1. JOURNAL
on
Study of Sales & distribution network of leading
FMCG companies in rural India
Submitted In Partial fulfilment of
Applied Management Research Project
- By
Swarnabha Shankar Ray
(10BM60092)
Under the guidance of
Prof. Kalyan K Guin

2. Study the distribution network & strategy of HUL, P&G & ITC in rural India and suggest the best
distribution model to increase J&J’s product availability in the remotest corners of India
The study, hence has been taken up to study the distribution channels of a few of companies (HUL,
ITC, P&G and J&J in the local region (Kharagpur) with a focus on J&J (which has weaker reach in
the rural market) in order to study their distribution channels in detail and identify
loopholes/problems at distributor as well as retailer level that hamper the sale and suggest solution
mix based on the leading FMCG’s distribution model to improve J&J’s product availability to the
customer so as to increase penetration in the rural market.
Distribution channel is defined as a chain of intermediaries through which the product is passed
down the chain to the next organization viz. distributor & retailer, before it finally reaches the
consumer or end-user.
The distribution network plays a vital role in maximizing sales and market share of any FMCG
company as a result of deeper market penetration, efficient product availability and promotion. In
case of fast moving consumer goods, the total demand for any particular product (physical offering
satisfying a particular need) in the market is constant which is met by all the competitors which are
functional in that market corresponding primarily to their efficiency of distribution achieved through
establishing policies favorable to channel members, other factors being less important. The reason
for this is that fast moving consumer goods are low involvement products which are easily
purchased by the customers interchangeably as per their convenience. Brand switching is very
common, that is if a product is not available in one brand, the consumer would conveniently
purchase the same product of another brand. The penetration efficiency of distribution channel is
largely governed by the distributors & retailers. Well managed distribution channels ensure timely
availability of forecasted quantities of goods, lower inventory holding costs, minimized lost sales,
high substitution sales (sale of own product as a substitute in case competitors products are not
available in the market). This ultimately increases the total sales figure of the company and hence
ensures higher market shares.
A typical distribution channel in case of FMCG comprises of:

3. Apart from this, promotional support viz. higher retailer margins, incentives during promotional
events, provision of display racks etc. by the supplier are amongst other factors which affect the sale
of a product.
Described below is the methodology used to carry out this project. Personal In-depth interview
technique had been used as the primary data collection instrument here. In this, personal
interviews were conducted with people involved in different functions of the distribution to
have an in-depth understanding of operations of distributor as well as retailer. Also, a
convenience sampling approach had been adopted for surveying. Retailers and distributors
(respondents) had been chosen from the nearby local markets for the study.
The research problem here has been divided into two phases. Initial phases of primary
research had been exploratory in nature to understand retail and distribution channel in the
local market, availability of various FMCG brands in local market, the flow of goods from
distributors to retail shops and distributor practices and their margins.
The descriptive part has been further divided into two phases. Having understood the
scale and operation of FMCG distribution channel in the local market, further research had
been conducted to study in detail one local distribution channel of selected FMCG companies
in terms of its replenishment policies viz. payment and delivery terms with distributors,
inventory policies, logistic modes, lead times of replenishment, lost sales and causes for lost
sales and effectiveness of supply demand match being maintained at distributor’s end. The
questionnaire was then analyzed primarily for those parameters which will ultimately improve
product availability and hence market share of the selected FMCG C ompany. A detailed
interview was conducted with distributor so as to unfold the facts with respect to issues
affecting product availability.
The second phase of the research had been to study and understand various factors/ issues
that affect the availability of product to customer at retailer level. The information had been
collected by conducting personal in-depth interviews with a few retailers operating in the
nearby local market. The data/information collected had been analyzed so as to arrive at a
solution mix which would benefit all the channel partners, improve product availability in the
market thereby minimizing chances of lost sales and maximizing substitution sales ultimately
resulting in improvement in the market share of the company.
The exploratory part of the research was focused on to collect information on distribution channel
management (national as well as local) of a few leading FMCG companies in the country. The details
had been collected on various parameters such as product range of the company, product categories
being supplied by the company, nation distribution network and local distribution network set up by
the company to distribute its product assortment. The details such as the payment terms and
replenishment policies, mode of transport used for distribution, supply demand match and channel
motivation etc. were also collected. These details had been collected with a view to understand

