Off the Shelf provides a platform for Retailers and Consumer Packaged Goods companies to discuss and gain insights on the pressing problems, trends and solutions.

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January 12, 2018

Crossing the Sticky Wicket - Formulating IT Strategy

 

As businesses are disrupted due to the emergence of digital technologies and new ways of selling to the customer, formulating or re-designing IT strategy has become a core need. However, formulating an IT strategy for the future presents a sticky wicket requiring organizational collaboration, commitment and executive sponsorship. Here are a few key fundamental challenges that have to be addressed before deep-diving into the specifics


1.Alignment of IT Strategy with Business Strategy


Business and IT strategy may not be formulated in tandem making it difficult to align them towards a common enterprise vision.


2. Budgeting & Investment Planning


  • Business strategy can change constantly whereas the IT strategy may not undergo change as quickly resulting in a mutual gap.
  • Allocate fixed capex to IT projects in the annual budgeting exercise could make it complicated to make a trade-off between various types of IT projects.
  • Allocation of budget to certain business enabling opportunities other than those required to "keep the lights on" may not be clear may be challenging as the return on investment may not be clear.


3.Collaboration & Ownership


  • Investment for strategic PoCs or prototypes is not planned or budgeted.
  • There could be poor or inadequate culture of sharing of information or co-ordination between various business functions making it difficult to formulate an integrated IT strategy.
  • Business process ownership may not be established and hence the relevance of IT strategy to the daily operational activities may seem insignificant, thus discouraging participation or buy-in


4.Governance & Power Structures


  • Existing governance structure and incentive/reward framework may be designed for individual business functions, hence an integrated IT strategy exercise may encounter participation challenges.
  • The success of an IT strategy exercise can  be greatly influenced by the organization power structure and conflicts arising out of deemed priority of each business functions identified opportunities.


January 11, 2018

He for sure knows his onions, alright!

By Krishnakant Kasturi and R. Sriram

Foreword

We try to provide a glimpse of insight into the mind-space of the traditional grocer in emerging markets while ordering CPG brands. We to bring to life his daily drill, how he hedges his bets while making purchase decisions, tips for sales executives to add to their bag of tricks. Our perspective intends to provide meat for the Grocer's decisions related to brand positioning, order sizing and scheduling, monitoring stocks, promoting new products, trade schemes, distribution network and enablement of sales executives.

So why is understanding the traditional grocer so important?          

The Traditional Grocer with his advantages of enormous flexibility for price, display and negligible overheads, consumer goodwill, and with the ability to sell loose items and operate at convenient timings still remains the strongest driver of customer value and the linchpin to corner the market.

  • Firstly, this channel offers huge potential; a large chunk remains still untapped,
  • Secondly, a multi-tiered distribution system makes it difficult to monitor demand and supply from each and every grocer,       
  • Thirdly, the grocer base is heterogeneous and is low on brand loyalty, price sensitive, with limited space and hence there is no single formula to tap the potential.
  • Fourthly, the traditional purchase behavior and the needs and preferences of traditional grocers like Anna Chi haven't been as analyzed as have been those of the end consumer. There is little visibility. The best source of information is still the Distributor sales executive (DSE).
  • Fifthly, the DSEs prioritize and sell products to grocers as is their wont, sales training and initiatives not with-standing. The sale to the traditional grocer can be smarter, optimized, based on data and insights.

There is a need to for CPG brands and their partners to understand the traditional grocers better, understand his perception of brands, his goals and strategize smartly to manage the distribution of inventory across this and ensure availability of their products and brands to the right consumers through the DSE.

Anna Chi's daily drill

Let's personify the single Chief of-Finance-Marketing-Procurement-Operations head of the grocery store, and call him Anna Chi.

Albeit, he operates in a neighborhood market with enormous flexibility for price, display and negligible overheads, consumer goodwill, open to bargaining, with the ability to sell loose items and operate at convenient timings etc. but there are several challenges that he encounters everyday -the sheer size of his customer base with varying cultures and tastes, the road-side hawkers with mobile carts who grab their share of the pie and the large retail chains who are getting smarter by the day. Location is a major advantage for the friendly neighborhood Anna Chi store, as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets.

