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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

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


August 7, 2015

Inform, Cajole, Coerce - Field tips for CPG distributor sales executives to sell their brands to Mom and Pop retail outlets in emerging markets

Abstract

 

A distributor or a CPG company sales executive is an important element in ensuring penetration of CPG brands in the traditional mom and pop stores retail channel, especially in emerging markets. With as many competing brands within each product category and the peculiarity of each mom and pop retailer, the sales executive's task is complicated.

 

We present a few field tips for the sales executive to improvise and sell to the traditional retailer. These tips along-with sales history, inventory forecast, recommended order quantity, brand sku prioritization and "what if " margin calculation enabled by mobile technology and product training will enable the sales executive to achieve targets in an efficient manner.

 

Overview
 In emerging markets, a mom and pop retailer purchases Consumer goods based on a host of factors such as perceived credibility of the sales executive, time, space, working capital, consumer demand, margin and credit period, attractiveness of competing brands, distrust in a new brand or brand extension etc..

While considering all these factors, the distributor or CPG company sales executive has to engage the traditional retailers in a sustainable and profitable relationship and juggle with the entire portfolio of brands keeping in mind the retailer preference, store size and location, consumer profile, retailer working capital, schemes, new products, competing brand offerings.

Here are some often heard challenges that sales executives face during their daily routine and some street-smart tips to overcome them

Sales executive woes and tips to overcome them

 "Competition is offering better margins to trade......." "Net profit on product is marginal due to price under-cutting by Retailers....." "Retailers always expect the same margin if not more for the same order quantity, even in the absence of schemes or special incentives..."

·         Attack the Flanks: Dominate in outlets where competitor presence is minimal.
·         Illustrate for impact: Illustrate the margins made by the Top 25 outlets on the sale of these brands at the same price.
·         Keep competitor intelligence handy: Know your competitor. Understand their trade schemes. Take photographs of shop displays or marketing collaterals. If the offers are genuinely better, concede. This will build trust. Inform your distributor.
·         Communicate risk: Recommend the right price to sell to consumers and the risk of price undercutting - margin loss and reduced perceived price of the product brand.
·         Negotiate Hard: Compare margins with other retailers supplied by you or competing brands and show the retailer that his deal is the best one can get. Convince him on his potential to sell. Negotiate hard and do not drop your guard.
·         Compensate with additional incentive on other brands: Cover the perceived margin shortfall by offering additional incentive or cashback on brands in other product categories.

"Retailers demand for extended credit period in next ordering cycle, as product movement has been slow..."

·         Analyze inventory movement: Extend credit period only if it is the last resort. Monitor stock movement on a regular basis. Analyze the reasons for slow movement such as: No consumer enquiries, product complaints, competitor offers, no display, retailer not promoting the brand etc.
·         Transfer stocks: If the movement is genuinely slow, transfer stocks to other outlets where the movement is relatively faster and move in other substitute brands.
·         Improve visibility: If the Retailer is not proactively selling the brand, explore display through fixtures or attractive presentation or bundle the stocks with other brands which are imperative.
·         Illustrate and provide confidence: Compare with a like product brand which has the same lifecycle but was successful eventually and thus build Retailer confidence and avoid extended credit.

"Unable to sell some of the price variants"..." Almost impossible to sell less popular brands or brands with Low Retailer preference...."Retailer is willing to stock but only as a pilot and on consignment basis...."

·         Additional not substitutes: Promote less preferred brands as necessary additional orders and not special orders. Do not promote them as substitute brands. Explain on paper, the additional margin that can be made from selling these brands.
·         Cross-sell with the Winner: Bundle orders of less preferred brands with the power packs. Position them as mandatory without budging.
·         Gradually step on the gas: Increase order quantity and off-take incrementally until the desired order quantity is met.
·         Be cautious about consignment stocks: Supply stocks on consignment only if you are confident about the Retailer's credibility and ability to sell.

 "Need to maximize orders to achieve targets....." "Pressure to push stocks is leading to multiple invoices and delayed payments..." "Appeal by Retailer to not push for payments as other payments with higher priority have to be made first..." "Order quantity is same on every purchase..."

