Archive for the ‘FMCG’ Category
Wholesellers are none but middlemen who buy products from distributors (wholesale/retail) and sell them to retailers. In most cases, the retailers come to the wholesellers to buy products to replenish their stock. However, wholesellers may also sell to end consumers, but such sales are minimal.
In the Indian FMCG market, we have broadly two types of wholesellers:
1. Modern Wholesale stores such as Metro, Wal-Mart BestPrice, etc.
2. The neighbourhood wholesellers around the streets in India
Wholesale distributors buy in bulk (high volumes) bargaining low prices from manufacturers. Wholesellers in turn buy products in demand (what retailers ask for?) at low prices from wholesale distributors. Because of this reason that wholesale distributors are bulk buyers, it is generally seen that wholesale is cheaper than retail. But, it also depends on how many middlemen it passes through, as each middleman adds his margin to the selling price.
What’s in it for the retailer?
Few reasons why retailers buy from the wholesellers:
- No direct distribution of a brand to their stores
- Low margins by distributors
- Direct distributors dictating terms
- Better deals at wholesale
- To be aware of the high selling products and brands
Retailers also face some disadvantages in buying from wholesellers:
- Buying goods on immediate cash
- Transportation costs of the goods
- Wholesellers may not take back the unsold inventory/stock
What’s in it for the manufacturer?
The wholesale channel helps the manufacturers achieve sales from markets where they are not directly able to handle retail sales and their shipments. In a country like India, where 95% of the retail environment is unorganized, and spanning across millions of small stores, it is impossible to reach all the stores directly through your distributors.
Most companies will have strong direct distribution in cities like Mumbai, but as you go deep into India, the dependence on wholesale indirect channels increases. Most top selling brands and categories have a good amount of wholesale component. For example, a brand which is selling in Pan-India (across the regions in India) may have a wholesale component ranging from 20% to as high as 50-70% depending on the category/brand’s dependence on Rural India. It is obvious that most of the sales in Rural India happen through wholesellers. In Rural India, you will have strong wholesellers for every group of villages or in the nearby town, where retailers go and replenish their stocks.
Manufacturers would always like to have a higher contribution of retail sales to their overall shipments, as this helps them directly to control the nuts and bolts in the operations such as trade promotions and schemes, in-store visibility, relationship with retailers, pushing and increasing their assortment within the stores, maximising profitability, increased visibility of their sales, etc. The top FMCG companies are driving their direct distribution in Rural India as they mine the Gold at the Bottom of the Pyramid.
Product Range Management
A product range is the total product offering expressed in terms of width and depth. The width of a product range depends on the variety or number of types in a product category. The depth of a product range refers to the amount of choice offered in terms of product and brand variation within a product category. A product range with a lot of depth allows you to cover a range of price points. Similarly, the width allows providing a great variety and choices to the consumer with line extensions.
Brand Extension: The brand Rasna extended into another category like packaged juices.
Line Extension: The brand Maggi launched new flavours of Maggi. Here Maggi is still in the same category, but the variation comes within the offering. Line extensions are not necessarily in flavours, but happen in any of the product attributes.
Grammage Range Extension: When Surf Excel extends its Grammage range. Earlier it used to launch 50 gm and 100gm, and now it launched a 20gm and 250gm. Also, remember most Grammage extensions are considered as line extension.
How promotions help?
For example, let us suppose there is a biscuit company XYZ in India which is a very big brand. XYZ currently offers its packs in 90 and 150 gm packs. The challenge it faces in North India is from local competition. There are a few strong local players who offer more volumes at low price points. The local companies offer very large pack sizes and doing very well. The consumer behaviour in the North India shows that people tend to buy large packs, and generally don’t prefer to buy small packs.
Challenge1: The Company XYZ doesn’t have production capacity for large packs.
Challenge2: It is very difficult to create trials when consumers tend to buy large packs.
So, the company decides to have a two-pronged approach:
- Give a rider promo (give your small pack biscuit free with another category) to induce trials.