Anna Chi assesses his inventory during various times of the day and determines which supplier bill to settle and which to postpone based on whether the current stock holding can fulfill the demand for the product till the next ordering date. While he attends to customers, he is often seen multi-tasking: selling to customers, purchasing from suppliers, settling bills, attending customer enquiries, reconciling cash, stacking products and so on.



Albeit, he operates in a neighborhood market with enormous flexibility for price, display and negligible overheads, consumer goodwill, open to bargaining, with the ability to sell loose items and operate at convenient timings etc. but there are several challenges that he encounters everyday -the sheer size of his customer base with varying cultures and tastes, the road-side hawkers with mobile carts who grab their share of the pie and the large retail chains who are getting smarter by the day. Location is a major advantage for the friendly neighborhood Anna Chi store, as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets.


What to Buy - Anna Chi's thumb rule for selecting the right product assortment

Anna Chi, we believe has quite unwearyingly followed the lean concept with an underlying principle that the product should be "pulled" by actual customers rather than being "pushed" into the market? His decisions are based on logical assumptions aided by a gut feeling stemming from his experience or the wisdom passed on with every generation from his predecessors. He for sure knows his onions alright! And goes by his thumb rule to stay profitable and avoid succumbing to the overzealous DSEs.

How does he ensure that he carries the right portfolio of products? - While the gut feeling may be useful in choosing products the complexity of choosing brands both national and junta, product variants and pack sizes is a jig-saw puzzle? He follows a simple thumb-rule "I'll stock more of those brands/products which have current or potential demand (competitiveness), generate faster stock turns (top-line) and reduce working capital (bottom-line)".

Intelligent sourcing of stock plays a vital role in implementing his thumb rule. Any source which can ensure constant supply in time and offer better credit is what Anna Chi turns to. That's one of the challenges for the exclusive distributor of the CPG brand. While Anna Chi swears allegiance to CPG company appointed distributors, for temporary replenishment of stock (to avoid Out-of-stock situation, between regular ordering cycles), it is not uncommon to find Ann Chi tip-toeing to self-appointed wholesalers who can readily supply stock while sometimes also offering attractive cash discounts. The stock is not purchased from the wholesalers often, because the wholesalers do not offer credit and moreover, Anna Chi incurs additional costs as he has to arrange his own transportation for moving the goods.

Small-time grocers who are serviced only by one CPG Company appointed distributor, due to size or location constraints depend on local multi-brand wholesalers for supply of other CPG brands.

Thus, while following his thumb rule, Anna Chi always ensures that he keeps his margins in check. He hits an average margin of 8%-15% on most food products that he sells to the end consumers.


How much to buy? - Anna Chi's thumb rule for determining the order volume/value

Like any other retailer, our friendly neighborhood Anna Chi knows that portfolio optimization is the key to the profits that he intends to make. Well, he may not be using statistical forecasting but using his astute mind and back-of-the-envelope calculations, he targets an estimated monthly profit figure and breaks it down to a daily figure. For example, he targets an average 15 % margin for a Cost of Goods sold(COGS) of Rs.200000.00 every month on food products which is a profit of Rs.1000 a day and checks his cash box at the end of each day to re-ascertain his status.

The Distributor sales representatives play a major role in Anna Chi's purchase decision. Ann Chi trusts those representatives who understand his business and his thumb-rule. It is not uncommon to find several such grocers who approve predetermined orders of the representative with just a nod of the head. They follow a WIN-WIN situation following the golden rule" YOU'LL SELL MORE IF YOU STOCK MORE".

It is interesting to note that the sales representative opens his sales call with Anna Chi by introducing new products, if any, so that the excitement of his visit is not lost on Ann Chi. More often than not, the sales representative pitches more for those skus "on focus" as determined by the CPG company, as for the sales of these skus, his own incentives are attractive. Anna Chi evaluates the current stock position of replenishment skus and estimates demand until the next ordering date. Based on the week of the month (high demand, normal demand or lean), he decides the reorder quantity - (order the same quantity as last week, reduce or increase the stock levels?). The order is given to the sales representative, who may also communicate trade promotion schemes and propose increase in order quantity.

Here is an example of a trade promotion scheme which may induce Anna Chi to order a larger quantity:



Product

Pack

Cost price(Rs.)

M.R.P.(Rs.)

