an average around 300 trucks are despatched every day from the three factories to the packaging stations. GSK doesn’t own any truck. They have contract with various transporters like FCI, Bindals, and TCI to provide GSK with trucks. At any given point of time, these stations will maintain 10 to15 days of finished inventory. These finished products are then kept at the warehouses next to the manufacturing stations.
Secondary Manufacturing Stations (Packaging Stations)
There are three Secondary Manufacturing (Packaging) Stations. 1. Badhi 2. Hyderabad 3. Guwahati Guwahati packaging plant was started in 2002 after Guwahati was declared excise free and consequently in 2004 Badhi PS was started after being declared excise free. Every year 60 kilo tonnes in packed in the two excise free zones and 14 kilo tonnes in Hyderabad. 80% packaging happens in excise free zones (Badhi and Guwahati). By transporting packed products from these excise free zones, the company saves excise duty which is to the tune of 16% of 65% of MRP. A maximum sale for Horlicks is in South India. But the high transport costs from Guwahati and Badhi are justified as the company saves on excise duty. Since, transportation time is highest from Badhi, in case of stock outs, the products are sourced from Hyderabad or Guwahati.
Packaging Material Flex and PPL - Pouches HNG - Glass bottles Pal Polymer – Plastic container Amrita mouldings – Caps Local suppliers – Cartons GSK has 75 different SKU’s being packed in these three packaging stations, for Horlicks, Boost, Maltova and Viva. For countries like Saudi Arabia and Bangladesh, special packing with local language is done. Within India, there is one standard packing. GSK key consideration for any new packaging design is the ability to engage consumers and providing them with convenience by adding features like inbuilt handle in cap for ease in carrying and Laser etched pouches for easy to tear. At the packaging stations maintain a maximum of 25 days of inventory can be maintained, which includes powdered as well as packed. Pipeline is higher for bulk as it doesn’t affect to shelf life. All Horlicks SKU carry a packaging date. Packaging date is different from the manufacturing date, it is the one on which the SKU is packed. Inventory for packed goods is lower. Inventory for packed goods is lower than unpacked. The company tries to minimise packed goods inventory as it affects the shelf life. The company maintains a packed inventory of 5-8 days. These packed goods are kept in the company warehouses, which are located next to the packing station. The stock, which is ready to be dispatched, is stored in cartoons which are marked with the batch date/number to ensure that the batch with is ready first leaves the packaging station first. Secondary manufacturing to company owned depots or C&F Agents. On an average 300 trucks are despatched every day from the packaging stations to the Company owned depots or C&F Agents. The stocks are packed in cartons of defined size; each carries 12kgs of stock. For example a carton will carry 24 units of 500 grams bottles/packs or 12 units of 1 kg each. Where there are no Company Owned Depots, Carrying & Forwarding Agents take charge of the stocks.
GSK has around 20 ‘Mother Depots’, which are catered to directly by the secondary manufacturing stations. Further, there are 8 ‘child Depots’, which are being catered by the ‘Mother Depots’. Child depots are where volumes are not so high.
GSK has no company owned depots in North India. There are only C&F Agents. In West India, there is one company owned depot in Pune and rest all C&F Agents. The depots maintain certain pipelines, around 12 to 15 days. From the secondary manufacturing stations, the packed products are sent to company owned depots or Carrying & Forwarding agent in 9 tonnes truckload. From Badhi, where maximum packaging happens, special trucks of 15 to 16 tonnes truckload are used for transportation.
Company Owned Depots and C&F Agent Depots are company owned warehouses. C&F Agents are primarily transporters with own or hired warehouses. They break bulk and send company goods to its distributors. The C&F Agent is only concerned with physical flow (Storage and breaking bulk), information flow (Status of stock levels and orders received and being processed) and title flow (Pass on the goods to the distributors based on their order). The C&F agents receive the stocks in trucks that the company sources from contractors. The cartons that arrive are randomly opened for inspection. The same cartons are sent to the distributors in either trucks or tempos or even rickshaws, depending on the size of the order and the location of the distributor. In order to maintain the physical conditions and hygiene, the C&F Agent conducts internal audit regularly. GSK also conducts external audit on a random basis, to check the same.
Freebies Whenever the company comes out with freebies, they print on the label as well as the freebie about the scheme, so that none of the players in the distribution chain can default. At every level, a freebie will be sent with one SKU, to minimize default. The vender, who is providing the gifts, sends the freebies directly to the depots/ CFA directly, where the CFA/ depot agent will put the SKU’s and freebies together and forward it to the distributor or wholesaler.
