FMCG Distribution Network
Posted July 16, 2011on:
The typical chain for a grocer store FMCG product will be:
Manufacturing plant -> Company Ware House -> Regional Ware House -> Regional Stockist -> Super Stockist -> Stockist -> Distributor -> Retailer
Main Godown -> C&F Agents/Super Stockists -> Distributors as per the territories -> Wholesalers/Retailers
So, the retailers either buy from the distributor or they buy from the local wholesaler. Each has its own advantages and disadvantages. Distributor provides you with better servicing, replacement of spoilt products, credit facility of 2 weeks, etc. On the other hand, the wholesaler will give you more margins, but no credit facilities, and you don’t have compulsion of storing a set of SKUs, etc.
The inventory is under the ownership of the company only until it reaches the distributors by the C&F agents. The stockists are responsible to distribute to the retailers. Each stockist may serve around 500-1000 retailers in a proximity. Also, all the stockists are not the same in their storage. Every stockist may have his own set of categories which he can store the best, like a stockist can store rice, sugar, teapowder, biscuits, and snacks. Some may be specialists in handling premium products, and some in frozen foods. The company generally categorizes the stockists based on their specialty and allocates different super-stockists. For example, HUL categorizes them as U1 and U2 stockists, where U1 is general products and U2 stockists handle only premium products. The distribution network for premium products is different from that of discount and popular as they require much deeper distribution penetration unlike the premium products. Company categorizes based on their storage capacities where company has some standards that every stockist and distributor should have 2 months and 3 weeks of stock.
The stockists appoint salesman who take the orders from the retailers, and the delivery is made on a van. Each stockist may have 6-10 vans, and 10-12 people for the delivery process. The link between the manufacturer and the stockist is maintained by the manufacturer’s employees Area Sales Manager, Territory Sales Manager, Activation Manager, and the Re-Stockist Salesman (RSSM) manages all the distribution, purchases, labor management, and supervises the delivery process.Every month the sales targets are set by the company to all its salesforce – TSM, ASM, Sales InCharge, etc. and they handle all the relations with the distributor and sometimes push the stock onto the distributor to meet their sales targets. Companies try to motivate the channel partners with workshops about business & marketing, good warehouse practices, and a lot of other incentives. They follow a strict rating mechanism with all its channel partners and evaluate them continuously on a set of parameters.
Internally, all the sales is reported at the ASM level and then it is aggregated in a bottom-up approach. Typically, a distributor receives a margin of about 6-8% and the retailer receives a margin in the range of 9-15%. There are also many trade schemes that run throughout the year. But, these numbers change from channel to channel as per the terms of negotiation. A kirana (general/grocer) store might sell about Rs.5000 to Rs.60,000 or more per day depending on various parameters such as the location, size of the store, SKUs stocked, number of salesman etc. Typically, the FMCG manufacturer has a gross margin of about 40-50%.
Though each company has its own distribution strategy and flow, most of the companies follow the above distribution framework.