Scheme 1

Scheme 2

MyBrand Instant Coffee Premium

13g

9.17

10

24+1

48+3


 

Table 1: Trade promotion Example - MyBrand Instant Coffee Premium

This scheme on MyBrand Instant Coffee Premium (13g) offers 1 free pack additionally, if he purchases 24 packs (Scheme I) or 3 free packs on purchase of 48 packs (Scheme II).

If he purchases 24 packs, his net cost price/pack is Rs.8.80 and if he purchases 48 packs, his net cost price/pack is Rs.8.63, which is a better proposition. Thus, on a trade promotion scheme, Anna Chi is offered additional margin for purchasing additional quantity. But his ultimate decision in selecting the slab depends on his working capital, his confidence on the product's sale-ability and the credit period offered.

What influences Anna Chi's Purchase Decisions?

The 3 most important factors that influence Anna Chi's decision to stock different product brands and an optimal quantity are: a) Demand b) Gross Profit Margin and c) Credit period. We know that he would stock those that are in demand or those with potential demand as in the case of new products and would do so if the margins are significant. The credit period offered to him is very important in the decision-making process. Anna Chi normally prefers to buy goods on credit, rather than paying cash and availing cash discounts for two reasons - First, by paying cash up front, he may lock up his working capital in inventory. Considering demand uncertainty, he feels that risk of incurring inventory holding costs if demand were to be low, outweighs the benefits of the cash discounts (about 1-2 % on the purchase value) that he would receive on an outright cash payment. Secondly, he offers credit to his consumers, so it makes sense to balance a fraction of the receivables through debt.

Anna Chi allocates his funds for purchase of stocks (brands) of each CPG company, normally a predetermined figure, which includes all products. Apart from the basic gross margin (GM) on a product, if the current schemes operated by a CPG company for a particular brand SKU are better, he may order a higher quantity of this brand SKU while maintaining the order quantity of competing brands in the same product group. If he increases the stock ordered above the normal quantity, in order to reduce the amount of money blocked to finance stocks, he astutely demands an extended credit period, if he is not availing the cash discount for down payment.

Furthermore, the CPG (policy governance) and the Distributor (policy execution) may have a stringent return policy whereby slow moving stocks may not be accepted as partial returns beyond the first week of the following month from purchase.

Let's assume that the average stock holding of a particular product is 2.0 weeks of sales volume. If the value of stock amounts to Rs.20000, he pays for a week's stock of Rs.10000.00 and is given a credit of Rs.10000 for 7 days. If the CPG representative pushes for an additional order of Rs.10000.00 and if Ann Chi sees a benefit in increasing stock holding to 3 weeks, he demands a credit period of one week for the additional order placed. In effect, he frees about 2 weeks of working capital on stocks and is able to make more capital rotations.

Thus, Ann Chi's decision to stock product brands has two dimensions namely:

1)  Selecting The Brands in the particular product group - His Preference for various brands, i.e. endorsed brands, sub-brands and product brands.

2) Determining the Order Quantity and the replenishment frequency.

These decisions are governed by a mental jugglery of 3 factors namely:

Extent of Consumer Demand and estimated Inventory Turnover

  1. Degree of Gross Margin - the basic margin + Trade schemes (including free products, volume discounts etc.) and

  2. the Credit Period extended by the Distributor

These decisions are supplemented by the degree of trust in the DSE which is established by the salesman's ability to forge a progressive relationship with Anna Chi on a strong foundation of interest and awareness in/of Anna Chi's business, product knowledge and ability to deliver what is promised - marketing support, timeliness of supply, exclusive trade schemes etc.

Treatment of Product Brands in Anna Chi's Mind Space:

Here's how Anna Chi treats various categories of product brands and determines how he is going to stock them.

(A) Declining Product Brands - "Occupiers"

Here we refer to product brands which are on the verge of decline due to poor demand or in the phase out mode by CPG companies, due to lack of differentiation or they have been eclipsed by competitor brands during their lifecycle or because they never really picked up. The preference for these brands is usually low or none. These brands are normally ordered in minimal quantities by Anna Chi, sometimes only just to fulfill an obligation with the distributor or because CPG Companies may push these brands to the channel partners, as a tradeoff towards supplying other products of the same brand or when bundled with fast-moving brands.  But the "push" mentioned is with minimal force. These brands may be distributed across all territories by incentivizing sales associates or pushed to selected outlets where there is assurance of them getting sold. Such product brands are topped up with an attractive trade scheme, as a "One last offer" for liquidating stocks from the market with a shorter credit. As the short term gains are good, he orders minimal quantities which he is confident of selling, until they go out-of-stock and then reorders if the supply of the product is still available with the same or lesser credit.

