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TABLE OF CONTENTS

Details Page no.

Distribution Structure Of Nestle

India

- Structure

- Ownership transfer

- Transportation

- Policies

4

Selection of distributors 9

Incentives to the distributors 10

Motivation of Channel Partners 12

Evaluation 14

Distribution in Practice (DIP)

Training

17

Forecasting and target setting 18

Channel Conflicts 21

- Distributor

- Sales Officer

Distributor survey – Ghaziabad 24

Retailer Survey – Delhi 26

Observations 27

Annexure A

Annexure B

Annexure C

2

DISTRIBUTION STRUCTURE OF NESTLE INDIA(NCR ONLY)

FORMAL STRUCTURE

INFORMAL STRUCTURE

3

Mother Godown atGhaziabad, Delhi

Respective C&FAgents

Distributors asper assigned

Retailers in theirrespective territories

End Consumer

Wholesalers intheir area.

Note: Wholesalers are not a part of the formal structure of

Nestle India’s distribution network for NCR .They make bulk

purchases from the distributors directly thereby leveraging

on the margins.

FACTORY

M O THER G ODOW N

C&S AGENTS C&S AGENTS C&S AGENTS

C.D C.D C.D

STOCKISTS

STOCKS ARE COMPANY PROPERTY

INVOICING AGAINST PAYM ENT

Transfer Challan

Transfer D.A

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OWNERSHIP TRANSFER

Stocks manufactured at the factories and co-packers reach

the C&S through mother Godowns. The stocks stored at C&S are

the property of Nestle. Encashment of stocks are done

through Invoicing to Cash Distributors C&S as per the

guidelines given to them. They also receive and store

support materials like give aways, stickers and

complementary items etc.

TransportationFrom the factory to the distributor stage the company

ensures that there is availability of cool chain for

transportation. At the mother godown (Located at Sahibabad)

there is temperature control by hired cold storage.

For the purpose of transporting chocolates from the mother

godown to the Cash Distributor Dedicated Air Conditioned

Vans are used (especially for the summer seasons)

The following is the transportation system followed by the

company:

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TRANSPORTATION SYSTEM

Company Policy and Guidelineso The company has created two kinds of distributors,

namely Trade and Chocolate. The former deals with

the Maggie range, Nestle dahi, Aquafina etc.

Chocolate deals with all confectionery items like

chocolates, sweets etc.

o A representative of each distributor goes to the

various outlets, once or twice a week (depending

upon the area), takes the order and then either

delivers the goods there and then, or on the same

day.

o It has been realized that a retailer has a limited

pocket for a days purchase. If one sales

representative goes for an order with 50 SKU’s the

retailer will only buy what his pocket allows, for

a one-time purchase. Whereas, if two different

sales people go, representing different

distributors there is a possibility both will get

an order and the company will witness better

sales.

o The company has also taken an initiative for

deeper reach and penetration into the market with

its operation “STING”. Whereby the sales

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representatives on the company go on bicycles and

try to fulfill the order of small ignored and

unserved outlets. For example the panwallas, the

kinara stores etc.

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Selection of distributorsCriteria are:

1) Capital investment-This is dependent not only on the present required

turnovers but also on the estimated future capital

investments that will be required by the distributor (based

on company’s growth plans in the area). Amounts required

vary from area to area and markets to markets.

2)Relevant experience-It is imperative that the distributor has had some

prior experience as a channel member in the FMCG sector so

that no training is required to be imparted to him on

aspects of the business. The distributor should not be

dealing in competitor’s products and should be able to

function as a dedicated channel for Nestle. For example,

while deciding on a distributor for chocolates, an obvious

preference would be an existing distributor for other

products of Nestle This is because he will pay attention to

the entire range of the chocolates and not focus on any

particular SKU only.

3) Infrastructure-Appropriate infrastructure(depending on the market

served and overall volumes )

Should be there-

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a) Godowns / storage space. For chocolates, air conditioned

godown space (with wooden padding will be required).

b) Delivery vehicles

c) Salesmen

However there are no written guidelines that are fixed for

the above criteria and the company exercises its discretion

based on markets to be served. Distributors Record Card

(Annexure –A) is attached which mentions the relevant

details about the distributor for their records.

