PowerPoint Presentation

Understanding Sales and Distribution of ITC Ltd.

IntroductionIndian conglomerate headquartered in Kolkata

Established in 1910

Annual turnover of US$ 8.31 billion and a market capitalization of US$ 45 billion in 2012-13

Employs over 25,000 people at more than 60 locations across India

Part of Forbes 2000 list Business SegmentsAbout the Company

FMCG CategoriesW.D. & H.O. WillsGold FlakeNavy cutInsigniaClassicBristolAashirwadSunfeastBingoKitchens of IndiaMint-OCandymanEssenza Di WillsVivelFiama Di WillsEngageSuperia

Distribution Channel

DistributorProfileExclusive distributor (carries no other brand); exclusive territory for each distributorCarries all ITC FMCG productsIT system of ITC in place - contains classification of retailer & wholesalerSelection criteria: Investment capability, market reputation and ability to service the marketEconomicsMargin for food and personal care products for a distributor is 3% while that for Cigarettes is 1.45%Average ROI for a distributor is 25-30%No credit is extended to distributor by ITC however distributor offers credit to wholesalers and retailersDistribution expenses like salaries of the sales persons, fuel costs of the vans, etc. are initially borne by distributor which are then reimbursed by the company subsequentlyKey ResponsibilitiesSupplying to Retailers, Wholesalers & Stockists Achieving annual targets received from Assistant Sales Manager

WholesalerProfileIndependent wholesalers - free to sell various product lines of different brandsNo exclusivity multiple wholesalers in a particular areaWholesaler serves to increase the penetration of ITC products EconomicsGets all categories of products Personal care, Food and Cigarettes from ITC distributors at a price which is 1% lower than the price at what the distributor sells to the retailerSelling price of the wholesaler is not fixed & hence they can sell at any price (even below his purchase price Loss leader)Credit terms if any offered to the wholesaler may depend on the distributor serving him and he may or may not pass that credit facility to the retailersKey ResponsibilitiesSupplying products to retailers, however wholesaler being independent and non exclusive has no obligation to achieve a certain level of sales (targets)Sales at the wholesaler level is more due to the pull of the products

ProfileBeedi shops, mom-n-pop stores, etc.Minimum purchase value per month for a retailer to be serviced by a distributorEconomicsGross margins range from 9-15% depending on the product categoryPromotional schemes, display schemes for retailersKey ResponsibilitiesMaintaining correct inventory levels, proper display of ITC products, product knowledge to the end customer Stockist & RetailerProfileIndependent (can carry multiple brands) & exclusive territory, generally assigned to a geographical area which has a population of 30,000 to 50,000EconomicsMargin for food and personal care products is 4% while that for Cigarettes is 2.45%Key ResponsibilitiesServing maximum number of retailers in his areaStockistRetailer

Sales Force StructureRationale for the structureSeparate sales team within ITC works according to the product categories This helps in implementing the various decisions and objectives of a particular product category at the ground levelITCs objective is to cover maximum retail outlets directly through distributors so that maximum product push can be achievedTo meet this objective ITC reimburses the sales and distribution costs to distributorsHowever ITC decides which retail outlet to be covered through distributor so that it can keep a check on its overall costs

Sales Force StructureCompensation & Performance evaluation of sales forceAverage salary of sales person per month 5k to 11kDual Reporting to Area executives and distributorITC runs incentives schemes on parameters like lines cut, bills per day, bill value etc.Sales Force SizeDetermined using workload methodAverage no of calls per day by Salesman 25 to 30Calling frequency Once per weekA salesman covers approx. 180 210 retail outletsIssues & Recommendations

Realisation of lower ROI by distributorsROI generally obtained 20% or less against the Expected ROI of 25-30% Approximate Cost of capital 12 to 14% pressure from the retailers to offer lower prices To meet targets often distributor has to offer the products at lower pricesLenient credit terms increases his investment in working capitalTerritory conflict between distributorsRecommendationsEnsuring better control over distributors so that they cater to their own territory onlyEnsuring the faster collection of damaged and expired goods from the distributor and crediting the amount as quickly as possible to the distributors accountSlabs for the volume based schemes should not be large and these should be tightly monitored and controlled so that few distributors do not have an unfair advantageImplementation Issues and SolutionsMonitoring territories is a problem as the number of retail outlets is very large; this can be ensured by effectively using the IT systemsCurrently no module in the IT system at distributors end to take care of damaged goods that are taken back; as such an IT module to be added to the existing IT system

Impact due to emergence of the modern trade formatDelhi NCR has a high dominance of modern trade channels they drop prices of certain products quite lowRetailers demand lower prices from the distributors in order to compete with modern trade channelsDistributors are not able to meet sales targets due to the emergence of the modern trade channelsRecommendationsEffectively monitor the modern trade channels ensuring that they do not drop the prices below a certain levelCompany should ensure that the additional benefits given to modern trade stores like liquidation budget should be used only when it is absolutely necessaryIn order the avoid the channel conflict ITC should come up with some SKUs specific to certain store formatsImplementation Issues and SolutionsDetailed monitoring of schemes like liquidation budget , promotional budget etc. is difficult; as such ITC can utilize its IT systems effectively for monitoring the behavior of Modern trade channels

Issues with Personal Care CategoryThe personal care category does not enjoy similar market reception like cigarettes and foodsPersistent pressure from the company on channel members to meet their targetsLack of branding support by the company as informed by distributors and retailersCompany reduces prices to push products in this category but this causes some retailers with old unsold stock to bear losses to match prices with other retailersRecommendationsThe company should maintain the prices steady in this category as frequent price fluctuations hamper every channel members performanceInstead of pushing the products in this category efforts should be concentrated towards creating a pull for the productsSelective stocking of products should be done according to the category of the retailerImplementation Issues and SolutionsCategorization of retailers for selective stocking is a major challengeDatabase of the retailers to be utilized in selection of retailers for selective stocking of the personal care products

Rate cutting due to emergence of parallel channelsParallel channels in terms of cash and carry stores and distributors both offering similar products to the retailers this results in price cutting done by both the channel membersHowever these channels differ in offering services to the retailer such as pick-up, credit terms, returns etc.RecommendationsEffectively monitor the prices and the services which the cash and carry stores offer to the retailersIn order the avoid the channel conflict ITC should come up with some SKUs specific to certain store formatsImplementation Issues and SolutionsMonitoring of the prices and services poses a challengeTechnology systems to be used for better and effective monitoring

Frequent new product launchesITC launches new products very frequently in the market to remain competitive. At times these new products are not well accepted by the market and hence a lot of capital of channel members is blockedRecommendationsAdditional incentives like extended credit period or additional margins to be provided for limited periods until the product is well accepted in the marketITC should spend on increasing the visibility during the new product launchesFocus should be on creating pull for the new products rather than focusing on pushImplementation Issues and SolutionsProviding special credit for new products is a bit challenging as ITC deals with distributors on advance payment terms. IT systems located at the distributors to be used for implementing the credit policy. Benefits of promotional schemes to be passed in the same manner as sales and distribution costs Third party merchandisers to be employed for managing the in store visibility during the new product launches

ReferencesKunal Shah Assistant Sales Manager, ITC Ltd. Contact No.- 9501106856

Leela Krishna Ahuja Shri Ram Sales Corporation (ITC Distributor) 08826777888Shop No- 4-5/ 24, Basai Road, Near Bhuteshwar Temple, Gurgaon

Dilip Kumar (Salesman)Contact No. 8802256951

Gurgaon Sector 14 and Sector 17 retailers covered

(The above mentioned persons were contacted in person and information collected from them)

www.itcportal.com

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