NESTLE:

By: Hussain Tiewala – 7333Jai Anjaria – 27274

Nestlé was founded in 1866 by Henri Nestlé and is today the world's biggest food and beverage company. Sales at the end of 2009 were $ 91 billion, with a net profit of $ 8 billion. Nestlé employ around250,000 people from more than 70 countries and have factories or operations in almost every country in the world

Nestlé is based on the principle of decentralization, which means each country is responsible for the efficient running of its business - including the recruitment of its staff.

Nestlé India manufactures products of international quality under famous brand names such as NESCAFÉ, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has also introduced products of daily consumption and use such as NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Fresh 'n' Natural Dahi and NESTLÉ Jeera Raita.

Distribution system of Nestlé is one of major source of competitive edge over its existing rivals. Nestlé has its own distribution networks equipped with all necessary transportation facilities. They transport their products at major regional sales offices, which are situated at different cities of India. These sales offices (distribution centres) have their own vans with sales people who sell and transport goods to the small retailers.

The Nestle Distribution Channel

In general Nestlé follows the above sequence for distribution of its products. By the above diagram, we can understand that the products are sent to the C&F Agents of the company from its Manufacturing Unit. Then at later stage it’s been sent to Distributor and Super Stockist. Here, the Distributor is responsible to manage the availability of products in his area, whereas Super Stockist supplies the goods to Re-Distributor who is responsible to manage the availability of outside the region of Distributor. Then the Distributor and Re-Distributor supply the products to Wholesaler and Retail in their respective region or area.

There will be a single C&F Agent for every state who supplies the goods to the Distributor. Now, a distributor will be appointed by the company for every urban city. That distributor will have the responsibility to maintain the proper flow of goods in his region. Whereas on the other hand there will be a Super Stockist in the same city who will supply the products to the Re-Distributor who will be there in the surrounding areas of that city.

Visit Details

We visited various retail outlets in M.G Road and Koregoan Park in Pune and interacted with the retailers. We identified the problems which the retailers are facing and also provided possible suggestions for the company to resolve these issues.

What is Channel conflict ?

Occurs when manufacturers (brands) dis-intermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products direct to consumers through general marketing methods.

‡Channel conflict can also occur when there has been overproduction. This results in a surplus of products in the market place.

Margins

 Perfetti

Cadbury Nestlé Lotte

Wrigleys

Colgate

super stockist 2.5 2 2 2.5 2 2

sub stockist 4 4 3.8 6 5 5.6

TOTAL 6.5 6 5.8 8.5 7 7.6

Problem:

 From the above chart, we can see that Nestlé gives the lowest margin to its distributors in the industry

Hence, the margins to the retailers are also reduced. If we consider the motivation of the retailers to keep Nestlé’s products, the throughput or off take of Nestlé’s products is very high and most retailers would be keen to maintain their baskets of goods, the low margins are a dampening factor, as mentioned by a few retailers in our interactions.

Recommendation

Considering the low motivation of the Nestlé retailers, due to lower margins on products sold by them, company should try to compensate them or give them an opportunity to increase their profits by extending better percentage incentive schemes on purchase in bulk. Instead of harming the profitability of the company by extending greater margins, these schemes would lead to high volume purchase by retailer, thereby increasing the profitability of the company

Issues in Implementation

The problem which could emerge while extending greater percentage schemes are that once the retailers get used to higher schemes on a particular product, it becomes very difficult for the company to change/ reduce the scheme on the product.

Apart from that, profitability of the company is definitely affected if the scheme is extended in an unplanned manner.

In order to implement the schemes, the company needs to identify on which products this scheme is suitable. The products which already have a very good pull effect like Maggi need not be given incentivised schemes. Some products which require pull effect are Everyday tetra pack milk cartons, coffee, etc and should be a part of such incentive schemes.

In order to have better control over the channel and prevent retailers resistance while changing the scheme, the company should also device a strategy of rotation.

PROBLEM:

We realized that the displays bought by Nestlé were not maintained properly and they scored low on hygiene and adherence to the company’s plan. As the merchandiser’s performance is not measurable, it is not possible to make his work accountable which results in slack of work among some merchandisers. Hence, the main challenge lies in the fact that the merchandiser’s productivity and effectiveness is currently not measured unlike Distributor Salesman whose turnover is an input for performance evaluation.

RECOMMENDATION:

Every Distributor will have some merchandisers who are responsible for putting up the displays and maintaining them, week-in and week-out. Merchandiser beat plan covers around 40-50 outlets per week and generally, there are 1-3 merchandisers per distribution point. From our market visit, we observed that the slack of work by merchandisers cannot be gauged and there is lack of motivation among the merchandisers to excel in their work.

Our recommendation for this, is to have incentives for merchandisers based on their work. The merchandiser’s productivity and efficiency can be measured by the Sales Officers by more frequent visits and taking feedback from the distributor salesman. Incentives of Rs. 400-500 would motivate the merchandisers and put proper effort into his job.

Issues in Implementation

The performance evaluation of merchandisers is very subjective and incentivizing on the basis of visits and feedback of Distributor Salesman may lead to discontent for certain merchandisers and probable conflict with the Distributor Salesman

Tackling Implementation Issues: To ensure that the incentives structure does not cause any discontent among merchandisers, it should be the Sales Officer’s responsibility that he keeps the feedback from Distributor Salesmen as private so that there is no conflict of interest and be in constant communication with the merchandisers about their market beats and performance.

Thank you