Canteen, Stores and Departments (CSD) There are the institutional buyers or government/army canteens, who sell various food products at subsidised prices. CSD’s give their requirements to GSK for the product. All FMCG companies have to fulfil the requirements of these CSD’s or a penalty is imposed on them. However, if the company informs the CSD about the inability to fulfil the demand 14 days prior to the delivery scheduled date, the penalty can be waived off in some cases. The CSDs get the products at subsidised prices. On several occasions, inflated orders are placed to the company.The Army Canteens are supposed to sell products to the Army Jawans and their families only, at the prices below the MRP. But they illegally sell it at general public at the MRP or to retailers, making a profit on the difference. These buyers get the stocks directly from the C&F Agents.
Distributors
From the depots or C&F Agent, the stocks are sent to the distributors. The distributor’s commission is ‘five’ percent. No discounts or incentives are given to distributors. A GSK distributor is wholesaler nominated by GSK itself to exclusively redistribute the company products to all retailers and institutions in the designated territory. The responsibilities for Kwality Enterprises as a GSK distributor: Buying adequate quantity of all the products and pack sizes of entire GSK Consumer Healthcare Ltd. • basket comprising of Horlicks, Boost, Maltova, Viva, Iodex, Eno and Crocin. Ensure full market coverage of all the wholesalers and retailers in the 15 areas assigned to him in • North and Central Delhi. Kwality Enterprises maintains the inventory of all the products at his end and extends credit to the • wholesalers and retailers. The distributor assists all the promotional efforts of the company. •
The following are the expectations from Kwality Enterprises as a GSK distributor: Investment in infrastructure, which includes storage space with proper hygiene and vehicles for • distribution. Achieving sales target in volume as well as value terms. • Distribution capability- market and outlet coverage with productive calls as per a beat plan designed • by the company. Managing the key accounts and CSD. • Managing the damaged or expired products, which are taken care of by the ASM. • A distributor maybe required while entering a new town or for additional market coverage or for replacing an existing distributor. The following factors are considered while selecting a distributor: • Adequate infrastructure and hygienic conditions • Credit worthiness and financial status. • Market reputation and goodwill. • Present business and location in the market. Also, the distributor should not be redistributing a competitors’ product. Though in small towns, this criteria is waived off as volumes are low for own as well as competitors’ products. Payment by the distributor: The distributor keeps about 12 pre-signed blank cheques with the company. Every time the company or its C&F Agent dispatches goods to the distributor, the value of the goods is immediately entered in one of the cheque and deposited into the bank account GSKCH.
Credit is usually extended to the distributors for up to 7 to 10 days. At times it is extended up to 15 days, depending upon the credit worthiness of the distributor Credit to be extended by Kwality to wholesalers, semi-wholesalers and retailers: Kwality extends credit to some of its customers, about 60% of them. The credit period is usually between seven to fifteen days.
If distributor is not extending the kind of credit required, it is likely that the coverage is not 100 percent, and he maybe avoiding some outlets. The Sales Officer or the ASM is required to take corrective action on this while working the markets with the distributor. The extent of credit depends on the strength of the company products and competition prevailing.
For instance: In South and East India, the equity for brand Horlicks is high. So distributors can demand more cash money. In North India, equity of Horlicks is not so high and faces severe competition from Bournvita and Milo, so distributors have to extend credit. In case of credit, outstanding debtors will increase. Return on investment will decrease. Company prefers if the distributors get more cash payments rather than credit . Distributors Margin GSK passes on the distributor margin in the form of mark-up. Currently it is five percent. Five percent is the gross margin for a distributor and his net margin comes down to around two to three percent. The expenses for a distributor are on infrastructure, staff and the discounts given to wholesalers and semi wholesalers. Coverage of Markets The ‘territory’ of every distributor is defined by the ASM with the distributor. The total number of days required to cover the entire market once is available. A ‘Beat Plan’ is then drawn up.
