1

EVALUATION OF THE ROI AND CSD ROAD MAP

IN LOW PER CAPITA MARKET

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF MBA DEGREE OF

BANGALORE UNIVERSITY.

Submitted By: Saurabh Nagar

Reg.No-05XQCM6081

UNDER THE GUIDENCE OF: Prof. Ramgopal Srinivas

SENIOR PROFESSOR, MPBIM, BANGALORE

M.P.BIRLA INSTITUTE OF MANAGEMENT ASSOCIATE BHARTIYA VIDYA BHAVAN.

BANGALORE-560001 2005-2007

2

DECLARATION

I, Saurabh Nagar, do hereby declare that this project report entitled

“CSD road map in low per capita market and ROI” is an original

research work carried out by me under the guidance of Prof Ramgopal

Srinivas, Senior Professor, M P Birla Institute of Management,

Bangalore (Internal Guide). The contents of this report have not been

published before and they reflect the work done by me during

organizational training component of MBA Program of MP Birla

Institute of Management, Bangalore from 20/03/07 to 07/05/07 with

PepsiCo India Holdings(Pvt.) Ltd.

I also declare that this dissertation has not been submitted to

any University/Institution for the award of any

Degree/Diploma.

Place: Bangalore

Date: 7th May 2007 (Saurabh Nagar)

3

GUIDE’S CERTIFICATE

I hereby state that the Dissertation entitled “CSD road map in low per capita

market and ROI” is the project work carried out by Mr. Saurabh Nagar

under my guidance and supervision.

Place: Bangalore Prof. Ramgopal Srinivas

Date: (Professor MPBIM)

4

PRINCIPAL’S CERTIFICATE

This is to certify that this report titled “EVALUATION OF THE OI AND

CSD ROAD MAP IN LOW PER CAPITA MARKET” has been prepared

by Saurabh Nagar of M.P.Birla Institute Of Management is partial

fulfillment of the award of the degree, Master of Business Administration at

Bangalore University, under the guidance and supervision of Prof

Ramgopal, MPBIM, Bangalore.

Place: Bangalore Principal

Date: (Dr. N. S. Malavalli)

5

ACKNOWLEDGEMENT

This project report is the result of a six-week long study at Pepsi under the

supervision of Mr. Elangovan Sanbandam (SAM) and Mr. Yogesh Rathore

(PAM). I thank them for giving us such an opportunity to work with the

organization and his trust which allowed us the freedom and flexibility to

study every aspect of the distribution network and distributors, with hardly

any restrictions on the access to confidential software and data.

I would like to express my gratitude to Mr. Rakesh Shukla (ADM) who

helped in arranging the project for us and guiding us at every step whenever

we need assistance.

I would like to thank Mr. R P Gupta for his patience and the precious time

he spent with us in the last four weeks of the study, explaining the

fundamentals of the Microsoft Excel and the implementation part of it in the

company.

6

I also wish to acknowledge the contribution of the route agents, distributors

and the CE and whose valuable time, opinions and suggestions helped us

immensely.

I must thank Prof. Ramgopal Srinivas for his encouragement before we

started the project and his guidance during the course of the study. Without

his wealth of knowledge, and the reassurance that he would be there for

guidance and support, I would not have been able to gather the courage to

embark on this journey into the unfamiliar world of ROI.

Last but certainly not the least, I wish to acknowledge the efforts and the

help of all the PepsiCo staff at Lucknow to the entire process and without

whose help this project would not have been possible.

(Saurabh Nagar)

7

8

C O N T E N T S

Executive Summary PAGE NO. LIST OF ABBREVATIONS INTRODUCTION 12 The Organization

Marketing Strategies

Promotion

FOBO Distribution

COBO Distribution

Introduction to the Study

AREA OF STUDY AND METHOLODGY 22 Area of Study

Methodology

Field Components

Office Component

Data Sources

DISTRIBUTION NETWORK 27 Introduction

Challenges 2007-2009 OBSERVATIONS AND RECOMMENDATION 47

Sample Distribution REGION WISE DISTRIBUTION 49 CITY/DHQ/UPC WISE DISTRIBUTION 50 Observations

Recommendation

Impact

9

Contemporary GTM

SS model proposed 65

ANNEXURE: 67

• Select Bibliography including websites used.

• Interview Schedule

10

EXECUTIVE SUMMARY

This project is a study of Pepsi’s Distribution programme (PDP) in

UTTAR PRADESH and UTTARANCHAL and the Return on

Investment (ROI) of the existing Distributor of Pepsi.

Other than general overview of the current distribution network, the

project aims to look into the details of how investment is being used by

the distributor and the Company to increase their profit or earnings,

thereby increasing the productivity and efficiency of the distributor.

Based on the findings of a Six-week study, this report identifies certain

loopholes in the distributor’s policy as well as in company policy.

Finally, the report provides possible solution to the above problems in

the form of recommendation as well as certain suggestion for more

optimal use of distributors.