- Introduce large combo-packs to attract the large-pack buyers
To give a rider-promo, is to give a product with another popular product based on the target consumers you want to reach. Marketers ask the question: Which is the product in my existing portfolio that reaches the maximum target group of the new biscuit product? This will help them leverage the existing distribution. If there is no product that is present in your existing portfolio then you may negotiate with other companies who operate in similar categories. Though there are other considerations, leveraging the distribution is one of the most crucial factors in a promotion, if the intention of the promotion is to induce trials. Because one of the most important factors to create trials is that the product should be present in the stores.
According to newspaper reports, deodorants and fragrances market in India is more than Rs. 10,000 million in 2010. No one could have imagined that deodorants would become such a huge market in India. It required a monumental marketing effort to convert people from an old to a new way to meet a primary human need.
Rexona – the first deodorant in India
In the mid 90’s, Hindustan Unilever (HUL) decided to launch its global deodorant brand ‘Sure’ in India under the brand name ‘Rexona’. Rexona was one of the first deodorants launched in India and was available in roll on, sticks, and aerosols. Though Rexona was a major player in the category, over the time Rexona as a brand lost its way, with a lot of competition from the grey market in deodorants, positioning confusions, and inadequate support from HUL. As a result, Rexona was tapered and its deodorants were slowly phased out from the market.
It is observed that women in this segment have fewer options and much fewer options from big brands. Though there are a couple of brands like Fa, Santoor, Yardley, and Garnier, there is no big brand like ‘Axe’ is for men. As a result, there is an opportunity to create a big brand catering to women in this segment.
Launch of the global brand ‘Sure’
With this opportunity, promising growth rates, and the evolving consumers in India, HUL has launched its leading international brand ‘Sure’ in India. However, as mentioned, Sure was earlier available to the Indian consumers under the brand name ‘Rexona’. The brand ‘Sure’ promises ‘No Paseena’ and provides long-lasting unbeatable protection against sweat and odour keeping the skin, dry and fresh all day long. It is positioned as “stops sweat” rather than as a fragrance. The Sure anti-perspirant range in India was launched in early 2010, with products for women in two variants – Passion Dry and Free Spirit. Later this year, Sure has launched its mens range.
With this launch, HUL is looking to build anti-perspirants as a new category in India. HUL is conducting a lot of consumer education and brand building activities for the brand Sure. HUL is looking to serve multiple consumer segments and build a master brand with the launch of Sure. HUL with the launch of Sure is looking to:
1. Address the void of a big brand in the women segment
2. Take advantage of the growth of the category with two master brands
3. Enter and build a new category, and not to leave any scope for competition
4. Take share from the abundant number of grey market products and private labels
5. Increase revenues and share from the deodorants basket
6. Counter increasing number of new entrants and “me-too” players in the deodorants segment
This seems like a safe bet for Unilever as it gives advantage on both the fronts – growth of female deodorant segment and entering a new category – without disturbing the market of Axe. Apart from building its own niche as anti-perspirants, it is expected that the brand will take away some share from the private labels, and the smaller brands. HUL is aggressively pursuing focused brand building activities, and Akshay Kumar and Asin endorsing this brand will definitely help take it to the masses.
Consumer dynamics in deodorants
No doubt people in both rural and urban India are becoming more and more conscious about their personal hygiene. But, the Indian consumers need a lot of education about anti-perspirants, as most Indians still buy a deo for fragrance. Most consumers in India still use deodorants as ‘fragrances’ on their clothes rather than on their skin. Brands like Axe are bought both for its fragrance and its odour reduction. With these challenges, the success of this new category requires some fundamental changes in consumer behavior and consumer dynamics. However, HUL is not new for developing new categories and altering consumer behavior.
