Difference bw HUL and P&G Distribution structure.pdf

RURAL DISTRIBUTION STRATEGIES

FOR HUL AND P&G

Introduction 2

Problem Statement Study the rural distribution models of HUL and P&G and analyze their strategies to increase reach and reduce costs of their distribution processes and systems in rural India. Understanding of the rural distribution models of HUL and P&G

Project Objectives

To understand financial structure of channel members and role of technology Gain perspective on the challenges in rural distribution and Channel conflicts

Presentation Flow Introduction and overview of the two firms

Rural Campaigns run by HUL ad P&G in India

Rural Penetration Model of HUL and P&G

Challenges in Rural Marketing

The BIG Word

Snapshot of the two companies 3

Consumers

700 million

650 million

2 million

1.3 million

Consumer Categories

20

10

Brands

35

13

Direct Outlets

P&G – Rural Penetration Model 4

Winning in the market place

Strategic Focus

Ensuring direct coverage Typical sales = Rs. 5-10 lakhs

Sub-Distributor Model

What is it?

> 50 km from existing branch or difficult to reach

Salient Features

Increasing reach in villages with < 20,000 population

1 sales exec. per Sub-D 350 stores per Sub-D

Future of Rural Model at P&G Power Villages

Focus on Rural Bihar

• Identified 70,000 villages

• Target power villages = 7,086

• Cost to serve < 10% of Revenue

• Current Business = Rs. 11.2 Cr./month

• Current reach = 10% of such villages

• Added 25 new Sub-D in Bihar

• Plans to increase 5-10% per year

• Total ACV of Power Villages = 54.1%

HUL – Rural Penetration Model: Project SHAKTI 5 Reach of 3 million households

Project Shakti

Recruit micro-entrepreneurs – Shakti Ammas and Shaktimaans– to act as salespeople & brand ambassador Make and sell HUL’s health & beauty care products to lowincome rural consumers

Redistribution Stockist (RS) responsible for delivering till Shakti Point

Business Model

Shakti Ammas/Shaktimaans purchase the goods and deliver & sell to thousands of villages Shakti point given 3% margin on retail landing price reimbursed by RS (1.25)& HUL ((1.25))

20-40 Shakti points per RS

Current

Future

Shakti Ammas

45,000

100,000

No. of villages

135,000

500,000

Population reach

150 million

600 million

Future of Rural Distribution at HUL 6 Maha Coverage Model

Extend Project Shakti •

Increase Shakti Ammas & Shaktimaans

•

Launch in other states

Increase reach to uncovered retail stores by providing a fixed payment to Redistribution Stockist (RS)

Challenge:

Challenge:

•

•

Lack of control over the distribution of stock Inventory being resold in retail stores owing to rate cutting

•

• •

Rampant fake billing Inability by additional stores to purchase stock on regular basis owing to small size

Project Columbus •

Give a fixed lumpsum pay to retailers to serve additional retailers in the nearby areas

Project Gateway to Rural •

Pilot project with India’s largest bank SBI

•

Create joint distribution model by partnering with banks & telecom companies

•

Cover 6.38 lakh villages; create economies of scale

•

Started in Maharashtra; plans to expand to Bihar & UP

Challenge: •

Lack of control over distribution of stock

•

Fake billing

Financial Structure 7

P&G Sub-Distributor Cost Parameters

HUL Shakti % of Sales

Fixed Cost

4.00

Commission

1.00

DSE Salary

2.50

App. Salaries

2.63

Wholesale Margin

0.60

Others

1.00

Total

11.7%

Cost Parameters

% of Sales

Margin of Redistribution Stockist

4.76

Additional margin to Shakti Point

3.00

Reimbursed by RS

-1.25

Delivery till RS point

1.00

Total

7.51%

Campaigns in Rural India 8

HUL

P&G Increasing product awareness in rural areas

•Live demonstration on use of products like diapers •Coverage of 40,000 villages in 2010

Project Shakti

•Turns rural men and women into entrepreneurs •48,000 women across 135,000 villages

Lifebuoy Swasthya Chetna

•Awareness on the importance of washing hands with soap •Reached around 120 million people in over 50,000 villages

Reduction in SKU size

•Make products more affordable for rural consumers •Reduction in price of whisper to Rs.25

Integrated Rural Development

•Began in UP in 70s with 5 villages; grew to over 200 villages within 10 years •Helped increase milk supply in the region

Introduction of more affordable brands

•Launch of Tide Naturals in 2010 •Increase in pack size without increasing price

Challenges in Rural Distribution - Channel Conflict 99

CREDIT HUL

P&G

• Credit to wholesalers – 15 Days • Credit to retailers – 7 to 15 Days

• Credit to wholesalers – 7 Days • Credit to retailers – 7 Days

PRICE CUTTING HUL • 3% Discount at Shakti point • 1.5-2% Discount at Wholesale point

P&G •

Same Rate across outlets (1.5% discount to wholesaler)

•

Still 4 Products available cheaper in City Wholesale Market

Challenges in Increasing Distribution - Logistics 10

• Lack of Pukka Roads

• Narrow roads (only certain vehicles can reach these places) • Problems during rainy season

• Uneven Terrain • Lack of warehouses to lease • Pilferage

• Safety of products • Legal requirements (only specified value of products allowed per vehicle)

• Rising fuel costs

Other Challenges 11

Lack of Awareness - Promotion (Sales Promotion and Advertising) Strategy

Restricted Purchase Power

Additional Personnel Requirement to Increase Reach

Technology to Reduce Challenges 12

Both P&G and HUL leverage the hand-held wireless PDA device in rural areas to take orders; this helps the company to get real time information on demand patterns and trends, manage inventory and production better, as well devise efficient sales promotion programs to drive sales

Both companies also leverage geo-tagging (GPS) technology to map individual retailers and to find the approximate distance and time required to reach these shops from the nearest highway

Recommendations 13

P&G • P&G is a relatively new entrant in the Indian FMCG market vis-à-vis HUL. Therefore, the company has been focusing on a high cost, high quality model direct reach model in rural India. • In low throughput regions, the company should focus on sub-distributors regions to decrease costs • In high throughput regions, P&G should look to increase the number of distributor branches to increase its reach • Multiple sales executive per sub-distributors will help reduce fixed costs and will help increase total margins • The company should also make sure that the incentives of the employees are linked to shops covered

– Moreover, the fake billing problem can be reduced by ensuring that GPS based billing is adopted across the organization

Recommendations 14

HUL • The company should limit the sales per Shakti point to ensure that price cutting and forecasting of stock to wholesales is reduced • The company should extend project UNIFY in rural areas to make sure that the data is available till the retail store • The company should continue the shift in Shakti model from a women self help group model to a rural retailer model especially in UP and Bihar • The company should also make sure that the incentives of the employees are linked to shops covered – Moreover, the fake billing problem can be reduced by ensuring that GPS based billing is adopted across the organization