11

LIST OF ABBREVATIONS

ADC Account Development Coordinator BSD Bottled Soft Drink CE Customer Executive CEMU Central Market Unit COBO Company Owned Bottling Plant COP Central Order Processing D Distributor EDS Each Dealer Survey FMCG Fast Moving Consumer Goods FOBO Franchise Owned Bottling Plant GIS Geographical Information System MDM Market Development Manager MT Empty (Empty Glass Bottle) NOMU North Market Unit PET Polyethylene Terephthalate (recycled plastic) PJP Pepsi Journey Plan RDP Rural Development Programme RSP Rural Sales Promoter SAP System Applications and Products in data

processing. It is the name for the both online financial software and for the company that developed it.

SD Sub Distributor SKU Stock Keeping Unit TDM Territory Development Manager

12

INTRODUCTION

13

The Organization:

PepsiCo's beverage business was founded in 1898 by Caleb Bradham,

a New Bern, North Carolina druggist, who first formulated Pepsi-Cola.

Today, PepsiCo is among the largest consumer products companies in

the world, with revenues of over $28 billion and over 150,000

employees. The PepsiCo principal businesses include Frito-Lay snacks,

Pepsi-Cola beverages; Gatorade sports drinks, Tropicana juices and

Quaker Foods. PepsiCo brands are available in nearly 200 countries

and territories and generate sales at the retail level of about $78

billion. PepsiCo offers product choices to meet a broad variety of

needs and preference - from fun-for-you items to product choices that

contribute to healthier lifestyles. PepsiCo's mission is "To be the

world's premier consumer Products Company focused on convenient

foods and beverages.

PepsiCo India:

Pepsi is one of the most well known brands in the world today

available in over 200 countries. The company has the largest and

fastest growing businesses in India and China, which include more

than a third of the world's population. This reflects that India holds a

central position in Pepsi's corporate strategy. India is a key market for

PepsiCo, and at the same time the company has added value to Indian

agriculture and industry. PepsiCo entered India in 1989 and is

concentrating in three focus areas

. Soft drink concentrate

. Snack foods and vegetable Food processing

14

The company entered the Indian market through a joint venture with

Voltas and Punjab Agro Industries. With the introduction of the

liberalisation policies since 1991, Pepsi took complete control of its

operations. One of PepsiCo's key strategies was to develop a

completely local management team. Pepsi has 19 company owned

factories while their Indian bottling partners own 21.

Marketing Strategies

India forms a key market in PepsiCo's global strategy. However,

despite a huge market of a billion people, the soft drink industry, with

a per capita consumption of two bottles, was vastly underdeveloped.

Pepsi's marketing problem went beyond the normal 4Ps of operating

effectively in a market. To enter India, Pepsi faced a 6P marketing

problem, with Politics and Public opinion constituting the 2 additional

Ps. Pepsi played the 6Ps very effectively. It delivered an export/import

surplus to the then foreign exchange starved government by offering

to develop agricultural exports from Punjab. In this way, it was able to

offset the cost of importing concentrate into the country. Parallely,

with its trend-setting advertising, innovative on-ground marketing and

intrusive distribution system, Pepsi, today, has brought to its fold a

staggering 200 million consumers. Brand Pepsi is the largest single

soft drink brand in India. Pepsi is recognized as 'The' iconic youth

brand in this part of the world. After flooding cities and large towns,

Pepsi is now penetrating the rural market.

Pepsi launched in India as Lehar Pepsi - 'The choice of a new

generation'. In the year 1993, Coca-Cola was planning a re-entry into

15

India. Having been for years the cola that Indians grew up drinking,

the threat of such familiarity, albeit somewhat dated, had to be

countered. The task was, therefore, to reiterate faith and retain loyal

consumers. To ride on the passion generated by its very

successful launch, Pepsi followed with its first Hinglish 'Yehi hai right

choice baby. Aha!' commercial. The Cola Wars had come to India.

'Aha!' created a new idiom. Pepsi further built empathy and stature by

signing on a host of youth icons of the time. It is, however, Shah Rukh

Khan, arguably one of India's biggest cine stars, who continues to

endorse Pepsi to date and epitomizes the brands connect with

movies, music and Bollywood.

The 50th year of Indian independence was an opportune period for

Pepsi to celebrate the spirit of youth. 'Freedom to be' was Pepsi's

salute.

1998 was the year of the 'Generation Next'. With its finger constantly

on the pulse of the nation, Pepsi revisited its raison deter - the

consumer. The brand was given a new vision - in tune with the

consumer experiences and their attitude to life - 'Yen dil maange

more' was the new brand expression.

The Product Pepsi and its other Brands

The Cola franchise also includes Diet Pepsi, the first diet cola to be

launched in India. Catering to emerging needs of the calorie and figure

conscious, Diet Pepsi is the image variant in the portfolio.

16

Cola is not the only product PepsiCo brought to India. The PepsiCo

brand stable includes Mountain Dew, Mirinda, 7UP, Slice, Aquafina and

Tropicana forming a part of the wide spectrum of beverages offered.

Mountain Dew, introduced in 2003 has succeeded in creating an

entirely new category. Pepsi's launch of America's number one selling

bottled water, Aquafina, fuelled the dull and boring Indian packaged

water industry with a distinctive brand position that reflected

consumer lifestyle and status.

Promotion

The bottled soft drink category needs to be driven with

continuous excitement. Early on, Pepsi India identified three

broad platforms: cricket, movies and music to give expression

to its core value of excitement.