With more focus on ‘blocking sweat’ benefit, the brand Sure is in danger of being perceived as not for office-going people who sit in air-conditioned offices. It might be more appealing for people from the humid regions, people who face the problem of excessive sweat under different situations like travelling, etc. In my view, not many people will have the need to stop or block sweat, and definitely not throughout the year. This puts the brand in danger of becoming a seasonal brand. Broadly there are four types of consumers in this space:
1. Type 1: Consumers, both men and women, who are looking for anti-perspirants in specific
2. Type 2: Consumers who are suffering from excessive sweat and are dissatisfied with deodorants
3. Type 3: Consumers who are looking for an established deodorant brand for women
4. Type 4: Consumers, both men and women, who are new to the deodorant category
While the Type 1 and Type 2 consumers will look for the functional benefits of the anti-perspirants, the Type 2, Type 3 and Type 4 consumers will look for the fragrance benefits of this category. It is interesting to see if the consumer will evaluate the brand based on its fragrance or the consumer has evolved to understand anti-perspirant as a stand-alone benefit. It could well happen that the larger base of consumers would initially buy Sure as a branded deodorant for its fragrance, and slowly then adapt to its functional benefit as an anti-perspirant. Also using Sure, it will be much easier to bring in new consumers into the deodorant category, than educating consumers and changing their behavior towards anti-perspirants. All this behavior makes it more critical for the brand to succeed as a fragrance first, and then adopt more consumers for its anti-perspirant benefit.
Will the same fragrance sell?
Though the Indian consumers have already smelled Sure under the brand name ‘Rexona’, there is less chance that consumers would smell Sure the same as Rexona. With thousands of brands and different fragrances it is less likely that the consumer would be able to smell the same as Rexona. The fate of Sure is more dependent on the brand building and how it is perceived by the entrants in the deodorant category.
As mentioned, it might be easier to bring in new consumers into this category anti-perspirant, than converting existing users from deodorants to anti-perspirants. Sure has been priced at affordable price points – 40 rupees for 25 ml, 60 rupees for 40 ml – apart from the regular SKU size of 150 ml. This shows the intention from HUL to generate more trials from new entrants and a deeper penetration of the category and the brand across all channels. For now, it is expected that ‘Sure for women’ should do well; however, it is interesting to see if the consumers will buy it as a deodorant or as an anti-perspirant.
The brand has to succeed as a fragrance first, to sell the anti-perspirant benefit to the Indian consumers. A lot is dependent on the brand building and positioning in the consumer’s mind.
The thoughts expressed in this blog are completely my personal views, opinions, and interpretations based on observation and secondary research. The blog neither represents the views and ideas nor used any information of the organizations or institutions I am associated with. Thank you.
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.
Though each company has its own distribution strategy and flow, most of the companies follow the above distribution framework.
Colgate has come up as one of the most resurgent brands in the Indian market. The brand covers massive market in terms of volume in toothbrush and toothpaste sales. Colgate is one of the top performers in its category. But with new players entering the segment, Colgate has been resurgent and is ready to face all the challenges. The toothpaste sales of the brand rose by 11.4 percent in the past year and the that of toothbrush by 14 percent. Even as other players in the market hiked prices owing to inflation, Colgate showed restraint and focused on volume growth without increasing prices.
From a modest start in 1937, when hand-carts were used to distribute Colgate dental cream toothpaste, Colgate Palmolive (India) today has one of the widest distribution networks in India – which is a logistic wonder which makes Colgate available in around 43 lakh retail outlets in the country. The company dominates the Rs 3,500 crore Indian toothpaste market with more than 50 percent market share.
Since 1976, Colgate has worked very closely with the Indian Dental Association (IDA) to spread the message of oral hygiene to children across the country. In 2004, as an additional effort to create awarenesss for good oral hygiene ‘Oral Health Month’ (OHM) was introduced. The strong relationship and the trust of generations of consumers, trade and the dental profession built over the decades of operations in India has made Colgate a trusted household name.
Developing markets such as India are an important source of growth for Unilever. The company is adopting unique marketing approaches to increase consumption of its products in these regions, positioning itself as an ethical brand that benefits wider society.
Unilever’s Lifebuoy ‘Swasthya Chetna’ (‘Health Awakening’) campaign is one example. This educates people on the importance of health and hygiene in preventing diarrhoea and encourages them to adopt a simple hand-washing regime using soap. Swasthya Chetna is India’s largest ever rural health and hygiene education program.