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Incentives to the distributors1) Margins

MARGIN LAYOUT (Kit Kat)

Company

Distributor

RetailersWholesalers

Retailers

2) Schemes spread over 2-3 months . These schemes

encourage specific target achievements. Targets are given as

indexed growth rates based on weights. For example the

meaning of 10% growth for a distributor having slaes of

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5.8

11.5 %

Flexible

Negotiab

Rs.20000 will have a different meaning from one having sales

of Rs. 1 lacs.

The prizes in the schemes can be monetary- for example

additional 2% margin on turnover

Or non monetary – for example free T.V. sets on achievement

of targets. It is attempted to keep in mind the monetary

benefit to distributor in case he sells the gift given in

kind ( for example T.V.)

3) Certificates-Certificates of acknowledgement for achieving the targets

for a name like Nestle are priced by the distributors. They

frame them and display them in their offices.

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Motivation of Channel Partners – “Proud

to be Nestle”The company consistently comes up with schemes for it

channel partners to motivate them. One of their successful

schemes was “Proud top be Nestle – Supper awards for super

achievers!” launched on March 30, 2002. This contest was

open for the following:

i. Area Sales Managers

ii. Sales Officers

iii. Cash Distributors

iv. Pallet Salesmen (a S.O. may have 2-3 Pallet

salesmen reporting to him to enable him cover a

wider territory.)

v. Distributor Salesmen (These salesmen are the

employee of the distributor, but are under

indirect pay roll of Nestle, since their salary is

reimbursed by the company.)

vi. Merchandisers

How does it work

Step 1: The qualifying criteria for the contest is :

- 100% achievement of internal target for Qtr III

(invoicing)

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- Minimum 10% RDBN turnover growth over the last year

Qtr II.

- Duration :

o Invoicing: 01/04/2002 – 29/06/2002

o RD: 02/03/2002 – 23/06/2002

Step 2: All ASMs who fulfill the above criteria were then

ranked on the basis of an Index

INDEX = % RD turnover growth * absolute value increase

Step 3: Top ASMs (as fixed by the branch) win prizes.

P.S. Cash Distributors and Sales Officers performance

monitoring Sheets have been attached as Annexure B & C.

The winning team comprises of:

- All SOs in the ASM team

- Two top ranked CDs in each SO Zone

(Index = %RD growth * absolute turnover increase)

- Two distributor salesmen in each of the top two CD

- One Merchandiser in each of the top two points

( performance will be assessed by S.O. on quality of

merchandising achieved)

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The top ranked ASMs (Nos. as fixed by the Branch) and their

teams take home the following prizes:

RDBM T/O

growth

achieved

SO CD PS DS Merchandi

sers

20% + 5500 3500 2300 2000 120015-

19.99%

4500 2500 1800 1500 1100

10-

14.99%

3500 1800 1300 1000 1000

The Top ranked ASM team also wins a TEAM TROPHEY and

certificates.

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EvaluationOnce a distributor is appointed the company generally does

not take away business from him, except when the

underperformance has been observed over long periods.

While evaluating his performance, his targets performance

is studied relative to that of other distributors in the

nearby area (because growth patterns may by regions)

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Distribution in Practice (DIP) TrainingThere are proper training programs for the C&S agents as

well as distributors. Following are the modules included in

the program:

- Nestle Quality System

- Good Warehousing Practices (GWP)

- Good Distribution Practices.

Major aspects of the program include:

1. Stacking as per norms: FIFO basis of Inventory management is used.

Stocks are kept in pallets away from the walls. Godown.

Stacking is done in an orderly fashion and the

different batches are visible. There must be moving

space between various stacks.

2. Good Warehousing Practices

Security

Fire Fighting: Appropriate provisions are made to

handle emergency caused due to breakage of a fire.

Cleanliness

Pest Control

Temperature record and maintenance at A.C. Godown

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Proper ventilation

The required Licenses as per the local laws have

been obtained. For Eg. Sales tax etc.

Transportation: Effective, reliable and quick

transport is available to and from the warehouse.

Proper Loading / unloading: The labours have been

properly trained to ensure that no damage to the

goods take place at the time of loading /

unloading.

Remittance: Timely deposits of remittances are

ensured.

Proper records are maintained with regard to Sales

tax and exemption certificates.