While cricket had always been the most popular sport in India,

with new technology coming into cricket from coverage to sports

gear to day/night versions of the game, it was set to acquire the

status of a religion in the sub-continent. Pepsi picked up the

opportunity early on by not only contracting the rights to all

Tests and One Day Internationals (ODIs) played in India,

but also signing up top performers early such as Sachin

Tendulkar and Rahul Dravid and creating some very cutting

edge and memorable advertising campaigns with them.

17

Channels of Operations (Distribution Network)

The entire country is divided into four zones in marketing of

bottled soft drinks (BSD). These are namely:

. North Market Unit (NOMU)

. South Market Unit (SOMU)

. Central Market Unit (CEMU)

. Western Market Unit (WEMU)

Pepsi Co. Ltd. operates through two channels in the beverages

sector namely

Franchise Owned Bottling Operations (FOBO)

Company Owned Bottling Operations (COBO)

FOBO Distribution

In case of FOBO distribution the production and distribution process in

handled by the franchisee and the company appoints a franchise

manager to look into the FOBO operations. The FOBO structure is as

follows:

Pepsi Foods Ltd.

Syrup Providing '

Franchise Bottlers

Franchise's investment in plant, machinery and glass Trucks

for distribution

18

PepsiCo India Marketing Company (Sales and Marketing) The

various regions covered by the FOBO channel in India are as

follows:

o Jammu and Kashmir

o Delhi and National Capital Regions

o Western Uttar Pradesh

o Rajasthan

o Goa

o Madhya Pradesh.

o Orissa.

o Andhra Pradesh.

o North Eastern States.

o Bihar.

o Jharkhand

COBO Distribution

The COBO distribution channel is further classified as

DIRECT through Carrying and Forwarding (C& F) Agents

INDIRECT through Distributors

The regions of India which are served by the COBO

distribution channel are:

Eastern Uttar Pradesh.

Punjab

Haryana

Himachal Pradesh.

19

Gujarat.

Maharashtra.

Karnataka.

Kerala.

West Bengal.

Tamil Nadu

UP - COBO

UP - COBO covers six territories of Uttar Pradesh, namely

Kanpur.

Lucknow.

Allahabad.

Gorakhpur.

Uttaranchal.

Bareilly

20

Figure 1.1 Map of six districts of UP-COBO

Uttar Pradesh has three production centers or plants in the following

locations:

Jainpur located at a distance of about 48 Kms. from Kanpur It

is a three line plant .

Sataria located at about 52 Kms. from Allahabad. It has two

lines of production.

Bajpur located at a distance of 120 Kms. From Bareilly. The

plant has two lines of production.

21

Introduction to the Study

This eight-week study was conducted for UP-COBO and

UTTARANCHAL-COBO to understand the distribution system employed

by the PepsiCo. Especially with regard to all segment setup. Since the entire

area of operation was too large to be studied in such a short span of time, the

study is based on observation in several CITY, DHQ and UPC in Uttar

Pradesh and Uttaranchal.

To maximize the ROI (Return on Investment) for the distributor particularly

in the small slab size and in the process increasing the turnover for the

company. The aim of the study was primarily to evaluate the existing

earning of the distributor and the existing distribution system.

During the course of the study, distributors had to be acquainted with and

their working along with the working of the CE and RSP had to be

observed. Based on these observation and inputs from the distributor, the

study attempts to identify loopholes policy acquired by the distributor and

how to better use the company policy for maximizing the earning of the

distribution Channel.

22

AREA OF STUDY AND

METHOLODGY

23

Area of Study

The study was conducted for the distribution network and distributors

ROI in the six territories in Uttar Pradesh and Uttaranchal which come

under UP-COBO namely Lucknow, Gorakhpur, Kanpur, Allahabad,

Varanasi, and Uttaranchal. A detailed study was conducted in

Lucknow, Kanpur, Varanasi, Allahabad, Uttaranchal territories

covering city, DHQ and UPC.

24

The market of India is increasingly being recognized as the richest

potential market by MNC’s and other companies looking to expand

their operations. In the UP-COBO area alone there are 71 districts.

Methodology

In order to understand the distribution system used by Pepsi, the initial phase

of the project involved three weeks of field work in city, urban as well as in

rural markets. A PJP was prepared which provided an insight into the

working of urban distribution network through rotes rides in Pepsi trucks

within Lucknow and visits to rural market with an RSP to observe the

process involved in supply.

Following the field visit, the summarizing of all the data collected on

Microsoft Excel was observed. During this phase, some inconsistencies in

the data were found and further visit to the places were undertaken to verify

the data.

During the field work and office work, interviews and informal discussion

with the Staff members (TDM, ADC, SAM, PAM, CE, ME), distributors

were conducted in order to learn more about the distributors and their

network and understand problem from different prospective.

Finally, an attempt was made to combine the learning in both phases by

actually summarizing all the information collected (volumes, manpower,

25

vehicle used, area occupied, outlets etc) and then drawing conclusion to

identify the problems and loopholes in the process of distribution. This

detailed study and analysis of data was conducted for certain distributors in

all the six territories.