What can the DSE do?


Get on like a house on fire

If Anna Chi doesn't trust your DSE or like his selling pitch, he isn't going to sell these SKUs to him even with an attractive trade scheme or a tempting credit period? He ought to understand the retailers' behavior and mood before any sales call. It doesn't take much effort to get him to snub your DSE

Sell with prudence

If Anna Chi is not one of those exceptional retailers, your DSE shouldn't push too many of these brand SKUs to him. The DSE might blot his copy book. Anna Chi hates to think of his as a dumping ground. The DSE can bide his time and plan additional visits to replenish an optimal order quantity at frequent intervals.

 

B) New Product Brand Entrants and Existing Product Brand extensions or variants - "Potentials"

Here we refer to new entrants like new product brands, new brand extensions or even new brand variants like a unique flavor, or a new pack size or new packaging, which are marketed by CPG companies through a heavy trade promotion.

New brand entrants require significant costs from the Distributor towards infrastructure and marketing activities. Hence, as payback period for initial investments on these brands is longer, the credit period for Ann Chi is very short. Moreover, during the initial stages of the launch, CPG companies may not offer any trade scheme or a consumer promotion in order to test market the product brand in the market. Ann Chi's preference to stock such new brand skus may be low initially.

But this may improve depending on the ability of the sales executive to plug the new brand sku by enthusiastically explaining the benefits of the new brand. Marketing Collateral and new display fixtures also influence the preference. While several new product brands including local brands are launched, Anna Chi prefers those brands where he perceives his risk is minimum. I.e. his working capital is least likely to get locked up beyond a week, within the said category. For example, in certain product categories, Anna Chi stocks local brands as the suppliers of these brands offer consignment stocks or irresistible credit value and period. Anna Chi treads very carefully and initially orders limited quantities of new brands. He waits for the demand to pick-up and for the trade schemes to be announced before he starts ordering more.

When a new product is launched from an existing umbrella brand, be it a new product altogether (brand extension) or a new variant, the preference ranges from Medium to High. Anna Chi accepts the minimum suggested offer from the Distributor/ CPG sales executive. If he trusts the brand, he may be willing to stock reasonable quantities over and above the current quantities of all brands/products from the CPG Company. But in course of time, if he finds that the overall sales haven't improved but customers have switched to the new variant, he smartly stops ordering the additional quantity. He reverts to the initially quantity being ordered of the particular brand which also includes the skus of the new variant. 

A new pack with a consumer promotion of an existing product brand may be treated as a new product and may be ordered in large quantities to capitalize on the short-term benefits of trade schemes and consumer inquisitiveness. If Ann Chi is already stocking a product variant of a CPG product brand in sufficient volumes, it may be difficult to convince Anna Chi to stock the new brand variant of a competing CPG brand, until unless the credit terms can be made alluring. After all, Anna Chi knows that more often than not, his consumers may at best switch brands.

At many neighborhood grocery and convenience mom and pop stores like Anna Chi's in India, confectionary products belonging to local brands fill up the display bottles. The order quantity is flexible, supply can be done on a daily basis if required and the credit is extended from one bill to the next or the billed amount is partly paid for.  Thus, in some categories, the national brands sometimes lose out on the supply efficiency and flexibility to the local brands.

What can the DSE do?


 

Arouse Anna Chi's Curiosity

He could be dramatic. Before he says anything else, if there is a new brand sku to be introduced, he could place a product sample on the retailer's cash-counter and within his reach. More times than not, Anna Chi might just touch'n'feel the product and ask him:  what is this, one more new product? Or what is this, a new pack?  Ice broken! Here is the opening, he could go for it.

 

 

Sell-in and exit

Anna Chi's span of attention is annoyingly short, as there will be customers craving for attention, other sellers nudging the retailer for orders, suppliers waiting to off-load the orders that were taking in the previous day and already off-loaded orders waiting to be checked and the invoice copies to be signed. Therefore, if the DSE has made an opening with the sample draw, he should resist from over-dramatizing, he could just take the order, reserve the space and move on to the next sku. Now, if he doesn't sell-in quickly, he should be ready for the snub - "Let's wait for enquiries first, then I'll buy. What's the hurry, are we both going to disappear!!? (Sic).