4. different types of channel management practices and systems being used by various FMCG
companies in the country.
The study revealed that maintaining enough cash flows is one of the serious issues with distributor.
The distributor purchases goods from supplier on cash payment whereas sell goods to retailers on
credit of at least 7 days. In order to entice retailers for cash payments, he has to offer discounts of
up to 1-2 %. This leads to a situation where the distributor always has negative cash flow which
ultimately affects the quantity of goods he purchases, inventory levels at warehouse and also
hampers the motivation level thereby causing frequent stock-outs and hence lost sales.
Taking above facts into consideration, different alternative payment terms scenarios have been
analyzed for the distributor so as to suggest one that is favorable to both the supplier as well the
distributor charging a lit. It has been found that the supplier must revise the payment terms in such
scenarios to allowing a credit period to the distributor for payment of the goods supplied while the
extra price and also asking them to achieve higher sales targets. This will enhance the channel
motivation and would ensure that sufficient quantities of the product are available in the market.
The study at retailer level revealed that the major factor that discourages a retailer from purchasing
sufficient quantity of a product (of non-leading FMCG Company) is whether the supplier would
take the unsold goods back or not. As reported by retailers, the purchase quantity in such a case is
only 70-80% of the actual demand of the product just because they are skeptical of whether the
quantity, if purchased more, would sell or not. Even if the retailer is offered significantly higher
margin, he/ she would purchase in lesser quantity than the actual demand of the product. This
causes stock out of product even when there is a demand and hence results in lost sales.
In order to overcome this problem, a cost-benefit analysis of implementing the goods return policy,
has been conducted. It shows that implementing the goods return policy would cost approximately
3-4% of the retail price which if implemented, would enhance the sale by 20% (appx.). The policy
may be implemented by reducing the margin of the retailer by 1% and bearing the remaining cost.
The policy would result in, retailer purchasing higher quantities of product which increases the
product availability and minimized the chances of lost sales. Implementing above mentioned
strategies in the distribution system would ultimately improve the product availability at both the
distributor as well as retailer level. More a product is available lesser are the chances of lost sales and
more will be the chances of sale as substitute as a result of which the market share of the company
would improve.
A basic set of questions were prepared beforehand before the personal interview with the
distributors and the retailers. Most of the interviews involved the following questions:
Questionnaire for distributor
1. What products do you distribute?
2. Which markets do you distribute them to?
3. What is the share of sales of each market?

5. 4. What is the reorder frequency of retailers (or) how often do you visit retailers for
fulfilling their demands?
5. What is your re-order frequency and value of each order to the manufacturer?
6. What is the lead time for order delivery by the manufacturer?
7. What is the product range that you distribute?
8. On what payment terms do you purchase the goods from manufacturer?
9. On what payment terms do you sell goods to retailers?
10. Does your manufacturer accept buyback of unsold goods? If yes, at what percentage of
original price does he buys the goods back?
Distributor information:
1. Reorder quantity of distributor?
2. Reorder interval of distributor?
3. Stock depletion rate of distributor?
4. Distributor’s stock-out period?
5. Minimum inventory level at reorder point?
6. Inventory and transportation margin charged by distributor?
7. Margins from source supplier?
8. Annual throughput (value and quantity wise) of DC?
9. Load consolidation applied or not?
10. Inventory overheads?
11. Annual lost sales figure?
12. Market size of product category?
Questionnaire for Retailers:
1. Percentage of HUL,P&G, J&J and other products.
2. Re-order frequency and quantity?
3. Payment terms with the distributors?
4. Whether displayed items sold/preferred over non-displayed items?
5. Whether supplier provides any support for display of their product?