Field Components

During the first phase of the project which lasted three weeks, a survey is

being done of some distributors which include distributors of all Slab size in

order to gain an understanding of their investment so as to calculate the ROI.

Over a period of 2 days, rout rides with road agents in Pepsi distribution

trucks on the Hazratganj, Lalbagh, and Nishatganj routes provided an insight

into the problems and peculiarities of FMCG distribution as well as the sales

promotion schemes and the tracking of daily sales volumes. During these

routes rides, CE-work formats were filled which gave an overview of the

market situation on various routes.

Following this, a two week stint of observation, data collection and

interviewing in the UP market was undertaken in order to study the

distribution network, the success of company’s policy and the penetration of

Pepsi in the market. This two week phase also provided a comparison of the

marketing strategies and success of coke marketing vis-à-vis Pepsi’s, the

problem associated with distributors.

During this stage of the fieldwork, interviews and the informal chats

provided a lot of information and market survey in few distributors provide a

strong base to draw various conclusions.

26

After this fieldwork stage, another week in the field was required to

crosscheck some data which seemed inconsistent with earlier field

observation.

Office Component

Following the three week fieldwork, a short overview and informal training

on the SAP software were undertaken in order to gain familiarity with the

software. Due to time constraints, a more detailed knowledge and working

was not possible. After this introduction to Excel, summarizing of data

collected and volume tracking was done in order to understand the entire

process of how data collected is useful in the calculation of ROI, some

inconsistencies and doubts in the integrity of the data arose which prompted

further field visit.

Data Sources

Primary data was obtained from interviews, surveys, discussions and

informal dialogue with employees, distributor, SD’s and retailers

Secondary data was obtained from company records, database, company

sales volume data, books and internet.

27

DISTRIBUTION NETWORK

28

Introduction

India has a rural population of 741,660,293 (72%) (Census 2001) with Uttar

Pradesh having a rural population of 131,540,230 (77%). A location is

defined as rural if at least 75 percent of the population is agrarian. With

such a large number of potential consumers, it is clear why multinational

corporations would like to successfully penetrate the rural Indian market.

The rural market is tempting since it comprises 74 per cent of the country's

population, 41 per cent of its middle class, 58 per cent of its disposable

income and a large consuming class. Today, real growth is taking place in the

rural-urban markets or in the villages with a population of more than

5,000. In such an environment, being first on the shelf and developing a

privileged relationship with the retailer is a source of competitive advantage to

consumer good companies.

Trends indicate that the rural markets are coming up in a big way and growing

twice as fast as the urban. According to a National Council for Applied

Economic Research (NCAER) study, there are as many 'middle income and

above' households in the rural areas as there are in the urban areas. There are

almost twice as many 'lower middle income' households in rural areas as in the

29

urban areas. At the highest income level there are 2.3 million urban households

as against 1.6 million households in rural areas. According to Mr. D.

Shivakumar, Business Head (Hair), Personal Products Division, Hindustan

Lever Limited, the money available to spend on FMCG products by urban

India is Rs. 49,500 Crores as against is Rs. 63,500 Crores in rural India.

With the rural market being extremely price sensitive, the soft drink

companies like Coke and Pepsi had to make sure that they strike the right

balance as far as pricing is concerned. They tried to make their products

affordable in terms of unit price. However, considering the price-sensitive

nature of the consumers in these areas, it was only the glass bottles

that allowed the price to be as low as Rs 7.

Apart from pricing, reworking the pack size was also necessary. The

introduction of 200 ml packs at highly affordable prices provided them

with a strong product offering, as international quality products were

made available at affordable prices. In fact, a powerful driver for both

the companies in the rural markets has been the 200 ml packs.

But attractive pricing and convenient packaging is not enough to sell

the brand in these markets. The greatest challenge is to convince the

consumer the need to buy this product. The issue in the rural markets

is not spending power. In fact, most rural consumers have the

spending power, but they have to be given a tangible reason to buy a

soft drink when they have other options to quench their thirst, such as

water, lassi, nimbu-pani or a homemade sherbet.

In case of Pepsi, they began their Rural Development Programme in

2001 with the aim of increasing sales volumes by penetrating the rural

market of India which had been until then a largely untapped market.

30

To do so, Pepsi employed Rural Sales Promoters or RSPs to identify

potential distributors, sub distributors and retailers and provide them

with the necessary knowledge and support from the company.

A channel of distribution comprises a set of institutions which perform

all of the activities utilized to move a product and its brand from

production to consumption.

The distribution network in any company involves a host of marketing

intermediaries which perform a variety of functions. Each intermediary

that performs work in bringing the product and its brand closer to the

final buyer constitutes a channel level. There are four channels of

distribution depending on the market conditions, namely:

Zero-Level Channel (Direct Marketing)

One-Level Channel

Two-Level Channel

Three-Level Channel

Manufacturer

Distributor

Distributor

Sub-Distributor Retailer

Manufacturer

Retailer

Retailer

31

Various Channels of Distribution

Distribution of Pepsi in UP-COBO

At PepsiCo, the rural distribution channel is a three level channel

which employs distributors and sub-distributors to reach the retailer

and finally the consumer.

There are two ways of distribution in the company, namely.