3. AccountingA stock register is maintained to record receipts and

dispatches with detail of accompanying documents.

Shortages (if any) are accounted for separately. Sales

tax and Octroi are handled by C&S.. A separate register

is maintained for materials which are meant for free

distribution. All the related expenses that are

incurred are paid by C&S and are subsequently

reimbursed by the company.

4. Handling of Bad Goods:

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The bad goods are separated and marked “saleable” or

“unsaleable” appropriately.

5. Temperature control for chocolates: is ensured notonly at the time of storage but also at the time of

transit.

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Forecasting and target settingTarget setting is a result of negotiation between the

distributor and the company.

Mid month targets for the next month are given by the

company at around 5th -10th of a month. These are set for

the Sales officers, ASMs and Branch Managers in the

hierarchy and driven down by them.

At the month end the distributor can negotiate these

targets in the range of +/- 10%.

The branch manager is responsible for coordinating targets

of the factories and the targets of the individual product

managers.

Confirmed sales set as weekly targets.

For a sales officer, the focus is the redistribution

targets, also called as secondary invoicing (from cash

distributor to the redistributors)

For an ASM, primary invoicing ( From C&S to cash

distributor) is more relevant.

For the company as a whole, primary as well as secondary

invoicing as adjusted against “back” is important.

The company is now moving on to a statistical tool called

“Winters model” for demand forecasting” .This is done by

the SCM and the inventory managers at the corporate levels

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along with interactions with the sales and senior sales

officers.

Under the winters model, the baseline demand curve is worked

out, that is remove the effects of other factors like sales

promotions, unexpected variations like wars etc. on sales.

This is done by the sales officer by preparing a monthly log

and writing against each month the reason for any

exceptional variation in sales, if any.

After negating from the past sales, the effect of these

exogenous variances , trends are calculated and sales of the

next year are calculated. On these figures, the effects of

any planned promotions, any foreseeable variations etc, are

imposed to get the approximate forecasts. For example

normally the effect of a TPP (Temporary Price Promotion) on

sales is that of a 150% sales. That is sales of 6 weeks are

achieved in 4 weeks.

Inventory holding ( on an average 3 ½ weeks of inventory

is held)

Channel Conflicts

Earlier large areas used to be assigned to the distributors

and there used to be some scope for confusion or conflict

due to overlapping. However, now the number of distributors

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have increased and there is clear earmarking of the areas as

well as markets for each distributor by the company and

there is hardly any scope for conflicts based on areas.

There are a few sources of channels conflicts like-

A) WHOLE SELLERS

As discussed above, these are not a part of the formal

structure of Nestle India’s distribution network for

NCR .They make bulk purchases from the distributors directly

thereby leveraging on the margins. Typically the wholesaler

gets a margin of about 2%-3% from the distributor , of this

he retains 1 % and passes on the remaining 2% as discount to

the retailer. It is this discount which induces the

retailers to buy from wholesalers in areas like sadar bazaar

in old Delhi etc.

Such sales based on undercutting can be a source of

irritation to the distributors who are not supplying to the

retailers but are suffering due to selling by the whole

seller in their areas.

RETAILER AND DISTRIBUTORS SURVEY –KAROL BAGH, DELHI

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Out of the 5 retailers covered, only 2 bought from the

company distributor. These 2 retailers are: Bhasin Bakery

Shop and Frontier Bakery.

The other 3 retail outlets namely Cool Palace, Ashoka Stores

and Sindhi Corner are purchasing from the wholesalers in

their market.

The distributor for the area is Duggal Enterprises, who also

looks after Patel Nagar, Rajinder Nagar & Nariana.

The main issue in this area of survey has been the prominent

presence of wholesalers who sell Kit Kat to the other 3

retailers. It is important to note that these wholesalers

buys the chocolates in bulk from the distributor and sells

to these retailers at a better margin as compared to the

former.

Reasons to buy from the distributor:

The 2 retail outlets have a good business and they purchase

in ample quantities from the distributors. They have the

shelf space to showcase the company offering and thus the

company (distributors) provides them with a display in the

form of discount of Rs.150 every month. This Display

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discount varies in the range of Rs.150-400 (depending on the

sale of the retailer).

Distributors provide these people with good

service, replacement of spoilt products,

occasional credit and maintain good cordial

relations with them.