Diarrhoea is the world’s leading preventable cause of death, killing 2.2 million people every year including 600,000 Indian children under the age of five. According to a study by the London School of Tropical Hygiene, washing hands with soap and water can reduce instances of diarrhoea by 47%.
Many potential Lifebuoy customers live in remote, rural areas which can be hard to reach through conventional media. Ogilvy worked with Lifebuoy to create a direct communication campaign specially designed to raise awareness among India’s largely rural and often illiterate population.
Lifebuoy health officers visited 43,000 Indian villages and schools over five years where they used product demonstrations, interactive visuals, competitions and drama workshops to spread the health and hygiene message.
The program is based on the simple insight that ‘visible clean is not actual clean’ which was brought alive through a special ‘Glowgerm’ UV demo. When held under ultra-violet lamps, glowgerm powder glows on hands washed only with water, symbolising germs on those hands, and does not glow on hands washed with soap.
The program has reached 110 million rural Indians since it began in 2002. Awareness of germs has increased by 30% and soap use has increased among 79% of parents and among 93% of children in the areas targeted. Soap consumption has increased by 15%.
The campaign received recognition for its innovation and effectiveness, winning Silver in the Rural Marketing Advertisers Association of India awards in 2006, and the grand prize at the Asian CSR awards 2007. It was also recognized by the Indian government who created a special edition postal cover dedicated to the campaign.
The last few years were a golden period for the FMCG industry. The economy was growing at a faster rate, imput prices were low, and inflation was low. This year the food inflation is very high around 12%, and the raw material cost has increased upto 15 to 20 percent compared to last year. The operating margins which are typically about 20 percent in the last few years have seen a drop to almost 16 percent.
High food inflation has an adverse affect on the FMCG industry. People will spend less money on discretionary items which will hit he FMCG industry. They say the fate of HUL is dependent on the monsoons. A good monsoon will not give any inflation worries and also increases the consumption power creating demand for hair oil, biscuits, soaps, shampoos, laundry, and toilet soaps.
High input costs
High input costs are another worry for existing woes. The cost of milk powder and sugar has gone up by 35 percent and 19 percent YOY and Nestle India is really struggling on its margins. The wheat used in ITC’s biscuits is up 10-15 percent thi year, the Copra used by Marico cost 10 percent more, the coconut and palm kernel oil used by Godrej Consumer has risen by 15-20 percent, and the menthol used by Emami has gone up by 20 percent. The heavy rains in Kerala might have caused the cost of Copra to increase and it doesn’t seem to be temporal. So, maintaining the margins this year is a tough task. Some of the FMCG players say that they will not increase the price of Low Unit Packs (LUPs) but may increase the prices of higher priced stock-keeping units (SKUs). The packaging cost which is very important in the FMCG sector has shot up by around 10 percent this year. They are expected to stay that way caused by the strong crude prices at $80 per barrel.
Rural Market is the way
Urban Markets are showing lower growth as compared to the rural hinterland. It is estimated that the big daddy Hindustan Unilever (HUL) gets almost 50 percent of their revenue from rural India , and Dabur gets almost 55 percent, and Marico gets 25 percent of their revenue from rural India. The Urban Markets are saturated with more and more competitors and less margins for the companies. For example, Toothpaste has a rural penetration of 40 percent as against 72 percent in the Urban areas. The underpenetrated categories such as toothpaste can be taken advantage of by companies like Colgate and HUL. Colgate started an initiative to educate people about the advantages of toothpaste and influence conversions from toothpowder and others. The volume growth in such categories will be fast.Shampoos showed a growth of 8.9 percent (Jan to May’10) compared with an urban volume growth of 2.5 percent.
The government schemes which have been launched over the past few years had helped in increasing the disposable income, in turn the purchasing power of rural India. Schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) which aim to put around Rs. 40,000 crores in the hands of the rural poor, leaves a large population with higher disposable incomes. This leads to some basic changes in the consumption patterns of greater consumption of personal care and above basic food requirements.