ITC Distribution in FMCG SectorGROUP 15 SECTION D

Contents

• Motivation

• ITC Business

• Distribution System Of ITC

• Market Research

• Recommendations

• Conclusion

Motivation

FMCG major ITC Ltd posted 21 per cent rise in its second quarter 2012 net profit to a total of Rs 1,836 crore whereas non-cigarette FMCG business was still reporting a loss of Rs 30 crore.

Source: The Hindu, Oct 19

Branded Apparel

Hotel

Cigarettes

Incense Sticks

Personal Care

Safety Matches

Agriculture Industry

Information Technology

Paper Boards

Packaged Food

Stationery

ITC Business

ITC1910-2012

Distribution System of ITC

Do you know ITC?

MARKET RESEARCH

Total Urban Rural0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

YesNo

• Almost every retailer in Urban Areas knows about ITC. • 5 Retailers in Urban Area, who didn’t know, did not sell any ITC products. • In Rural areas, whatever visibility was primarily due to E-Choupal initiative and

Cigarettes selling, people hardly knew about any other products like Bingo, Vivel, Superia etc.

Do you sell ITC products?

Total Urban Rural0

10

20

30

40

50

60

70

80

67

40

27

85 3

YesNo

MARKET RESEARCH

• Many retailers in Rural India did not know that the respective product was from the ITC even though selling it.

Which products do you sell?

Sunfeast Bingo Superia Mangaldeep Cigarettes Others0

10

20

30

40

50

60

50

25

15

30

40

30

38

25

12

21

13

21

12

03

9

27

9

TotalUrbanRural

MARKET RESEARCH

• Sunfeast was the best known sold product • Bingo was suffering from non-visibility issue along with Superia as margin being less

compared with Lays, Haldiram etc and Lux respectively.• Others include Vivel, Aim, Fiama Di Wills etc.• In rural areas, retailers sold all FMCG product in a single shop, hence Cigarette was

also sold in the same shop.

Do you get the product on time?

MARKET RESEARCH

Total Urban Rural0

10

20

30

40

50

6055

37

18

12

3

9

YesNo

• Many retailers in rural areas used an urban retailer to get their orders.• Interestingly, very less retailers used Choupal Sagar as their distribution link.

(Retailers complained that they get the same price as end consumer in Choupal Sagar, so it does not make sense to use it as a medium.)

• Some retailers who were not satisfied with ITC Distributor opted for Bharti Walmart BestBuy and other wholesalers

What are the reasons provided by distributor for late delivery?

Observations: The usual reason was the non-delivery of the products from warehouse. In rural areas, retailers complained that distributor was less motivated to get a smaller quantity order.

Other Issues observed:Considering HUL market penetration as their distribution yardstick Non – availability of lower quantity ordering Entry of Low-Cost Carriers like Bharti Walmart BestBuy

MARKET RESEARCH

Delink Cigarettes from other FMCG products

Distributors as business partners were not much enthusiastic selling all the FMCG products as they were able to make more than sufficient profit through Cigarette sales and were not at all concerned about rest of the product lines.

Hence, delink the Cigarette from other FMCG products.

RECOMMENDATIONS

Increase TLSD(Total Lines Sold)

Making the targets for all the company employees(TSIs) on the line and not on the overall FMCG division.

After the cigarettes are delinked, targets will be set for each product line.

This will help increase the efforts towards individual products and hence, more sales can be achieved.

RECOMMENDATIONSEncourage Distributors to sell focused brands

Here, first step would be to identify the focus brand. A brand which is not performing as per its merit and is not giving desired sales will be considered as focused brand.

Thereafter, we will provide special incentives and margins esp. to distributors and company TSIs for selling focuses brands.

The market performance will be monitored carefully and will be ensured that there is no shortage of focused brand.

Increase Brand visibility

It is important to continue to build brand by communicating with the market regularly.

Consistent communication will ensure that the brand appeals to consumers on an emotional level, and increase their awareness of it. Online reviews (CNET, Techcrunch, etc.), Display advertisements, Paid ads, Organic search engine visibility (Google, Yahoo), the social sphere (Facebook, Twitter, etc.) will help in brand visibility.

RECOMMENDATIONSUse E-Choupals and Choupal Sagars as a Distribution point for rural Areas

The biggest issue concerning rural areas is that although they sell ITC products, they usually need products in small quantity due to low sales. Consequently, if an end-consumer asks for a particular product and if the retailer does not have it, it is a big loss from company’s perspective.

For some rural shops, distance between city and respective area is so huge that the retailer does not get product on time. Hence, we can use the already established E-Choupal network to get product request from a shop and directly deliver it to the shop.

Choupal Sagar can be used (wherever it is there) as distribution point. Since, it is the company outlet; special discount will be given on bulk purchase.

CONCLUSIONAlthough there is no problem with the overall distribution of the FMCG channel, but

still the brand ITC Limited is reeling under

The non-visibility issues

Apathetic distributors

Amalgamation of Cigarettes sales and Non-Cigarettes FMCG sales

HUL, P&G, Godrej which are denting its market

FMCG market is continuously increasing in India and with rising urban population and MNREGA scheme in rural area; people now have increased purchasing power to satisfy their demand. So it is still possible for ITC to bring about a change and become a market leader instead of chaser.

We are convinced that ITC has the potential to reach new heights if they provide attention to individual product lines and here, we think that our recommendations can greatly impact company’s performance in the future.