DIRECT ROUTE.

INDIRECT ROUTE

The Direct Route has carrying and forward agents who makes the

product available to the retailer which finally reaches the end

customer.

In case of Indirect Route, the plant dispatches the BSDs to the

distributor location directly. The distributor can either cater to his area

or if he wants to diversify his distribution, he supplies the BSDs to Sub-

Distributors.

32

Figure 3.2 Channels of Distribution at Pepsi

In case of rural areas, the Distributor prefers to have three to four Sub-

Distributors because it becomes very difficult for him to cater to all the

villages and all the shopkeepers in his locality. With the help of SD's he

can forget about the villages which are very far off and concentrate on

increasing volumes in the nearby areas. The company aims to 'activate'

(sell Pepsi products in) all villages having a population of over 2500 in

UP-COBO through this distribution network.

At Pepsi, the Distributor is actually a dealer who buys empty bottles in

crates in bulk. This depends on the volume of sales in the area. Also, he

should have a minimum stock of five days at his distributor point. The

33

same is the case with a Sub-Distributor. He can then refill the empty

bottles as and when required. These refilled bottles he dispatches to

either retailers or to Sub-Distributors.

The Distributor places an order (or an indent) through the Customer Executive

(CE) of Pepsi and the COP Cell (similar to a call center).

Before the indent is actually placed the company has to receive a demand

draft for the amount of bottles to be refilled. The indent is entered into the

SAP software which links the operations of the entire country. The distributor

also has to mention how much of Pepsi he wants and how much of other

flavors he wants. Once the indent is placed the Distributor receives his

product in a day's time directly from the plant. Once the truck carrying the

product reaches the distributor, he should send back the same number of

empty bottles back to the plant.

The company is currently using a hub and spoke model for rural distribution

wherein distributors are created in centrally located large villages or towns.

The spoke is typically closer to the retail outlets and is serviced by a hub

distributor who is supplied directly from the plant or the company's

warehouse. This form of distribution allows for large loads traveling longer

distances and small loads doing a short distance which is cost-effective.

These distributors receive the BSDs directly from the plant and return empty

bottles in return. The distributors then supply the drinks in the surrounding

villages either with their own resources on their 'direct route' or through sub-

distributors who are appointed by the RSP and CE of the area in consultation

with the distributor. The SDs use all possible means of transport that range

from trucks, pickups, auto rickshaws, cycle rickshaws and hand carts to cart

34

their products from the spoke to the retailer. At the time of this study, Pepsi

had approximately 510 Ds and 730 SDs in UP-COBO covering

approximately 6250 villages in the six territories and approximately 23,000

retail outlets in UP-COBO.

Pricing

The following table gives the price as well as the different packaging

available in Pepsi and its other brands of carbonated soft drinks.

Brand Packaging Price Price (crate) Carbonated Drinks 200 ml

Glass

128

300ml Glass 8 172 330ml Can 18 402 500 ml PET 18 402 1 It Glass 108 2 It PET 43 369 Slice 250 ml 8 174 500 18 402 Aquafina 12 124 Soda 500 ml PET 10 216 300 ml 6 102

Table 3.1 Packaging and Pricing of Drinks

The distributor gets a discount of Rs 8 per crate for glass bottles and Rs

10 per crate for PET bottles. An exclusive outlet gets a discount of Rs

35

40 per crate. The price of an empty crate is Rs. 240 .One crate contains

24 bottles (9 bottles for cartons of 2 lit PET).

Competitive Scenario of Bottled Soft Drink Industry

Both Coke and Pepsi are trying to gain market share in the Indian beverage

market, which is valued at over $30 billion a year. Each company is coming

up with new products and ideas in order to increase their market share. The

creativity and effectiveness of each company's marketing strategy will

ultimately determine the winner with respect to sales, profits, and customer

loyalty. Not only are these two companies constructing new ways to sell Coke

and Pepsi, but they are also thinking of ways in which to increase market share

in other beverage categories. Although the goals of both companies are

exactly the same, the two companies rely on somewhat different marketing

strategies.

Pepsi has always taken the lead in developing new products, but Coke soon

learned their lesson and started to do the same. Both companies have relied on

finding new markets, especially in the rural areas of India. These companies,

in trying to capture market share have relied on the development of new

products. In some cases the products have been successful. However, at other

times the new products have failed. One solution to increasing market share is

to carefully follow consumer wants in each country. The next step is to take

fast action to develop a product that meets the requirements for that particular

region. Both companies cannot just sell one product; if they do they will not

succeed. They have to always be creating and updating their marketing plans

36

and products. The companies must be willing to accommodate their "target

markets". Gaining market share occurs when a company stays one step ahead

of the competition by knowing what the consumer wants.

Below is a comparative scenario in terms of the brands available

in both the companies:

PepsiCo India Coca Cola India Pepsi Thums-Up, Coca-Cola

Mirinda Orange Fanta Mirinda Lemon Limca

7 Up, Mountain Dew Sprite

Slice Maaza

Aquafina Kinley

Lehar Soda Kinley Soda

Table 3.2 Competing products of Pepsi and Coke

In case of rural areas of Uttar Pradesh, the local players also pose

a threat to the beverage industry. During the peak months of

April to June, companies like Bowler, Cyber are also a favorite

among the locals. This is mainly because of the fact that the rural

people do not differentiate between the brands but only want a

"black colored" soft drink. However, the threat of local brands to

Pepsi is not major as compared to the threat posed by Coke.