·         Have your Hat in Hand: Maintain a cordial relationship with the Retailer. Step into his/her shoes. Empathize with his situation, provide recommendations to improve stock rotations and tips to display and sell.
·         Challenge the regular ordering norms: Stretch the order quantity through rational explanation. Explain the lost opportunity by not stocking sufficiently.
·         Stay within the retailer's radar and execute your promise: Watch out for the slightest opportunity to promote your brands within the outlet. Ensure prompt delivery of order, participate if possible in displaying stocks and in selling to customers.
·         Avoid salesman productivity paranoia: Before the cycle begins, get the Retailer buy-in for the planned orders. Don't push the stocks too early to achieve your targets. Monitor the sales and schedule the distribution as per weekly sales and coverage frequency to gain Retailer trust.
·         Personalize every order: Communicate only those promotions or schemes which will be relevant to the Retailer in the ordering cycle.
·         Optimize the orders: Forecast and logically communicate the right order quantity based on past history and current schemes.
·                     Keep an eye on Competition at large: Monitor Competing brands new product introduction, volume, trade schemes and pre-empt any move to reduce your volumes.

"Appeal by Retailer to not push for payments as other payments with higher priority have to be made first...."

·         Collect Partial payments: Split the collection of larger invoices into convenient sums to ease the pressure on the Retailer.
·         Extend Credit period only where required: Collect partially and extend the credit period if required, for the balance amount.
·         Distribute with exclusivity: Don't generalize and push all product brands everywhere. Provide exclusive schemes only to those Retailers who are willing to pay on time and those who will provide the volumes that you had planned.

"Focus is always on few key Retailers, hence less chances and time to play around with the trade budget or stock to develop other Retailers..."

·         Improve penetration: Expand the distribution network to remove dependency on a few retailers.
·         Create Clusters: Create clusters of outlets with common characteristics. Plan schemes for targeted clusters rather than one-fits-all schemes. Distribute incentive/promotion budget across clusters over time.
·         Develop Mascots: Develop a network of key retailers who can influence smaller retailers to join the network and/or purchase the brands, thus improving the overall order quantity.

 

Wear the ICC rule on your sleeve: "Inform, Cajole & Coerce" !

About the Authors 

 

Krishnakant Kasturi (KK) is a Principal Consultant Infosys Consulting.. He as 15 years of cross-industry and cross-functional experience spanning Retail Sales, Operations, Marketing and Business Consulting. He specializes in helping Retailers and Consumer Good Companies in business process improvements and building solutions in the areas of Sales Operations, Merchandising, Consumer Insights, Loyalty program management and Brand Management. He can be contacted at Krishnakant_k@infosys.com.
 
Sriram.R is a Senior Consultant in the Industry Solutions Group of Infosys. he has 10 years of hands-on experience of Sales and Distribution of leading CPG cos. in the Indian Market and 5 years in Business Process Consulting. He specializes in Sales and Distribution Strategy and Merchandising. He can be contacted at R_Sriram@infosys.com.
 
 

 

December 18, 2014

Sales-Consultant, not Salesmen in the brave new Digital World

 

Picture this scenario - a passionate photographer wants to buy a high-end laptop for his work. He goes to websites of all the top manufacturers like Dell, HP, Lenovo, and Asus, and compares various products within his price range. This enables him to short-list his query to 4 laptops. He goes to various e-commerce websites to check the offers present there, and reads up all the 350 odd reviews across the 4 products. But since he intends to buy a high end laptop, he prefers to buy it from the shop, as he wants to see the product before he buys it, and even though price is slightly higher in-store by 1-2%., He  also wants to see which other add-ons are suitable for him.

This customer is what an omni-channel customer looks like. They enter the store with consideration-set ready and researched, and they come in ready to buy, unless the store is giving him a reason not to buy.

The salesman in this case will need to be well-versed with different makes, significance of technical specifications, advantages of having higher RAM over a better processor, and details of after-sales service. He would also need a tablet wherein he can compare the laptops and discuss if the customer needs better Video-RAM or a better Hard-disk capacity. In case the salesman knows a bit about photography, he can even convince the customer to buy a good quality printer/scanner along with the laptop.

Thus, an omni-channel customer looks for a shop where he can find sales consultants, and not salesmen. These sales consultants need to be aware of what is being said by the reviewers across platforms, and need to be aware of the latest technologies. They need to know not only the price of Xbox-One and PS4, but also the price of games popular on these machines.