6. 6. Whether higher stocks are maintained for displayed items than those not displayed?
7. Does retailer ask for additional charges for the display of items?
8. Are there any instruction from supplier as to how their items be displayed at retail
store?
9. Is there any difference in margins offered by leading suppliers and those offered by non
leading suppliers?
Retailer Information:
1. Reorder quantity from each retailer?
2. Reorder interval of each retailer?
3. Stock depletion rate of each retailer?
4. Retailer’s Inventory stock-out period?
5. Minimum inventory level at reorder point?
The 1st person to interview was the ITC personnel, Mr. Pande. He oversees the sales and distribution of
Puja Traders(ITC Distributor) located in Malancha Road,NS Market.
Details of the interview with ITC are as follows:
Puja Traders distributes only ITC products
The product range being distributed includes cigarettes,Personal Care,Packaged Foods,Safety
Matches.
Monthly Turnover of his distribution business is around Rs 1 Crore, out of which the margin
varies from 0.75 % on cigarette 2.8-3 % depending upon product types.
The Market served is Golbazar, Prem Bazaar, Kalaikunda, IIT Kharagpur, Gate Bazaar( whole of
Kharagpur and underlying areas to be more precise) with around 620 retail outlets and
stationery shops and around 750 pan dukans
The distribution network includes wholesalers , retailer, small shops
Out of the total sales 65-70% is from cigarettes only, 22 % from packaged foods and rest
Personal Care products and safety matches.
The distributor keeps 9 days of safety stock in the warehouse. The reordering frequency is 1
week.
Forecasting is based on past 6 month’s turnover data and trend analysis. Order is placed on the
basis of forecasting. Advance payment is made and delivery happens from Kolkata ITC
warehouse within a week after payment.
The mode of distributing goods to retailers is one pick-up van, two 3-wheeler van,5 hand carts,
and 8-9 salesperson on bike and cycles.

7. Distibution to the customers is done by the distributors. The cost of local distribution is borne by
ITC only. ITC also employed four supervisors (franchisee) who takes care of the whole
distribution business in Kharagpur
Retail margin 10.5 % on packaged food and Personal Care Products, wholesale margin is +1.5%
Cigarette is sold on immediate payment basis. Other products are sold on 15 days credit basis.
Midnapore different distributor for ITC
Chandrakona Road, Gorapetta sub stockiest point.
Less margin is given to the sub-stockiest . Goods sold on 7 days credit
Problem area – customer late payment
P&G Distribution
The next interview taken was that of P&G distributor , Shradha enterprise Pvt Ltd branch located in
Vidyasagarpur,Kharagpur. P&G has 2 distributors in West Bengal. 1 handles Kolkata circle (Metro) and
Shradha Enterprise handles rest of West Bengal. Shradha Enterprise is in itself a company whose branch
in Kharagpur handles the whole business in Paschim Midnapore. They were secretive and did not
disclose much information as per company policy. The information thus collected is as follows:
Includes all the products of P&G
Total monthly turnover of around 70-75 Lakhs in Kharagpur,Midnapore and small towns of
Paschim Midnapore.
1.5-3 lakhs in other rural areas of Paschim Midnapore.
They distribute to around 2100 small retailers (monthly business of Rs 3000 of P&G product)
And around 400 of other retailers (monthly business of Rs 5000 min)
Currently there are 10 salesperson. 7 people handle small retailers around 300 each.
Rest 3 handles medium and large size retailers
9 three wheelers and 1 four wheeler (chota hati). The tempos are on agreement basis
The distribution cost for the tempos is billed and claimed from P&G. P&G bears most of the cost
of distribution.
The re-ordering frequency is once in a week. Order delivered in 2-3 days.
Credit of 1 week is only entertained to the big counters.
A project is going on for further penetration in rural areas of Paschim Midnapore. A team of 10-
15 people has been incorporated to carry out their project
 For new retailers: P&G is covering all the items that the retailers can sell and slowly increase
the range based on the retailers potential.
 Credit facility- no credit. But would consider if the new retailer starts ordering regularly.
Expiry damage entertained on the next enrollment .Manufacturing defect considered
 Door to door delivery
 Once a retailer becomes regular, damaged/defective stocks will be exchanged
 No rat-bite damage will be entertained
 They are taking up a special drive, where the retailers are been asked to sms their orders,
with codes or call up and place orders. Temporary salespersons are now hired to educate
the retailers in rural areas, to reduce the turnaround time.
Retail margin is 5-10% on various products.
Shortage of manpower due to the limited budget is their point of concern for Shradha
Enterprise