As defined by GSK, “a Beat Plan is a scientifically designed route plan to maximize coverage during a period of time and minimize transport cost.” The beat plan decides the day, frequency and the market to be visited and the number of outlets to be covered each day. Depending on the size of the market, the distributor decides if a salesperson can cover half a market or even more than two markets in a day. The Sales Officer ratifies the beat plan. The ASM also involves himself when he finds a problem in plan. Beat plans can be bi weekly, weekly, fortnightly, monthly; depending on the potential of the market. The salesman of Kwality Enterprises is required to cover every single outlet as per the beat plan every day and make each call productive. Mr.Ajay, the distributor himself visits the market regularly with the salesman to actually sell the products. Given below is the beat plan of a Salesman of Kwality Enterprises, which is a fortnightly plan. Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday
Subzi Mandi & Shakti Nagar Off Ashok Vihar Regar Pura Anand Parbat, Dev Nagar Shastri Nagar Tri Nagar & Inder Lok Kishan Ganj, Pratap Nagar Off Kamla Nagar & Roop Nagar Regar Pura W.E.A. (Karol Bagh) Ajmal Khan Tri Nagar & Inder Lok
Out of these, Regar Pura, Inder Lok & Tri Nagar, i.e. markets on Wednesday and Saturday are weekly. Rest all markets are covered on fortnightly basis. The presence of more wholesalers in these markets calls for a weekly service.
Karol Bagh is the hub for gold and jewellery. On the Bank Street are several gold shops and the area is home to labourers working in this sector. Horlicks has a very stronghold amongst these labourers, who consume the ‘Classic Horlicks’ for its nutritional value.
Salesmen The salesmen are on distributor payroll. Kwality Enterprises has only one salesman who was selected by the Sales Officer, Mr.Sunil Verma in consultation with the distributor, Mr.Ajay himself. A salesman covers around 25 outlets every day in the beat plan. The salesman does stocktaking, runs office and keeps the records. For all this, one salesman is enough. Kwality Enterprises has 7 ‘delivery boys’ and ‘helpers’ for physical delivery of stocks in the market and merchandising. The salesman after stocktaking at an outlet takes the estimated demand for the entire week or fortnight. The salesman takes a note of this order in his ‘Retailer Card’ . A Retailer Card is a diary for a particular ‘Beat’ and is provided by GSK to his distributors. Where, mentioned on the vertical lines are the date and the number of units required by the wholesaler/ retailer and on the horizontal lines, different sizes and kinds of SKUs are mentioned. The Salesman has a different Retailer card for every single area. A typical illustration of the retailer’s card is given below. RETAILER’S CARD BEAT NAME: Kamla Nagar HX 1kgJ Date
Op.Stk.
Date
Op.Stk.
1kgGP
500J
El 500GP
200J
500J
500GP
Jr HX 200J
500J
500GP
MHX 200J
500J
200J
THX 500J
200J
Order Order
The salesman then informs the Delivery Boys about the order, who then deliver the goods to the wholesalers and retailers. The delivery boys’ also have the responsibility of payment collection. Payment collection is either through cash or post dated cheques. The salesman also has the responsibility of ‘Stock rotation’. If goods at one retail outlet are not selling, he will pass them on to another retailer in the same area. GSK keeps conducting ‘Creative Activity’ where it distributes creative posters, post its, stickers to the sales personnel for Visual Merchandising at retail outlets. These activities are also carried out by the Sales officer. Managing Damaged Stocks All damaged stocks are a cost to the company and have to be carefully handled by the distributor to reduce the losses. Compensation is given by the company, irrespective of who causes the damage (distributor, wholesaler or retailer).
The distributor takes back the damaged or expired packs from the wholesalers and retailers. The Sales Officer destroys or disposes them off. GSK has a Report Format that is to be filled. The distributor claims reimbursement of the loss from the company. And the company issues a credit note to him.
Modern Trade Chain
Today apart from the normal small retailer, there is a trend of food super stores (like big bazaar etc) that keep almost each food item apart from others. These superstores can not be covered by the usual distribution network. Therefore there is a separate distribution network that covers these super stores. Under this network, the C&F Agent is the same like the one for the company’s main distribution network but generally there is a separate distributor appointed who caters only to these super stores and institutions. Display commission or margins is a major source of revenue for the modern bazaars. Since the modern bazaars do not buy quantity in bulk vis a vis wholesalers and have a high turnover, they require a regular and frequent supply. Due to this reason the company generally assigns the task of supplying to them using separate distribution network. But sometimes the same distributors that are supplying through the normal channel can also be used when the demand expected is not significant to assign a separate channel. These organised retail chains follow the ‘Distribution Centre’ model to get their stocks, Reliance being an exception. The distributors for GSK service these DC. For instance, Subiksha has a Distribution Centre in Delhi, where all the products from several companies come. From here the stocks are sent to the various Subiksha outlets across Delhi. The following distributors cater to the retail chains. Subiksha, Specers’ : S.N.Trading • Big Apple : Arian Sales & Marketing • Vishal Megamart : Raj Sons •
Wholesaler GSK’s wholesalers are usually located in main markets and operate only out of their shops. These wholesalers are not company owned and handle a large assortment of similar products. They do not get any margins from the company, only discounts from the distributor. They operate on ‘low margins and high turnover’. They also deal in competitor products. The retailers to be covered by a wholesaler are defined by the market coverage plan given by the ASM.