In case the customer is happy with his experience, this shop will be his first visit when he wants to buy an upgraded lens for his camera, or when his younger brother needs a new laptop for his MBA.

Every retailer knows the importance of the Lifetime Value of a customer. The importance of Life Time Value is probably best explained by using the Amazon Kindle example. A Kindle Fire costing $200 has components worth $165 according to estimates*. The margin is no-where close to covering the R&D expenses. Yet an average Kindle owner spends $433 extra per year on Amazon**, making Kindle a very profitable business.

Thus, providing -customer-centric information, without actively selling, can convert a walk-in into a repeat customer with high Life Time Value which results in a satisfied customer and a satisfied retailer too.

 

 

To know more about how retailers and sales associates can leverage all forms of innovation to decipher and deliver on customer needs and wants, meet our experts at Retail's Big show 2015 (Jan 11 - 13, 2015). Schedule a meeting now. Visit www.infy.com/NRF15

November 13, 2013

See Your Customers In High-Definition

Guest Post by

Santhanalrishnan.R, Senior Principal, Infosys

 An old statesman once said that "all politics is local." The same could be said about retailing. We live in an exciting age - big box stores offer us every product under the sun in their modern, beautifully furnished outlets. Those chains have achieved admirable economies of scale and can therefore pass the savings on to their customers.

When you take a closer look at each store - you tend to come to a startling revelation. None of these outlets is equal, beyond a point. They all have distinct inventory issues, consumer buying habits, and market vulnerabilities. Only when retailers realize that all stores are local will they get the data-driven insights for which they're constantly searching.

As suppliers to the stores, Consumer Packaged Goods companies (CPGs) are one step removed from the customers who shop up and down the aisles. But they are an important element to the overall effort to achieve the best store-level insights. To many of us, "store level insight" means snapshots of data from the sales force or the sharing of data from retail customers. Other conventional sources of retail insight might be syndicated point-of-sale scanner data and consumer panel data, but neither of these sources is typically store level.

Continue reading "See Your Customers In High-Definition" »

November 12, 2013

Finding Excellence From Within

Guest Post by

Anil Venkat, Marketing, Infosys

"It is astonishing as well as sad, how many trivial affairs even the wisest thinks he must attend to in a day; how singular an affair he thinks he must omit."


Who knew that the 19th-century writer Henry David Thoreau could be a 21st-century retail management expert? I say this because retailers and the Consumer Packaged Goods companies (CPGs) that supply them would do well to simplify their mission. When they strip away all of the complexities and minutia of big box retailing, their customers face a fairly simple proposition: Either they find the product they're looking for ... or they don't.

Think of the outlets that pour enormous amounts of time, energy, and money into creating stores that offer thousands of products and are backed up by the latest retail technologies. If the end result isn't the ability to ensure that popular products remain in stock at all times, it's time to conduct a self-assessment. Chances are your store has all of the excellence and talent it needs within its four walls. You simply need to know how to find it.

The new State of the Store survey by Infosys reveals that nearly 70 percent of customers experience an out-of-stock-out product at least once every three months. Half of these consumers are quick to change to another brand. Consumers aren't the only ones dissatisfied with the out-of-stock experience. The survey shows that 72 percent of retailers readily acknowledge the need for help in improving their on-shelf availability levels. Two-thirds of retailers believe that an effective in-store execution strategy is what makes a successful CPG company.

Continue reading "Finding Excellence From Within" »

November 10, 2013

How To Engage Consumers Everywhere

Guest Post By

Anil Venkat, Marketing.

An alert to all Consumer Packaged Goods companies: Your most loyal, longtime customers are up for grabs.
 
The "culprit," if you will? Other CPGs. The days when a handful of large CPGs dominated the marketplace are a distant memory. There are hundreds of nimble branded suppliers out there vying for precious space on the shelves of big box retailers. That's because just a meter or two on the shelf of a big box chain can translate into enormous global exposure for any brand.
 
Consumers now have endless options. And their brand loyalties lie wherever they can get good deals, experience targeted promotions, and find quality products immediately. A CPG can no longer operate under the assumption that consumers will wait and come back to the store again if they can't find their preferred brands. They'll buy whatever is on the shelves at that moment. Rival CPGs are working harder than ever to woo those fickle consumers away from brands that have until recently stood up against every test in the marketplace.
 