8. P&G’s golden distributorship strategy is both good and bad. The company is totally dependant on its
distributor for business. Trust plays a very big role in this kind of forward integration network. On one
hand P&G can get rid of all the worries related to distributor issues ( e.g competency/bottleneck/
motivation ) as the distributor in this case Shradha Enterprise itself has a management culture and own
competency benchmark and distribution skills. On the otherhand the bargaining power of the
distributor becomes too high and the total dependency on the distributors can lead P&G into backfoot.
HUL Distributor-
The next person to interview was Mr. A.K Agarwal , owner of Prabhu Dayal Gauri Shankar Trader-HUL
distributor in Kharagpur.
Products dealt with-Personal care product, Household product, hbc-packaged food, paste,u2
colors –lakme,elle
Products of HUL not Supplied – Food Items-Bread, Ice-cream- Kwality walls
Only distributor in Kharagpur covering a total of around 300 retail stores including Kalaiconda,
Midnapur
Online payment is issued on next day after the product is received by the distributor.
Biweekly orders are placed with the company
In a duration of 2 days the product comes to the dealer from the company
Time limit given to Retailer to pay for order received – 1 week ( next order is not issued in case
payment is not received)
The transportation expenses are divided between HUL and distributor : one 2-wheeler van,
Salesmen vehicle , Petrol expense is given
Margin given to retailer varies from : 2-10%
Payment mode with HUL- electronic money transfer is made as soon as order is
delivered. No credit is allowed
Margin to Distributer: Not told
Safety stock inventory: 10 days
No of sales person: 11 for Kharagpur, 4 for Midnapur
Distributer places order to HUL via internet
Order are placed by retailer to the salesperson; Next day order is delivered.
Monthly turnover: 1 Crore,
28 days investment
Any provision for sub stockiest: No
Saleman Salary is given by distributor. Based on profit /target achievement , incentive is also
given by the company on a 50-50 % basis
Forecasting: CRP a SAP based application installed by HUL. Which does forecasting on a regular
basis Based on last year’s sales and this year’s forecasting the software says how much to
provide
HUL provides UNIFY application to forecast order placement, issue orders and for financial
transactions

9. Overall, the application provided by HUL is of great help to the distributor as forecasting is made by the
system. Also from HUL’s perspective due to automated forecasting which involves a sales push strategy
any bottleneck at distributor level is avoided. Distributors have to be competent enough to deal with
higher target and regular forecasting for goods. The distributorship for HUL products is not unique thus
more and more distributor can be roped in by HUL. For rural distribution HUL has taken up a different
strategy and different network.
To understand the “Project I-Shakti” HUL micro rural penetration strategy next round of interview was
taken with the distributor in Belda, a small town. Mr. P. Kotak was interviewed based on the prior
knowledge of HUL distribution network.
MM. Enterprise – Is the distributor of HUL/Vodafone/Nestle and Heinz, located in Belda(40 kms from
Kharagpur).
HUL product range: Food and beverages(excluding Kwality walls)/ Personal Care products/Home
care products
The monthly turnover of his distribution business is around Rs. 2 Crore, out of which the
margin varies from 3 – 8%. The markets served are Belda/Debra/Sabang/Taladiha (rural
areas of Midnapore) and micro rural areas of Paschim Midnapore
MM Enterprise has two fold distribution model
1. Direct retail supply to Semi-Urban areas of Belda/Debra/Sabang/Taladiha
2. Supply to micro-rural stockiest and sub-stockiest distributor under project I-Shakti-
Micro coverage
There are around 120 I-Shakti stockiest under MM. Enterprise who generates business
worth Rs 60- 70 Lakh on a monthly basis.
Payment mode with HUL- electronic money transfer is made as soon as order is delivered. No
credit is allowed
Order is placed through HUL’s SAP based application system- UNIFY. Based on history data the
system forecasts the order quantity. The order quantity can be edited by the distributor but
need to be informed to the company
Order is placed 4 times a week. HUL delivers the product within 2 days. Every alternate day HUL
sends its cargo.
Payment mode with sub-stockiest: Immediate Cash Payment / 7 days credit period.
Vijeta- Those stockiest who surpasses target generally of Rs 70,000- 80,000 is awarded 1
% discount rate
Star – Those stockiest who meets a certain percentage of their monthly targets are also
awarded bonus points(each point ~ Re. 1) based on their order quantity (generally for
every Rs 250 purchase 1 bonus point is added . They can redeem these points afterward