The Functions of a Wholesaler The following are also the benefits of having a wholesaler in the distribution channel. Financing the buying of goods and extending favourable prices and selective credit to the retailers. • Collect orders from large number of small retailers. • Distribute goods in small lots, which is uneconomical for the producer himself to do. • Breaking bulk to suit the retailers’ requirements. • Source of information on latest trends as he (along with the retailers), is in touch with the market and • understands its pulse extremely well. The wholesaler delivers goods promptly and therefore the retailers need not place orders in advance • and wait for deliveries. Distributors also sell directly to the retailer, but their call frequency is defined and if the retailer does not buy from the distributor, he has to wait his turn till the next visit. The wholesaler sells to retailers on credit, thereby making it easier for the retailer to manage his • scarce working capital. A wholesaler takes in bulk or packed cartons. But Semi-wholesalers do selection and purchase in parts. The wholesalers and semi wholesalers are given discounts on the margin which is around 2%. The business runs on ‘low margins and high volumes’.
Semi Wholesaler
In markets where there are a large number of small retailers, it is difficult for a distributor or wholesaler to reach all of them directly. In that case, semi wholesalers emerge in the market. The wholesaler gets to sell a higher volume to the semi wholesaler and gives a percentage of his margin to the semi wholesaler. The retailers have to approach the semi wholesaler and collect stocks from them.
Benefits of Semi Wholesalers •
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Small retailers do not maintain accounts and try to escape taxation. In this case, the retailers prefer taking stocks from semi wholesalers as they do not emphasise on taking bills, unlike wholesalers or distributors. The company gets a wider coverage as the semi wholesalers can reach out to small retailers located in areas unmanageable by distributors or wholesalers. The retailers can get very small quantities also from semi wholesalers, which wholesalers are unwilling to entertain.
Retailer Retail coverage is the total retail universe with various channels. Under the retail universe, there are: • General Merchants: Branded & Packaged Products • General Grocers: Vegetables, Fresh & Loose Foods, Cereals, Oils • Chemist Outlets: OTC, Personal Care & Hygiene Products • Confectionary: Chocolates, Snacks • Department Stores: Ready Made Garments, Lifestyle Products • Bunk Outlets: Paan, Bidi Shops, Small Pouches
The Area Sales Manager for Delhi Metro is Mr. Sajal Bose and the Sales Officer for North Delhi is Mr. Sunil Verma. Under Mr. Verma, there are 3 distributors: 1. Kwality, Roop Nagar : 400 Retailers 2. S.N. Trading, Filmistan: 380 Retailers 3. Budhiraja Trading: 50 Semi-wholesalers The retailer gets the stocks from the distributor at a commission of 9 percent. More often, the wholesaler acts as a link between the distributor and the retailer. In this case, the distributor gives a discount to the wholesaler. As mentioned above, there can also be a semi wholesaler in between.
The Customer Finally, a bottle of Horlicks reaches the customer through the retailer or in few cases directly through the semi wholesaler or the wholesaler.
Strengths of Horlicks Distribution •
GSK’s strong distribution channel gives it wide market coverage. There is availability of Horlicks products everywhere from small pan shops to big retail giants like Big Bazaar.
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Vast market coverage by distributors makes its distribution channel stronger.
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Strong relationship with distributors and the retailers can be leveraged upon at the time of introduction of new products or variants.
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GSK has a ‘Distributors’ Forum’, where the distributors meet with the other distributors as well as company sales personnel to discuss sales and demand related issues.
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The Sales Officers and ASM regularly accompany the distributors’ salesmen on market visits to ensure the best market coverage and check for any unethical practices.
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The GSK keeps conducting ‘Creative Activity’ where it distributes creative posters, post its, stickers to the sales personnel for Visual Merchandising at retail outlets. These activities are also carried out by the Sales officer.
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It was found that distributors meeting with company members’ take place frequently. More frequent meetings are held which helps in knowing the need of retailers and hence customers need.
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The retailers visited were very satisfied with the distribution of Horlicks with almost no reporting of stock outs or late delivery.
