ITC Shampoo Distribution Network

Description
Describing about ITC shampoo distribution network. It covers distribution channel, portfolio, flow of goods.

Study of Distribution Network of Shampoos

A Brief Overview
• Rs. 2900 cr Shampoo Market in India
• Major Players : HUL and P&G • Other Players : Dabur, Wipro, ITC • ITC : a Rs.18,000+ cr. turnover company • Growth of Industry : 15% pa

• FMCG Revenues: 12,955 cr.

• ITC’s Share : 5% (despite being a very late entrant)
• Rs. 145 cr. Revenue contribution through shampoos

ITC Business Portfolio
ITC

Hotels

Lifestyle Retailing

Information Technology

FMCG

Agribusiness

Paperboards, Paper and packaging

Cigarettes

Foods

PCP

Matches, Incense Sticks

Education and Stationary

Soaps

Shampoo

Vivel

Fiama Di Wills

Superia

Territory division in Mumbai

Mumbai divided into region : A 6-8 distributors per 3 of 4 Every “City” consists sub cities of 23 distributors total : “City 1” , “City 2”, regions “City 3”of 12 regions A total

Distribution Channel
Distribut or
CFA at Bhiwandi Company Freight
Rs.100

3rd Party WSP Fee Based Service Production at Haridwar

Rs. 102 Rs.100 Rs. 95

Organized Retail

TOT on Case to Case Basis : Decided by Central Office Distributor pockets 3.5%

Fixed Margin: 3.5%

Rs.103.5

10% on Bottles 24% on Sachets
Rs.113.85

End Customers

Unorganized Retail

Credit flow across the Chain
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No credit offered to distributor
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Goods delivered strictly on cash, cheque, RTGS basis.

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Distributor offers 7-15 days credit to retailers. Margins of Distributor includes an interest component towards the credit he offers down the chain

Flow of Damaged Products
Only replacement of Damaged Products, No reimbursements Paid

ITC

Distribut or
Retaile r Damaged Goods Moving Back to ITC

May Replace May Reimburse

Consum er

Achieving Economies of Scope

Distributor

Single distributor for all 3 verticals

Single Sales team for entire PCP: Soaps, Shampoos and Agarbattis

Distribution of “Distribution” @ Kamla Enterprises

1600 retailers under this distributor- Malad & Goregaon

Deals with 7 salesmen handle Soaps and Shampoos 1 Salesman handles 6 beats

1 beat per day

Sales tracking sheet

Linking “IT” ? FORUM system
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Uses FORUM – IT system to monitor distribution activities, link distributors with company, track orders, etc

FORUM
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Sales persons use PDA to transfer information into the FORUM system. Database consolidation happens every evening.

The system helps to track inventory, determine reordering levels other than being a one-stop-shop for all the information about salespersons and retailers
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-Key Strategies

Selection of Distributors
Exclusivity of distributors is strictly maintained in ITC ? Company leverages its brand and high inherent demand of its products in the market to enforce exclusivity on distributors ? Not possible for smaller manufacturers to force exclusivity, as they don’t enjoy bargaining power with distributors Advantages ? No need to push products through distributors as they have access to only ITC products ? Saves on extra margins company gives to distributors to lure them in ITC’s favor
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Area Wise Strategy- SKUs vs Retailers
Mumbai Area selection according to Standard of Living

Areas with High standard of living

Areas with low standard of living

SKU and key Products

Bottles of Fiama Di Wills and Vivel

Sachets of Superia and Vivel selected as the key product

Selection of target outlets

Target outlets to target people with high standard of living

Target outlets to target people with low standard of living

Share of Sachet by revenue

Share of Bottles by revenue

Superia

80

20

Vivel Fiama Di Wills

60 20

40 80

Choice criteria of distributors/retailers (80-20 rule)
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ITC is a late entrant in the shampoo market Currently enjoys 5% of the market share
Fiama Di Wills : Oct, 2007 ? Vivel : June, 2008 ? Superia : August, 2008
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Strictly follows 80:20 principal to gain economies of scale first Selects the first 20% of the most profitable retailers for ITC in a particular territory Out of the total 1 lakh retailers in Mumbai, it today serves only 24000 retailers

Organized versus Unorganized Distribution
Organised Retail
End Customer
Retailer has the freedom to give any discounts on MRP Distributor margin decided by company on the basis of no. of retail outlets of key A/Cs in the territory Company decides on the prices for the key accounts. Differs from A/C to A/C.

Unorganised Retail

End Customer
Retailer has freedom to give discounts on MRP Distribution margin is fixed for all distributors No discrimination on price by the company

The Way Forward
Exploring New Channels
Pushing High Margin Products Exclusive ITC Retail Outlets
• Small unbranded Salons a major consumer of Shampoos • ITC under the process of exploring these sales outlets • Introduction of reward points at retailer end • Highest points for Fiama Di Wills, Lowest for Superia

• Pilot Project in Mumbai • Retailer been incentivized to stock only ITC products



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