Since these people buy in good quantities (2-3

cartons), they usually don’t face a stock out.

Thus the system of 1visit per week suits as long

they are provided with their requirements on call,

occasionally in case of urgent need.

The ‘big’ outlets are also provided with

dispensers frequently as compared to the smaller

shops in the same market. (same is the case with

fridges)

Reasons to buy from the Wholesalers:

The wholesalers, as compared to the distributors,

provide higher margins.

These small shops can purchase the minimum

required quantity as and when needed.

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There is a convenience factor as there is “order

on call” facility, all round the clock.

B) INVASION BY SALES OFFICER A second type of conflict, though rare, is on account of

invasion of another’s sales area by a company’s sales

officer under pressure of sales target. An example citedwas when the S O of Haryana dumped goods by giving discounts

to a distributor of Rajasthan under desperation to meet his

sales targets. This has to be worked out at the company’s

end.

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Nestle Distributor Survey - GhaziabadName of the Distributor: Kumar Brothers

Kumar Brothers is the sole distributor of Nestle for

District Ghaziabad, Uttar Pradesh.

Beat Plan for the Distributor: The distributor has segregated

complete Ghaziabad District into 6 divisions (6 working days

of the week Tuesday is an off). The sales force of the

distributor is divided into 3 heads namely:

Milk Products

Chocolates

Other Products

All the 3 teams visit the retailers once in a week; the days

of visit have been specifically kept different. The

collection is done by the same team for the goods supplied.

The sales force is complimented by a weekly visit to the

district by the sales executive of the company. The idea

behind the visit by the company personnel is to supplement

the lags in the distribution by wholesaler and in certain

specific cases to push extra stock in the market; the

mission is achieved by allowing higher margins to certain

prominent retailers.

Credit Policy

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Nestle India Limited: The distributors are termed as Cash

Distributors because the company charges the distributors

before the stock is delivered; the company has connected the

distributor online and the transactions happen online.

The Distributor: The distributor sells goods on credit; the

period of credit ranges from 1-2 week. The wholesaler allows

discount of 1% on cash payment (policy followed by the

wholesaler).

Stock Policy: As per the company regulations the distributor is supposed

to maintain a stock of 3 weeks; the distributor maintains a

stock of 3 -3.5 weeks in monetary terms it equals to Rs. 30

lakh for the distributor.

The stock is formalized by the company; the dealer can

negotiate on 3-4 end days, the stock policy is formed for

the month.

The distributor to push in slow moving SKU’s clubs them with

fast moving SKU’s for the retailers.

DUMPING: the company dumps significantly on the

distributors, the distributor has to mange the supply by the

company. The distributor has some resentment on the issue

but has to content with it, the result is the stock gets

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blocked and distributors stores it till the expiry and then

return it; result: cash crunch for the distributor and loss

for the company in the long run.

The Undercutting The major problem that the wholesaler has to contend with is

the problem of undercutting; Ghaziabad is one of the closest

places to the main distribution market Delhi and that

results in retailers buying from Delhi at higher margins

which wholesalers are incapable of providing. The wholesaler

contents with this as a problem with every company so it is

a part of the market.

Lead PeriodWholesaler: The lead periods in providing stocks to the

dealers differs from the SKU and quantity ordered; some

SKU’s are delivered correspondingly with taking order but

some are sent from the warehouses. A higher quantity ordered

has to be replenished from the warehouse.

Company: The stock from the company is provided every monthbut company keeps replenishing stocks at the requests of the

distributors. It takes 2 days for company to replenish

stocks.

Return Policy

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The company follows a policy of return when the product has

past its expiry date, damaged or has a defect; the

replenishment is done with cash and happens at the end of

every six months.

Return On InvestmentsThe company does not gives any guarantee to the distributor

with regard to returns on his investment which is in line

with the market credentials of the company; the distributor

has invested Rs. 60 lakhs in the whole business.

Storage PolicyThe distributor maintains Cold Storages and Deep Freezers

for the storage of the products; the investment in

infrastructure is considerable for he company to maintain

such infrastructure.

Sales ForceThe company does not have a policy to train the staff of the

distributor, the distributor trains his own sales force. The

remuneration and all other expenses are borne by the

distributor.