37

USE OF ROI

38

Introduction

In today’s business marketplace, effective use and flow of information is the

key to success. Business information parameters likes sales, customer

inventory, potential market segmentation and demographic profile from the

defining factors for all the industrial segments like FMCG, Retail, Real

estate, insurance, pharmaceuticals, etc. since most of this data has sales and

other numeric values ,it become important to use Excel for analyzing them

to get the conclusion from it.

This study is being undertaken to help the company to take the decision that

whether they need to consolidate the distributor of specific slab size or they

need to reduced the distributors

The situational analysis has been done and it is been find that UP region

which share the 16 % of total national population is consuming just 5.5 % of

total Pepsi consumption in India and the rural market is not been yet

penetrated enough.

Conventional study does not help in this situation because it says only the

sales part and yet the basic or most important reason for the declined in sales

39

is not been verified. With this study an attempt is made to understand the

functioning of the most important link of the distribution network, the

distributor. ROI calculation helps in strengthening the relationship as well as

the earning of the distributor so as to attract the new players and motivating

the existing ones.

Overview of the Market

Company data updated till August 2006 reveals that the company had a

decreased in sales by almost 50% in last three years and rural markets are

not performing well for the company. Distributors are increased by almost

48% during the last 3 years in UP state and they contribute as high as 20%

of the total COBO distributor and yet account for only 5.5% if total sales of

pepsi in India

Calculation of ROI (UP-COBO)

The company wants to increase its market share as well as to increase the

quality of customer interface, for this it want to find the reason that can

trigger both of the above mention factors. So calculation ROI is been

undertaken.

The first step that the company took was to design a questionnaire form that

will be used to collect the necessary information after that company makes

the segments of the distributor depending upon their Annual Sales Volumes.

The segments are as follows

Less than 15k

40

Between 15k to 25k

Between 25k to 50k

More than 50k

Now the company tracked the data through us by the way of certain tracking

formats (excel sheets) we had to fill in. After that this information is being

summarized and some useful inferences are been made. By analyzing the

last 5 years volume sales other important inferences are also made.

41

WHY ROI?

42

SITUATION

Demographic Industry And Data Comparison

43

Low per capita income resulting in Low per capita consumption No. of distributors as high as 20% of the total COBO distributors

Distribution & Volume Trends

2003 2004 2005 2006 06/03Distributors 481 603 712 710 48%Volume 1429 1675 1376 1084 -24%Avg. Vol. 29709 27778 19326 15268 -49%

• 229 distributors appointed in the last 3 years

• With the volumes declining and increase in no. of distributors the

average volume per distributor has significantly dropped

Comparison with other FMCG companies

• For the same period the no. of distributors for Cadbury in UP got

reduced by 114 from 280 to 166. Revenue for them increased by

15% for the same duration

• No of distributors of Dabur increase during the same period by 10

from 240 to 250. The revenue increase is of 15%.

44

Customer Interface & Emerging alternate business options

2003 2004 2005 2006 Distributors 481 603 712 710 CE + ST 50 50 50 50 Distb./ CE 10 12 14 14

40% increase in the distributor per CE has impacted the quality of

Customer interface

• New business opportunities with better returns coming up in the

last few years putting additional pressure on our industry

• Rapidly changing Channel landscape throwing up decent profile

business opportunities in Urban areas

45

Challenges 2007-2009

Healthy Distribution Partner

Customer interface to facilitate execution excellence

Efficient and Effective Distribution

Contemporary GTM

Future oriented technology driven challenge

46

IS DISTRIBUTOR HEALTHY?

Volume Size No. of

Distributors

Volume Avg. Vol. % of

Vol

% of Dist. Avg

IPC

Avg

CPC

Avg

ROI <15000 493 3517395 7135 33% 69% 34 6 8.4%

15001 to 24999 107 2022831 18905 19% 15% 27 7 10.1%

25000 to 49999 78 2697545 34584 25% 11% 25 8 11.6%

>50000 32 2550248 79695 24% 5% 23 7 14.2%

Total 710 10788019 15194 100% 100%

• Due to high seasonality and decline in volume in last 2 years IPC

has gone up.

• Avg. volume of 69% of the distributors is 7k. Net take home is

insignificant.

• ROI under pressure!!

47

OBSERVATIONS

AND

RECOMMENDATIONS

48

Sample Distribution

31%

26%26%

17%

<15k15-25k25-50k50k and above

Above Figure shows the percentage breakup of distributor surveyed.

49

REGION WISE

DISTRIBUTION

24%

38%

8%

12%

10%

8%

KanpurLucknow AllahabadVaranasiUttranchalBareily

Above figure shows the percentage breakup of distributors territory wise.