(C) Premium Product Brands - "Valuables"

Premium product brands may have limited demand, due to their exclusivity. These product brands may provide a high margin to Anna Chi. Anna Chi ensures that he stocks premium product brands in all categories but due to the uncertain demand, he stocks them in meager quantities. This trend could vary between locations across markets. Between competing product brands, the preference may fall in favor of respective sales representatives whom Ann Chi trusts. Some premium branded products may not be supplied by the CPG Company in markets where they expect negligible sales. However, if there are more enquiries from consumers, he might send his executive to the distributor or wholesaler and procure quantities just enough to satisfy the demand to ensure that they don't occupy the shelves for an undesirable period.

When the margins from the slow moving product brands are not substantial and if Anna Chi feels that the minimum order demanded by the distributor's representatives is not reasonable, he may even postpone ordering the particular brand till the demand picks up. On the other hand, when the distributor also does not offer a higher credit period for these slow-moving brands which have a low margin, Anna Chi is naturally discouraged to decline ordering for these brands. But before that he thinks whether the distributor will limit supply of fast-moving brands for not agreeing to order for these brands.

What can the DSE do?


 

 

Sell only to the targeted Retailer. Maintain a ready reckoner

Valuables may have limited demand as well as slow velocity. Can't be placed everywhere. He should sell this to Anna Chi only if he falls under the retailer class and type who is capable of selling it. The DSE should maintain a grocer classification ready reckoner with him with an exclusive replenishment plan. He should be warned against overstepping in enthusiasm and placing skus which may eventually just gather dust. If that happens, he will be selling Anna Chi down the river. Anna Chi is a sharp cookie and may just reduce orders of other brand skus too. Valuables may fetch high margin but at the same time may block a significant amount of Anna Chi's working capital.

 

 

Plan exclusive visits

If Anna Chi wouldn't consider stocking a "Valuable" when introduced as a new product, your DSE could be less surprised. He should market these during exclusive visits. Premium brand skus need special treatment. The selling effort has to be exclusive and should not be mixed with regular order-taking visits. This way, he stands a better chance of selling them. Exclusive orders might ensure that the products are not invoiced along with the usual orders and any delay in payment of the invoice will not result in suspension of regular service of other products.

Play it safe -Order Limited Quantity

The DSE could suggest a few pieces as an order and predict that they will get sold within a week. He should watch the movement and replenish in small quantities if required.


(F) Niche Product Brands - "Specials"

There are always other product brands which offer "niche" benefits and which have little competition from other brands in the same product group. The preference for these brands is usually low as the demand for niche products is uncertain and limited. But if the demand is significant due to mass advertising or increasing consumer awareness and the margins are significant, it induces Anna Chi to drum up business by ordering significant quantities of these brands albeit the ordering is done for smaller quantities more frequently, to derive quicker short-term gains.

What can the DSE do?


Explain the USP and benefits

The DSE should ensure Anna Chi knows the USP and benefits of the product, so that he can push the products and answer consumers' questions that come his way. For example, 'granulated coffee' could be a feature for a coffee brand and the benefit could be that it provides 'richer aroma'.

Carry the sample

If this brand sku is still not familiar to Anna Chi, the DSE should take the sample with him once if he can. This should ensure thereby ensure that when the product is supplied on the requested date it is not returned by Anna Chi quoting reasons like "the products were never ordered for" or the "The ones I received were not the ones I ordered for".

Service on Priority

Most of the 'specials' may not be part of the regular inventory plan of the CPG/Distributor as the requirement for the product may not be on a regular basis. Hence any special order for "specials" should be serviced on priority and immediately.  Regular demand backed up by prompt supply could place many "Specials" on the regular inventory plan.

 


 (E) Mass Popular Brands - "Winners"

Low Margin High Volume Popular brands which are leaders in their respective product groups, which also are usually stocked in quantities more than his average weekly sale for this product. These are brands of products which are consumed on a daily or more frequently by the consumers. For comparable brands from various CPG companies, Ann Chi may prefer and order a higher quantity of those brands on which a greater comparative margin is offered by means of a trade scheme. If the margins are not substantially different, he would stock the brand that comes with a longer credit period. Ann Chi knows that these brands deliver immediate sales and profits.