10. Money rotation is a big constraint for the distributor as he has to pay immediate cash to the
manufacturer for taking delivery of goods while the payment terms on retailer end are credit of
15 days. Moreover, the credit is difficult to recover and there is always a significant amount of
money locked with the retailers for long periods. This results in low cash available with the
distributors ultimately affecting the quantity of items ordered at a time and hence the problem
of maintaining optimum stock levels.
In order to entice retailers make payments immediately in cash, the distributor offers
discounts ranging from 0.5 to 1.0%.
Retailers are given a margin of 1 %.
Shakti Sub stockiest are given a margin of around 3 %
Under HUL rule these sub stockiest have to be placed away from the metal road on the
mud roads.
MME has 5 vehicles for distribution.
Company provides .25 % of the order as the share of distribution and other cost.
21 days of investment stock
Damaged products take more than 45 days to get replaced.
Rural Distribution
I-shakti & wholeseller/sub-stockiest
HUL has a separate i-shakti project to manage its micro rural distribution. It is a separate
wing which has separate management.
Company gives extra percentage to i-shakti people (3% more is given by the distributor
out of which 2 % is reimbursed by the company) . This 3% is given to suffice for the rural
distribution cost. I-shakti is unique to HUL.
Transport cost to the i-shakti is taken by the distributor.
Weekly transaction generally ranges from Rs 10,000 to Rs 200,000 depending on target.
Target achievement realizes in special schemes and gifts like cycle/saree/mosquito
nets/bags/discounts
Tata docomo has partnered with HUL with this i-shakti penetration.
i-Shakti monitoring is done by company personnel.
Distributor gives individual target to each of the i-shakti.
Distributor gives 1% to wholesaler, .75% to many retailers for ontime payment and for
achieving particular targets
J&J interview- Mr D. Bhattashil, J&J sales representative
In Midnapore district J&J has its distributorship in Kharagpur,midnapore,jhargram,belda,
mecheda, tomluk,haldia,contai,egra
Prabhudayal Gouri Shankar is the distributor in Kharagpur
In Kharagpur J&J sells all its products except the ones for which drug license is required(
Nicorrete 4mg, benadryll, caladryll ). J&J does not have drug license for this belt as of now
Monthly revenue of this distributor is Rs 14-15 lakhs.