It's time for CPGs to re-evaluate how they do business. First and foremost is a re-assessment of their relationships with retailers. In the recent State of the Store survey by Infosys, 97 percent of retailers said support from their suppliers is vital to ensuring a customer-centric business model. There are so many opportunities to strengthen brand loyalty and the frequency of purchase simply by collaborating in such a way that the retailer and CPG are aligned in meeting the expectations of customers. To be sure, creating a new branding experience is a challenge for CPGs that continue to depend on old business models. In fact, the Infosys survey shows that 40 percent of consumers are no more compelled to make purchases because of existing promotions than they were two years ago.

Continue reading "How To Engage Consumers Everywhere" »

September 16, 2013

"The Journey to Data Centricity" with Infosys and Unilever

Guest Post by
Frisco Chau, Practice Engagement Manager, Infosys

We jointly hosted a networking event including discussion and debate on Sept 12th with Unilever at the Infosys Experience Centre in London and were joined by Rachel Bristow, Vice President Global Media Data and Analytics as the guest keynote speaker, who gave a talk about what the journey to becoming a truly data-driven company looks like at Unilever. This high-touch forum was attended by a select group of marketing and IS leaders from retail and consumer packaged goods industries.

Our host, Peter Sieyes (AVP Head of Consumer Marketing and Innovation) emphasised the sentiment of the evening was one of openness (in shared experiences and learnings) and debate (around solutions and approach).

Rachel shared Unilever's experience from the beginning of the programme, as a formative marketing data strategy around connecting with consumers and some of the catalysts for this change, through to some of the learnings and pitfalls when it came to aligning internal and external stakeholders and implementation of the required infrastructure, process and people talent.

As a synopsis of discussions around the subject matter, as expected, the room of experienced practitioners largely agreed on the key challenges and success factors faced in their organisations:
• Clarity of business-driven requirements
• CMO/CIO alignment
• Data quality and integrity
• Finding new insights from the data (without knowing the question)
• Simplifying complexity using simple visual representations of core transformation concepts/benefits
• Talent recruitment/management

Continue reading ""The Journey to Data Centricity" with Infosys and Unilever" »

May 27, 2013

Orchestrating consumer demand in a fast paced world

Guest Post by Keats Sukumar, Marketing, Retail, CPG and Logistics, Infosys

 

The path to purchase is more volatile than ever before. Today, companies need to be ahead of competition to understand, influence, engage and convert consumers. Consumers who absorb and transmit real- time information are easily influenced by brands and companies that convert their 'demand-moments' into 'purchase moments'.  While on one hand companies must understand their consumers; on the other hand they must be prepared to respond swiftly to demand moments.

Continue reading "Orchestrating consumer demand in a fast paced world" »

November 28, 2012

Global Business Dominance for Consumer Product companies through Enterprise IT

Guest Post by Nakul Srinivas, Assistant Marketing Manager, Retail, CPG & Logistics, Infosys

Enterprise Resource planning figured in the top 3 for IT Budget allocations for CPG (Consumer Product Goods) companies in 2012 in a 2011 Gartner forecast (Pragmatism Marks Consumer Products Companies' IT Spending Plans, Published: 21 December 2011 by Janet Suleski - http://www.gartner.com/id=1881224). This clearly shows that ERP implementations are a top priority for CPG companies worldwide. ERP refurbishing may be necessary to achieve the level of coordinated agility companies need to achieve, to respond quickly to market opportunities or threats.

Continue reading "Global Business Dominance for Consumer Product companies through Enterprise IT" »

July 31, 2012

Paradigm Shift in Loyalty Card Programmes: Win-win for Retailers, CPG Brands and Customers

Guest Post by

Srinivasan Nithyanandam, Manager, Client Services for Retail,  CPG and Logistics - Europe , Infosys

 

Battling slow economic growth and high costs in a difficult market, retailers are competing aggressively to increase their customer's wallet share and mindshare. The new breed of digital consumers, who want convenience, personalization, and promotion-based pricing, has made winning in this environment even more challenging. Operating within the tight confines of single-digit-percentage operating margins, retailers must continuously innovate to increase consumer foot falls and clicks. In such an environment, personalised offers, rewards, targeted communications and promotions can help heighten customer interest and encourage repeat shopping.