Promotion PolicyThe company follows a policy for consumer promotions but as

regard the trade promotions they are scant rather

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negligible, the promotions put in extra pressure to push

more quantity. The problem of maintenance of the promotional

item is considerable and takes in huge energies and money.

Retailer Survey – DelhiFor the purpose of this project we had visited retailers.

Given below are some of the details which we have gathered

from them.

Rana Partap Bagh

Retailer 1

This retailer gets his supplies from Distributor of Nestle

and also from the market. He is satisfied with the

distributor as he gets his supplies from the distributor at

his doorstep and does not need to travel for the supplies

which he is sure he will sell during the week. The

distributor comes once in a week for supplying the ordered

stock. The stock order is taken a day before the supply is

made. But he prefers the wholesalers when in between the

week, his stock gets exhausted and he needs more supply. As

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the distributor will visit him once in a week only, except

in special occasions, i.e. when the order in mid of the week

is a big one. From the wholesaler retailer also gets

discount larger than what he gets from the distributor.

One main advantage that the retailer has here is that he can

get a replacement of spoiled stock. Although, distributor

sometimes forces to keep other SKU’s as well. The main point

to note in this retailer’s SKU’s is that he dose not keep 4

fingers and 2 finger kit Kats because of the selling price

reason.***

As for competition from Cadbury’s he is satisfied with them

as well, and makes not much of a distinction between the two

distributors.

Retailer 2

This retailer has a different point of view all together, he

dose not take his supplies from the distributor. Rather he

prefers to go to the market ie, wholesalers and buy what he

needs. He himself visits Sadar Bazar and buys the SKU’s

according to his own requirements.

The main reason for doing so is that he gets discounts from

the wholesalers, and thus a better margin for himself. He

visits the wholesaler twice in a month and gets his supplies

in bulk. Here he dose not have to be bound to take, and

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neither is there any pressure to keep any other SKU’s of

Nestlé. Point to note here is that this retailer is quite

happy and content with Cadbury’s Distributor’s. He is ready

to give his order to him as he is getting good margins and

dose not really need to visit to the market.

Ashok Vihar

The retailer of Ashok Vihar also has some opinions, which

match to that of the Retailers of R.P.Bagh. He dose not take

his supplies from the distributor, but from the wholesaler.

with higher margins left for himself.

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Contacts

Nestle 1. Karanjeet Singh- Ex-Sales Officer, Nestle,

9811772225

Distributors 1. Kumar Bros.

Mr. Lalit Kumar – Distributor, Ghaziabad

150, Durga Tower, Gound Floor,

Raj Nagar, Ghaziabad

2. Duggal Enterprises – Karol Bagh, Patel Nagar, Rajinder

Nagar & Nariana.

Mr. Rajan

R 505 New Rajinder Nagar

Retailers Karol Bagh

Cool Palace,

Ashoka Stores

Sindhi Corner

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Frontier Bakery

Bhasin Bakery Shop

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Observations

1. As seen earlier, the wholesalers are a cause of conflict

in the distribution system. However, the company does not

objects to the unwarranted existence of wholesalers as they

serve as means to improve the distribution of company’s

products and the undercutting done by them helps to push up

sales in the long run at times.

An example in this context is that of Nestlé’s Éclairs. The

sales of éclairs were disappointing till 1998 in spite of

various attempts by the company to alter packing, size,

prices etc. Then the company offered the wholesalers QPS

(Quantity Purchase Schemes) margins ( or even T.V.s) on bulk

buying by them over a period of time.

They pushed the product into the retail channel and once

sold at the retailer’s end, repeat purchases followed.

Henceforth the official route set in , the distributor

could ensure repeat sales by building upon the previous

successful sales of éclairs by the retailer.

2. The company introduces contests to motivate their channel

partners regularly.

In 2001 the company had launched a contest “Khulja Sim Sim -

Supper awards for super achievers” similar to “Proud to be

Nestle”.

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3. Training of Sales force of Distributors should be taken

over by Nestle to ensure optimal performance.

4. The company dumps huge stocks of slow moving SKUs to

achieve targets, but in the long run, it results into

dissatisfaction of distributor and losses for the company.

5. The selection of Distributors is a very crucial decision

for the company. A lot of time and effort is spent to

train them. Also, they are not frequently changed.

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