11. Margin for retailer is around - 5.5- 10 % avg 6%
Retail margin-10%-15%
Reorder frequency- 1 weekly (Thursday)
For rural distribution transport substitution can be given in form of a margin from the company.
Payment Mode: RTGS transfer. New distributor kept in pre- payment under RTGS system. After
a certain period distributor can opt for invoice-cheque mode payment(payment after good is
delivered)
Return of Damaged Goods: Recall immediately. All goods are recalled and destroyed due to
hygiene issues. At retailer level damaged goods are adjusted in the next billing cycle.
Distributor level it is recalled once a certain amount is collected.
Safety Stock: 21 days. Still for certain products stock out can happen.
No. of Retail stores: Around 400
3 sales people work under J&J distributorship. If more than 3-4 salesperson then company
requests to have a supervisor under company payroll
KPI according to him-
Margin should be such that 25%-30% ROI annual should generate for retailer
Unique distributorship not preferred
Replenishment of stock. Turnaround time should be less
Recall of damaged goods(claim settlement)
Low market credit(<=7 days)
Multiple dispatch reduces working cost
Payment Mode
Distributor coverage
J&J just like HUL does not have sole distributorship fundamentals. As per the Sales representative this
has a positive as well as negative effect. The positive effect is that J&J can utilize the already existing
network of the distributor for the movement of its products. Negative being that the distributor treats
the J&J business as their other existing business, even though there might be huge difference in their
model.
Due to higher margin and better reimbursement policy for damaged goods J&J’s product lines
should have been the obvious choice for any business person taking up FMCG’s
distributorship. But due to the less movement of its products, especially in rural parts of India
(Most of J&J’s products focuses on urban customers )distributor’s investment on J&J products
are less.

12. INFERENCES AND ANALYSIS OF DATA
This chapter provides details of the data that had been collected during the exploratory and
descriptive phases of the research and analysis of the same so as to arrive at a solution mix for the
problem.
Findings of Exploratory Research
The exploratory part of the research was focused on to collect information on distribution channel
management (national as well as local) of a few leading FMCG companies in the country. The detail
had been collected on various parameters such as product range of the company, product categories
being supplied by the company, nation distribution network and local distribution network set up by
the company to distribute its product assortment. The details such as the payment terms and
replenishment policies, mode of transport used for distribution, supply demand match and channel
motivation etc. were also collected. These details had been collected with a view to understand
different types of channel management practices and systems being used by various FMCG
companies in the country. The table below briefly presents the same:
Further in the exploratory part of the research, a number of distributors were identified taking help
of retailers located in the nearby IIT Khragpur market and interviewing them rudimentarily
(distributors) so as to locate them and fix an appointment for further discussion on subject of study.
The local distributors of HUL, P&G,ITC and J&J have been interviewed so as to understand the
practices being followed and the replenishment policies on which the distribution system operates,
modes of logistics used, size of their market.
Comparative Data Analysis:
Company Name HUL P&G ITC J&J
Personal All J&J products
Ciggeretes
Care/Food other than
and safety
Personal Care/Food and the ones for which
matches/
Product Categories and beverage/Soaps beverage/So drug license is
Personal
and detergent aps required(nicorrette
Care/Packag
and 4mg,caladryll,benadr
e Food
detergent yll)
4.5M stores
4,000 redistribution in India,
stockists, Golden
2.0 million
covering 6.3 distributor
retail outlets,
National Distribution million retail for each
I lakh
outlets, state
markets
reaching to more ( for Kolkata
than 700 millions 1 distributor
Rest of WB-

13. 1
distributor)
1- for the
Local Distribution whole of 2 (1st- 2( 1st- Kharagpur
2
(Paschim Midnapore) Paschim Kharagpur 2nd Midnapore)
Midnapore
Payment and Delivery Payment
e-payment on e-payment
policies with before
delivery on delivery
Distributors delivery
Supply Demand Match High High High Medium
Channel Motivation High High High Medium
Prabhu Dayal Gauri
Shradha
Shankar-Kgp Prabhu Dayal Gauri
Distributor Name enterprise Puja Traders
MM. Enterprise - Shankar
Pvt Ltd
Belda
Company HUL P&G ITC J&J
Amit Kumar
Mr. Dwaipayan
Contact Person Agrawal, Mr. Rakesh Mr. K Pande
Bhattashil
Mr Prakash Kotak
Golbazar-Kharagpur, Vidyasagarp Malancha
Address Belda(45 kms south- ur- Road,Kharag Golbazar-Kharagpur
west from Kgp) Kharagpur pur
1st- {Kharagpur( IIT-
tech
Market,Golbazar,Pr
embazaar,
Malancha,Kalaikond Whole of Whole of
a) Kharagpur, Kharagpur
whole of Midnapore Midnapore and
town} town and underlying Kharagpur( IIT-tech
rural areas areas Market,
Distribution Network 300 retail outlets of Golbazar,Prembazaa
Paschim 750 retail r,Malancha,Kalaikon
2nd - Midnapore outlets, da)
{Belda/Debra/Saban stationery
g/Taladiha and around 2500 shops and
other rural places of retail outlets pan dukans
Paschim
Midnapore}
120 sub stockiest