Brands of Low Margin High Volume products are stocked by Ann Chi in optimal quantities based on his weekly sale but is always careful to ensure that they do not go Out-of-stock as these brands are popular. If Ann Chi anticipates a delay in the regular supply from the CPG Company, he shrewdly draws his inventory from a Wholesaler. But due to the low margin and because credit offered is quite low, Ann Chi continues to order almost the same quantity in every ordering cycle. But, sometimes supply chain issues may cause a potential short supply. When distributors anticipate such a situation, they proactively hoard larger quantities to avoid lost sales, and in turn, Ann Chi. They might also do so if there is a significant price increase announced. But due to the additional working capital invested by the Distributor, Ann Chi is offered a relatively shorter credit term.

This is a Category where various CPG brands compete with each other on trade schemes, consumer promotions and seasonal offers. When CPG companies dole out a consumer promotion on one of their product brands, they would expect larger orders from Ann Chi and to do so, they either extend the credit period or roll out a trade or consumer promotion. Anna Chi is opportunistic. He knows that his sales may not increase due to the consumer promotion but is certain that customers will switch brands. He promptly increases his ordering quantity and sometimes even cuts down ordering of the product brands' nearest substitutes, to make most of the opportunity.

Half a decade ago, a very popular confectionary brand X was on a re-packaging drive and held off its supplies to the market. During this period, the nearest competitor Y, also a big brand, found the volumes of all its sub-brands increase exponentially. As demand rose incredibly, it led to a bull-effect in the entire supply chain. Distributors and retailers were holding a large inventory of Y and sales were skyrocketing, as customers switched brands easily. But very soon, the bubble burst, when X quickly re-entered the market and re-launched their products in their new avatar. The loyalists switched back to their favorite brand X.  As executives of Y didn't anticipate the speed with which X would be re-launched, their distributors were left with huge inventory in their warehouses and were lift with an uphill task of liquidating the stocks.

What can the DSE do?


 

Maintain healthy stock levels

Winners contribute to 70%-80% of overall revenue from Anna Chi and the DSE's targets. Can't afford to stumble on these brand skus. The DSE should ensure that 80% of the planned off-take form Anna Chi happens in the first 2 weeks of the month. He should aim for 120 % of your targets. Can't afford to let competition nudge you for space here. It's just short of committing a crime, if you have a stock out on Winners.

Be an SME

Train your DSE to be a subject matter expert on the Winners - potential sales volume of all the brands of the product put together, product pricing to the retailer as compared to competitor products, trade promotions of his vs. competition, consumer promotions (on-pack and off-pack offers), new entrants in the category and planned consumer contact programs/activities/media campaigns. Etc. Remember, Winners are the Brand Mascots and the DSE is the Brand ambassador.

Watch out for cheaper suppliers

The Winners are price-sensitive. Anna Chi will look for cheaper sources to make better margin. The DSE should time his visit to perfection before even Anna Chi has a chance of looking elsewhere - un-appointed distributers or wholesalers or hoarders or the like.

Process off-route orders

Anna Chi may not honor the "inventory push" immediately as his storage space is limited on your planned route. The DSE shouldn't forget to sell the planned off-take even if he has to go off-route. If Anna Chi requests additional quantity due to high demand, your DSE should go out of his way to process off-route orders. After all, winners are your bread and butter.

Communicate Schemes/promotions on Winners first

If you don't have new products to sell, Ensure Anna Chi hears breaking news about Winners first ,about all trade promotions and initiatives on Winners first, such as variable value discount, percentage discount on the value or volume of purchase, or display based fixed value disbursement  on 'Winners'.


Competing product brands in certain categories are likely to compete in Ann Chi's mind space depending on comparative trade schemes, consumer promotions and seasonal variations.

(F) Low-shelf Life Product Brands - "Essentials"

Popular Brands of products with shorter shelf life such as dairy products are normally offered with little or no credit to Ann Chi. The preference for these brands is based on the supply efficiency, restriction on minimum order storage capacity, customer enquiry, history of complaints, possibility of returning to supplier and perceived quality.  The preferred brands are ordered in sufficient quantities because these brands are frequently repurchased by the consumers.

What can the DSE do?