Distribution Gaps and Recommendations 1. In major markets, if the company operates a high discount on prices, the wholesaler tends to sell below company prices and upset company sales. And to meet short term sales targets, the sales personnel engage in under cutting. The Sales Officer or the ASM should intervene in such a scenario. 2. Wholesalers at times tend to corner the stocks and influence the pricing of the goods to retailers and customers. The Sales Officer’s role is very critical here. 3. The sales person should try to bring the retailer in the direct company coverage in case he sources goods from semi wholesaler. If the distributor’s salesman keeps pestering the retailer time and again, despite him not taking the stocks, he will eventually get into the system by getting stocks directly from the company. 4. Currently, only 5% trade in India is organized. But more and more retail chains are coming up with outlets all over India. GSK should continue with the same structure and not create a parallel channel for them. One way of doing that is by persuading retailers to route their purchases through suppliers' existing distribution networks. For instance, Reliance follows a separate channel where it has eliminated all intermediaries. This channel is already facing a lot of hostility from the market.
5. More and more retail giants like Wal-Mart, Carrefour, Tesco will foray into India. Modern trade operates to a completely different set of rules. Given its superior bargaining power, it can negotiate better margins, wider product ranges and more frequent, speedier deliveries. GSK will have to bring about relevant changes in its structure. 6. Meanwhile, manufacturers have to also keep their traditional distributors satisfied - a tough task, considering they offer modern trade more concessions and better promotions than their general trade partners.
GSK can work around by involving family grocers, chemists and wholesalers in custom-made programmes that offer them targeted promotions, value deals and also build relationships through training sessions, newsletters and meetings. 7. The CSD’s are often found making profit out of the differential pricing. They give orders of required quantity to the company and sell the surplus stocks in the retail market. The company can aim at having separate SKU’s for CSD or mark them as ‘For CSDs only’. The company should access and calculate the demand requirement of the CSDs more diligently and deliver only that calculated quantity. 8. At times, distributor does not report sales. This unfair practice can arise to obviate taxes. So, he should ideally have stocks in his warehouse. The Sales Officer should hence perform a stocktaking exercise to ascertain that there is no hoarding of stocks. 9. At times, the distributor’s salesman does not get along with the retailer. This can be due to untimely payments or ego clashes. The Sales Officer should go out and try to iron out these issues. 10. The salesmen at times have some preferred retailers because of personal relations that build up over time. The salesmen are often willing to extend credit to retailers with high sales and very less or no credit to retailers with low sales. 11. At times, a wholesaler or semi wholesaler tries to poach into another’s territory. It is tedious for the company to track this as the retailers will be resistant to reveal where they are sourcing their stocks from. The Sales Officer and ASM have to narrow down on the possible distributors who could be supplying to these retailers, by identifying erratic sales with distributors. 12. If distributor is not extending the kind of credit required, it is likely that the coverage is not 100 percent, and he maybe avoiding some outlets. The salesperson is required to take corrective action on his while working the markets with the distributor. 13. The distributors have to extend credit to the retailers. At times for even more than a fortnight. In this scenario, the outstanding debtors of the distributor will increase. Return on investment will decrease. Company prefer if the distributors get more cash payments rather than credit. 14. Wholesalers in secondary markets and rural areas get easily tempted to stock and sell infringements and counterfeits of well known brands. The sales team has to be very vigilant in
this regard and in case they come across any such case, it should be reported to the head office urgently. Corrective measures need to be taken immediately.
Findings While conducting our study, we came across some interesting facts about Horlicks. •
In South India, which is milk deficient, Horlicks is consumed as a substitute to milk. Horlicks was first invented as to substitute milk as baby food. However, in North India, it is consumed as a taste enhancer.
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In Delhi, chocolate flavour is preferred the most as Horlicks is seen as a taste enhancer.
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In South India, because of the trust people have on the nutritional value of Horlicks, they even have it mixed with tea. Therefore, sachets of Horlicks are sold more in South India.
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GSK keeps conducting ‘Creative Activity’ where it distributes creative posters, post its, stickers to the sales personnel for Visual Merchandising at retail outlets.
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In certain areas, GSK has dedicated Visual Merchandisers.
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GSK focuses more on pull rather than push strategy.
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The VAT on Horlicks and other products in health drink powders’ category is 12.5%.
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Mother Horlicks is primarily sold through chemist outlets on doctors’ prescription.
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Horlicks is used as a health beverage to fatten up cattle in Bihar.
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Inspite of the strong distribution network of GSK, the penetration of Horlicks Lite has been very low due to lack of advertising.
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GSK does not club any of its products with the other. E.g. it never clubs Horlicks with Viva or Maltova or Boost.
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GSK has total of 75 different SKU’s being packed for Horlicks, Boost, Maltova a nd Viva.
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For countries like Saudi Arabia and Bangladesh, special packing with local language is done. Within India, there is one standard packing.