14. 70-75 Lakhs 1 Crore; 65%
in from
Kharagpur, ciggerates
Midnapore 22% from
1 Crore; and towns packaged
Monthly turnover 12.5- 15 Lakhs
2 Crore of Paschim food and
Midnapore; rest from
1.5-3 lakhs Personal
in other Care
rural areas products
1 three-wheeler,2
handcarts,Salesmen 1 pick-up
vehicle(petrol van, two 3-
9 three
expenses are wheeler van,
wheelers 1 three-wheeler,
reimbursed by the 5 hand carts,
Mode of Transport and 2
company) and 8-9
1 four handcarts,Salesmen
salesperson
wheeler
5 three-wheeler on bike and
vehicles for cycles.
distribution
approx 5% 3% on
*Distributio personal
n cost of Care and
vehicle is food
margin varies from totally products
5%-10%
Distributor Margin 3%-8% depending handled by
avg-6 %
upon products company *Distribution
*salesperson cost of
on vehicle is
distributors totally
payroll handled
5%-10% on 8%-10% on
Retailer Margin 10%-15%
PC and food PC and food
Stockout period 7-10 days 10 days 9 days 7 days
Key Performance Indicators (KPI) for any FMCG distribution
Margin and business scale should be such that 25%-30% ROI annual should generate for retailer
Unique distributorship not preferred
Replenishment of stock. Turnaround time should be less
Recall of damaged goods(claim settlement)
Low market credit(<=7 days)
Multiple dispatch reduces working cost

15. Payment Mode
Distributor coverage
HUL P&J ITC J&J
Margin 2 3 2 4
Scale of Business 5 3 4 2
Multiple Distributorship 1 0 0 1
Claim Settlement 3 3 4 4
Order & Payment Mode 5 3 3 3
Channel Motivation 4 5 4 3
Product Range 5 4 4 2
Overall 25 21 21 19
Thus HUL clearly sets apart its competitors when it comes to sales and distribution strategy
Observations from interviews with retailers
Personal interviews were conducted
Promotional support is extended to retailer in the form of higher margins, provision of
display panels/racks & return of damaged/unsold goods.
Cadbury, Nestle, Frito-Lay, PepsiCo, Coca Cola, Wrigley etc. provide display panels.
Suppliers offer fixed incentives to retailers for their support during promotional
events.
Suppliers of medium-end brands shed higher margins to retailer as compared to those
of established brands (leaders).
Supplier of established brands actively takes returns of damaged/expired goods.
They focus on display also by providing retailers with display panels/ racks and
insisting on keeping only their brands in those panels.
As reported by retailers, the displayed items sell better and hence higher stocks are
kept for these items.