50

CITY/DHQ/UPC WISE

DISTRIBUTION

51%

9%

40% CITYDHQUPC

Above figure shows the percentage breakup of distributor’s area wise

51

Sample survey of <15k volume distributor Distribution of Vehicle Figure shows the average number of vehicle used by the less than 15k volume distributor

0

0.2

0.4

0.6

0.8

1

1.2

1.4

mechanised nonmechanised

00.10.20.30.40.50.60.70.8

mechanical non-mechanical

00.10.20.30.40.50.60.70.8

mechanical non-mechanical

During the Season

During the off-Season

During the mini season

52

Man power distribution

00.5

11.5

22.5

33.5

4

season mini season off season

Above figure shows the average number of manpower used by less than 15k distributor during the year.

Sample ROI for <15K distributors

<15K KHALID(L

KO)

VSI

AGEIMCY(

Akhilesh

Agency(BL

Ali

Enterprise

Shivam

Dist.

AVERAGE

Volume 6500 8000 9959 1006B 8500 8605

Investment 228421 249295 316552 362684 296474 290685

IPC 35 31 32 36 35 34

Expense 43130 48744 67100 61954 52999 54785

CPC 7 6 7 6 6 B

Earnings B1230 65038 93814 94822 80920 79165

Net

Earnings

18100 1B294 2B714 328B8 27921 24379

ROI 7.9% 6.5% 8.4% 9.1% 9.4% 8.4%

53

69% of the distributors fall under this category contributing 33% of the

Unit volume

OBSERVATIONS

• Investment is high. The pressure is high for new distributors while the

old

distributors look for monthly take home more than ROI.

• Concern area is decline in volume.

• Most of the distributors have alternative business.

RECOMMENDATIONS

• Super stockist model of distribution to be considered.

• Consolidation of near by distributors and reduce the no of distributors.

• Revisit the investment of the distributors and standardize.

IMPACT

• Flavor penetration to ensure share gain and lead to volume growth.

• Distributor net take home / ROI will improve.

• Effective glass management

• Lower load size will improve the working capital and we can look at

54

reducing the glass investment

Sample survey of 15-25k distributors Distribution of Vehicle Figure shows the average number of vehicle used by the less than 15-25k volume distributors.

0

0.5

1

1.5

2

mechanised nonmechanised

00.10.20.30.40.50.60.70.80.9

mechanical non-mechanical

During the Season

During the off-Season

55

0

0.2

0.4

0.6

0.8

1

1.2

1.4

mechanical non-mechanical

Man power distribution

0

1

2

3

4

5

6

season mini season off season

Above figure shows the average number of manpower used by 15-25k distributors during the year.

Sample ROI of 15 - 25K distributors

During the mini season

56

15% of the distributors fall under this category contributing 19% of the Unit volume

OBSERVATIONS

• Investment is high and is a concern. The Expense is relatively high and

scope of optimization is low. Over all take home / ROI is also a concern.

• Concern area is also declining volume.

• 70% of the distributors have alternative business.

15K-25K

DOLLY COLD DRINK(KNP)

SAMKAT

MOCHAISI

HANUMAIM

(LKO)

RAJ

EIMTERPRISES

ALL)

J P TRADERS (ALL)

AVERAGE

Volume 16000 15000 15000 17000 23000 17200

Investment 449866 448929 421192 441220 545280 461297

IPC 28 30 28 26 24 27

Expense 111291 108857 107157 128600 158400 122861

CPC 7 7 7 8 7 7

Earnings 153120 148500 149100 168300 227700 169344

Net Earnings 41829 39643 41943 39700 69300 46483

ROI 9.3% 8.8% 10.0% 9.0% 12.7% 10.1%

57

RECOMMENDATION

• Consolidation of near by distributors and reduce the no of

distributors. Primarily city??

• Revisit the investment of the distributors and standardize.

IMPACT

• The average volume of the distributor would increase positively

impacting the ROI/Take home

• Would reduce the average no. of distributors per CE thereby

improving the interface

58

Sample survey of 25-50k volume distributors Distribution of Vehicle Figure shows the average number of vehicle used by the 25-50k volume distributors

0

0.5

1

1.5

2

2.5

mechanised nonmechanised

0

0.2

0.4

0.6

0.8

1

1.2

mechanical non-mechanical

00.20.40.60.8

11.21.41.61.8

mechanical non-mechanical

During the Season

During the off-Season

During the mini season

59

Man power distribution

0123456789

season mini season off season

Above figure shows the average number of manpower used by 25-50k distributors during the year. Sample ROI of 25 - 50K distributors

25-50K RAMESH

FOOD

AGENCY(KIN

IP)

ASHU

MARKETING

(KIMP)

HARI SHYAM

RASTOGI

(KNP)

ZUM ZUM

(LKO)

MEHNDI(LKO) AVERAGE

Volume 31000 38000 36500 35000 39000 35900

Investment 746792 946841 924964 866070 987212 894376

60

IPC 24.1 24.9 25.3 24.7 25.3 24.9

Expense 209506 278860 253570 245640 366560 270827

CPC 6.8 7.3 6.9 7.0 9.4 7.5

Earnings 298220 380000 352225 355250 487200 374579

Net Earnings 88714 101140 98655 109610 120640 103752

ROI 11.9% 10.7% 10.7% 12.7% 12.2% 11.6%

78 (11%) distributors fall under this category contributing 25% of the Unit volume

OBSERVATIONS

• Investment is high need to look at rationalization.