Continue reading "Paradigm Shift in Loyalty Card Programmes: Win-win for Retailers, CPG Brands and Customers" »

April 26, 2011

Self-Check out: Will it be the future of Indian retail stores?

Last weekend on Saturday, my mother asked me to accompany her for the monthly grocery purchase to the closest retail store from our home-'D-Mart'. We went to the store in mid-morning around 11am thinking it would be relatively less crowded. But I guess, everyone's thought process was exactly like us and the retail store was buzzing with people. Yet, due to effective and now well placed self-service practice in organized retail stores in India, we did not take too much time to finish purchasing our grocery (Just 30 mins!!). But then it was the time for the herculean task of standing in serpentine queue of billing. It took us approximately 50-55 minutes to finally reach the counter and pay the bill. Though there were 5 different counters with cashiers working as fast as they could, the waiting time was still very high.

Suddenly my mother asked a very innocuous question- "Why do we need to stand in queue? Why can't we have a system where we can swipe the product as and when we purchase, pay the bill on our own and then go? We are spending (or wasting) more time standing in queue than it took us for purchasing items".

It triggered my thinking. 'Check out' being last point of contact with consumers; convenience and pleasure at this point can surely improve satisfaction of consumers by few folds. How can Indian retail stores leverage this opportunity? How can this convenience be provided?

Self-checking out can be one option. So what is Self-Checkout mechanism? In colloquial term, it can be defined as any machine/scanner/system which will allow consumers to scan products themselves while picking them up from shelves.

Some form of self-checking out mechanism has a presence in western world. However, same cannot be said for India. But yes, with invasion of organized retailing and consumers embracing the usage of technology, there is a need and requirement of provision of a self-operating scanner or a self-checkout machine.

In my opinion; the way advent of ATMs minimized total time spent at a bank, in similar fashion; installation of Self-Checkout system will also minimize time spent at a retail store. This will in turn be a key to improve the consumer service and satisfaction.

However, like any other IT implementation, a self-checkout mechanism will have its own advantages and disadvantages. Let's put it down:

Advantages

·         Reallocation/freeing of store employees. Thus they can focus on other operational aspect of store

·         During hurry or lesser number of items to buy, faster payment and check out for consumer

·         Another School of thought: Self-Check out/Payment may not be as fast, but the active participation of consumer in the scanning process will surely result in time appearing to pass faster. Thus a happy consumer J

·         Form of privacy for some consumers in buying some personal items/products/goods

Disadvantages

·         Inefficiency of consumer to operate the machine

·         If there is no re-allocation of store employees then possibility of loss of labor

·         Security issues with the self-checkout machine

·        Self- checkout not feasible for huge/big items (e.g.: electronic gadgets like TV/Refrigerator)

 

So what do you think? Will 'Self-checking out' be the future of Indian Retail?

Leaping ahead, as the buzz word all around is Mobile, will 'Mobile-check out' or 'M-check' out also be a thing to look forward to in Indian Retail scenario?

Continue reading "Self-Check out: Will it be the future of Indian retail stores?" »

December 22, 2010

Better shopper experience and loyalty with QR codes

A casual glance at the soft drink bottle or a can of juice running a loyalty program shows that the whole process and experience of earning loyalty rewards is antiquated. Imagine the number of people who will actually note down the website address and the rewards code, login to the website, register and enter the code to win rewards or loyalty points. The conversion rate must be abysmally low also leading to erosion of brand affinity. What if you could effectively bridge the gap with a simple bar code?

 

QR codes are the answer. With a smart phone and a QR code reader, consumers can scan the code from an ad, a catalog or the product packaging and get automatically redirected to the website or send an SMS with their entry.

 

Continue reading "Better shopper experience and loyalty with QR codes" »

December 18, 2009

Enhance Customer Loyalty at the Final moment of truth

In this age of discerning and value chasing shoppers, Customer Loyalties can change in a single moment and gaining or retaining loyalty is a marketing warfare. Store is the final frontier where products are given equal opportunities to see, evaluate and choose the brand. Brands can be made or broken in these last few minutes of life span a shopper will give to your brand. It is then highly imperative for the brands to make best use of these last few minutes and ensure that the customers stay loyal. Here are 3 basic strategies, Retailers and CPG companies can look at to enhance customer loyalty.

Continue reading "Enhance Customer Loyalty at the Final moment of truth" »

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