16. Medium end brand suppliers do not focus on display, it is upon the discretion of the
retailer to arrange display of items in a way he/she deems fit.
Retailers themselves promote items on which they get higher margins.
The HUL process of taking back damaged/expired goods is longer(1.5 -2 months)
compared to that of P&G, ITC. As a consequence of this, retailers are sometimes
hesitant in purchasing goods in sufficient quantities. They usually purchase goods in
quantity equivalent to 70-80% of the actual demand.
On an average 80-95% of unsold (damaged/expired) goods are returned to HUL,P&G
or ITC. Due to this strong value addition retailers are willing to even operate on lower
margins compared to un-established brands
In case of stock-out between two successive replenishments from the distributor, the
retailer purchases items from open market. Transportation cost, however, is added.
Where utility is a criterion for the consumer, retailer promotes items of greater utility
and with higher margins. (e.g. Local toilet cleaner sells better than HUL’s Domex to
families seeking utility).
Credit period varies from 1 week to 4 weeks. Payments to distributors are made in
installments.
Analyzing the distribution channel at retailer level
It has been inferred from the observations of the interviews with retailers that non -leading
FMCG players do offer relatively higher margins to retailers so that retailers accept their product
and promote them to end customer as well. These non-leading FMCG players however, do
not focus on return of unsold/damaged goods which, as reported by retailers, are equally
important parameters affecting the sale of the product. If a particular supplier does not take
return of unsold expired/damaged goods, the retailer does not purchase enough quantity of
the product fearing excess quantity would go unsold and get wasted thus causing loss. The
retailer, in general, purchases only about 70-80% of the actual demand of the product. This
shows that absence of goods return policy affects the product availability and hence cause
situation of lost sales.
Key Findings and Conclusion:

17. Some of the key findings of this study were:
The HUL process of taking back damaged/expired goods is longer(1.5 -2 months)
compared to that of P&G, ITC. As a consequence of this, retailers are sometimes
hesitant in purchasing goods in sufficient quantities. They usually purchase goods in
quantity equivalent to 70-80% of the actual demand.
On an average 80-95% of unsold (damaged/expired) goods are returned to HUL,P&G
or ITC. Due to this strong value addition retailers are willing to even operate on lower
margins compared to un-established brands
Where utility is a criterion for the consumer, retailer promotes items of greater utility
and with higher margins. (e.g. Local toilet cleaner sells better than HUL’s Domex to
families seeking utility).
If a particular supplier does not take return of unsold expired/damaged goods, the
retailer does not purchase enough quantity of the product fearing excess quantity
would go unsold and get wasted thus causing loss. The retailer, in general, purchases
only about 70-80% of the actual demand of the product. This shows that absence of
goods return policy affects the product availability and hence cause situation of lost
sales.
ITC’s rural distribution model is based on its tobacco business which is more than 65%
of its total turnover from the rural market. They have distributors and whole sellers in
rural market. All transactions for tobacco business are in-cash at all level.
P&G has a golden distributorship system in every state of India. In West Bengal there
is a single distributor who manages Kolkata circle and 1 more who manages rest of
West Bengal. Thus the bargaining power of the distributor is high but channel
motivation is very high. P&G focuses more on forward integration and is doing well in
the rural business
HUL has been the most effective in selecting its distribution channel. None of the
distributors or wholesalers of HUL product are unique thus more and more
distributors take up HUL products.
For micro rural penetration HUL has a separate management distribution wing
“Project I-Shakti” –an initiative to empower the grass root level families especially
women with amenities to do business(micro dealership of HUL products). They are
given special discounts and gifts time to time to support their business and livelihood.
Hence more and more families from extreme corners of rural India are coming up to
take HUL’s rural distributorship

18. J&J on the other hand provides better margin for its retailers and distributors along
with swift replenishment and reimbursement of damaged goods policies. But the
product lines and pricing are not in line with the needs of rural India
Keeping the findings and the present channel parameters in mind, due to higher margin and
better reimbursement policy for damaged goods J&J’s product lines should have been the
obvious choice for any business person taking up FMCG’s distributorship. But due to the less
movement of its products, especially in rural parts of India (Most of J&J’s products focuses on
urban customers )distributor’s investment on J&J products are less.
HUL’s distribution strategy proves to be the most efficient and robust distribution network in
the studied region. Further, their CSR initiative – Project I-Shakti serves a dual purpose. On
one hand it satisfies the CSR need by empowering rural women and on the other hand it
creates many micro distribution channels that spread far and wide in the rural and semi rural
areas. This is a highly innovative model worth emulating.