• Overall earning is a concern, especially distributors with volume

of 25-40 K.

• Almost 75% of the distributors are dependent on Pepsi as a source

of livelihood.

RECOMMENDATIONS

• Consolidation a must with near by distributors. Recommended

minimum volume size of a city distributor to be 50K

• Extending Cheque facility against a BG??

IMPACT

• Consolidation would increase the volume thereby positively impacting

61

the ROI

• Opportunity more in cities and DHQ's, will have positive

impact on HCV:LCV mix

Sample survey of more than 50k volume distributors Distribution of Vehicle Figure shows the average number of vehicle used by the more than 50k volume distributor

0

1

2

3

4

5

6

mechanised nonmechanised

0

0.5

1

1.5

2

2.5

3

mechanical non-mechanical

During the Season

During the off-Season

62

0

1

2

3

4

5

mechanical non-mechanical

Man power distribution

02468

10121416

season mini season off season

Above figure shows the average number of manpower used by less than 15k distributor during the year. Sample ROI of 50 - 100K distributors

50-100K Alka sales (Kanpur)

S.K(KANPUR) KUNDAM ENT(LKO)

AVERAGE

Volume 52000 57500 58000 55833

Investment 1316860 1240700 1334860 1297473

During the mini season

63

IPC 25.3 21.6 23.0 23.2

Expense 336960 392862 400960 376927

CPC 6.5 6.8 6.9 6.8

Earnings 522600 569250 591600 561150

Net Earnings 185640 176388 190640 184223

ROI 14.1% 14.2% 14.3% 14.2%

32 distributors fall under this category contributing 24% of the Unit volume

OBSERVATIONS

• IPC is relatively moderate can still look at rationalization

• Opportunity to rationalize expenses too by variabalisation.

• 100% of the distributors are dependent on Pepsi as a source of livelihood

RECOMMENDATION

• Variabalisation to significantly impact the IPC / CPC

IMPACT

• Healthy distribution partners to ensure stability and continuity in the

business

• Less churn will give us competitive advantage

64

CONTEMPORARY GTM

OBSERVATIONS

With SKU proliferation opportunity in the smaller distributors/

towns to push the growing SKU's further and improve range

availability in the market

For the smaller distributors minimum load size of 325 cases is high,

therefore the indent frequency is low resulting in indenting the

available SKU's.

Opportunity of making more SKU's available by reducing the load

size.

Need to improve sales, given the momentum behind flavors, they can

play an important role in boosting the volumes.

Options evaluated...

• Tele sell

• Pre sell

• Hybrid sell

65

SS MODEL PROPOSED

Proposed action plan - Super Stockiest Model

- To appoint SS in DHQ's who would be feeding a minimum of 15 - 20

nearby small distributors

- To firm up servicing frequency and minimum drop size (100 cases) to the

distributors

- Will reduce the investment of smaller distributors and improve their

working capital

- Will positively impact the glass turn

- Will improve the lines per strike call

- The order service time will improve significantly

~ Shadow ROI calculation

- Part of the SS commission to be offset by freight savings

To reintroduce Party vehicle of distributors

66

SECONDARY

HYBRID SELL

• Simple but effective concept.

• RA/DSM to sell the fast moving SKU's as per ready stock format and

book orders of the slow moving SKU's in a DSR and deliver it the next day.

To institutionalize this practice across the unit to jump shift the volume

slow moving SKU's and improve the lines per strike call and Strike rate

Improving the quality of interaction of CE's with

Distributors

• With flavors gaining ground, need to impact flavor reach on ground

• Current distributor mentality to focus on fast moving SKUs

• Consequently opportunities to scale up on other skus not tapped

• With avg of 2000 outlets and 14 distributors + 25 SDs per CE, the span

of control and impact is too large for micromanaging the process of range

selling.

• Need to train the distributor frontline (DSM) on range selling - span of

impact would be 80 outlets per DSM

• Need to find solutions for continuously training the DSMs.

• Options of using QSMs for training and driving range selling

• Focus of the CEs to remain on the high profile markets. Other markets to

be handled by QSMs with primary responsibility of coaching DSMs and

ensuring jump shift S&D KPIs.

• Annual outlay of Rs. 30 L for 30 QSMs @ Rs. 8000 per month

67

ANNEXURE: SELECT BIBLIOGRAPHY 1. Online Research www.google.com www.indiainfoline.com www.businessstansard.com www.expressindia.com www.pepsico.com 2. COMPANY REPORTS & RECORDS Data culled from company reports and records provided by the company 3. Magazines and Journals: 1. Business World 2. Business Today 3. Advertising express 4. Strategic Management. 5. Effective Executive. 6. Marketing White book 7. Marketing Mastermind 8. Journal of Marketing 9. Journal of Finance

68

INTERVIEW SCHEDULE: The following key issues are focused in the personal interactions with the distributors:

• Name of the distributor • Annual actual volume • Years of experience as distributor • Infrastructure • Vehicle • Number of outlets • Frequency of service per week • Godown --owned/rented • Sales mend--Self/RA • Salary structure • Alternate business, if any • Glass deposit--cases • Stock holding--cases

-----x----