Pick order quantity on-behalf of the retailer

Based on the storage space(which is important considering the short shelf-life of the product, the DSE has to decide the order quantity for the retailer most of the times as the off-take of these products are closely monitored more by the DSE due to threat of high unsalable returns(products with very short shelf-life)

Rationalize orders

With visibility of the inventory (on-hand + transit) available with the distributor location the DSE can plan the order quantity basis the total available quantity. There is always a temptation to exhaust the available inventory within a few retailers

Monitor delivery schedule/service levels of the orders

DSE has to monitor if the order quantity has been serviced to the fullest at the requested time. Any delay or default in the orders will have an impact on the promised availability by the retailers to his customers

 

(H) Run-of-the mill and Local Brands - "Extras"

Anna Chi also stocks a variety of run-of-the-mill, me-too brands including local brands which compete on price. The Local manufacturers push their brands luring Anna Chi with increased credit and sometimes even sell their brands on consignment. Anna Chi may categorically offer to buy only a limited demand quantity on consignment or negotiate for an extended credit period. Anna Chi sells these brands to consumers who are not brand sensitive but look for cheap prices or just the functional benefit.

Many a time, grocers like Anna Chi not located in prime neighborhood areas are serviced better by the distributor selling the local brands, whereas the supply of CPG product brands may be intermittent. Suppliers of local product brands are also flexible, adjusting to the credit terms demanded by Anna Chi and often not insisting on minimum order quantities as is required for major CPG product brands.

It is not very uncommon to see Anna Chi stock local brands of ice-cream. Brand loyalty is low in ice-cream in India. What matters is the taste and the variety that they offer. The local manufacturers understand the local gastronomics and keep it simple. Suppliers of local brands may offer their freezers without any deposit, may accept returns of damages and expiries, may demand no minimum order quantities and can supply within a few hours of a telephone call. That cannot be said of all major national brands, though the trends have changed in recent times, as consumers have become increasingly quality conscious.

(I) Small packs - "Dynamos'

Anna Chi normally stocks sizes ranging from the smallest to the big ones, but usually to avoid stocking the bigger and biggest ones. The bigger packs are usually made available to the modern retail channel whereas the traditional markets are supplied with the smaller packs.  CPG brands offering the leverage of purchase of small packs without coercion of mandatory bigger packs get the benefit of higher purchase quantity and preference.

In a product group, where there are smaller packs of multiple brands fiercely competing with each other for shelf space and switching costs are negligible, Ann Chi always maintains variety. These products which have a low unit price but are sold in high volume are very valuable for any CPG Company in the particular product group and therefore, in order to maintain their market, share in that particular group, the distributor ensures that stock in excess of the average weekly sale is maintained by Ann Chi by extending credit periods. These brands require constant monitoring by the distributor's sales force and the CPG Company to ensure that adequate stock is maintained to retain market share.

What can the DSE do?


Sequence orders starting with small packs - Small is Big

The DSE should start order taking with small skus - quantities are bigger and replenishment frequency is more and he may be turned down less often. The sequence prepares Anna Chi for the bigger packs.

Highest margin offering trade promotion to be showcased

It is not uncommon to find multiple quantity or value based purchase slabs on a trade promotion. Anna Chi.  The DSE should point out the slab which provides larger benefit to Anna Chi. He should simplify by breaking the margins down to a single piece rate. If the DSE should carry refer a ready reckoner that will quickly show the net price per unit and the additional margin that Anna Chi would make from the trade initiative.

Know your product ordering configuration

The DSE should plan to take orders as per the 'strip' or 'streamer' quantity. That ensures that minimum order quantity is achieved and also reduces chances of the broken strips, torn sachets and 'count short'.


Conclusion:

The preferences for product brands and purchase behavior may vary from grocer to grocer, depending on the turnover, type and size of market, experience of the grocer and the effectiveness of the distribution channel in the particular region. The DSE and the distributor have to understand the needs, preferences and goals of grocers like Anna Chi so that they can prepare customized sales approaches such as:

  • Determine the timing, duration and focus of visits.
  • Revise or plan the routes.
  • Plan stock allocation and market beat plan.
  • Prioritize SKUs/brands for selling during a particular week, month or season.
  • Train sales executives to sell effectively and follow the roadmap.
  • Determine the costs to serve the market such as: Trade Incentives, Consumer promotions and awareness campaigns, merchandise presentation, Paid displays, sampling activities etc.


     

    By Krishnakant Kasturi and R. Sriram