PROJECT REPORT ON

DISTRIBUTION NETWORK OF NESTLE

In partial fulfillment of the requirements of the course Marketing Channel Management of MBA Full Time

Submitted to: Prof. Jayesh Aagja

Submitted by:
Aahitagni Bandyopadhyay Abhishek Tambi Munish Mor Vidushi Sharma Sibojyoti Banerjee 091101 091102 091127 091155 091345

INTRODUCTION:
Nestle was founded in 1866 by Henri Nestle and is today the world's biggest food and beverage company. Revenue at the end of 2009 were CHF 107.6 bn, with a net profit of CHF 10.43 bn. Nestle employ around 278,000 people from more than 70 countries and have factories or operations in almost every country in the world. The history of Nestle began in Switzerland in 1867 when Henri Nestle, the pharmacist, launched his product Farine Lactee Nestle, a nutritious gruel for children. Henri used his surname, which means little nest, in both the company name and the logotype. The nest, which symbolizes security, family and nourishment, still plays a central role in Nestls profile. Since it began over 130 years ago, Nestles success with product innovations and business acquisitions has turned it into the largest Food Company in the world. As the years have passed, the Nestl family has grown to include chocolates, soups, coffee, cereals, frozen products, yoghurts, mineral water and other food products. Beginning in the 70s, Nestl has continued to expand its product portfolio to include pet foods, pharmaceutical products and cosmetics too Today, Nestl markets a great number of products, all with one thing in common: the high quality for which Nestl has become renowned throughout the world. The Company's strategy is guided by several fundamental principles. Nestl's existing products grow through innovation and renovation while maintaining a balance in geographic activities and product lines. Long-term potential is never sacrificed for short term performance. The Company's priority is to bring the best and most relevant products to people, wherever they are, whatever their needs, throughout their lives Taste of Nestl is same in each of the countries where Nestl sell products. Nestl is based on the principle of decentralization, which means each country is responsible for the efficient running of its business - including the recruitment of its staff. That's not to say that every operating company can do as it wishes. Headquarters in Vevey sets the overall strategy and ensures that it is carried out. It's an approach that is best summed up as: 'centralize what you must, decentralize what you can'. Nestl is a company which is present in all over the world but it has difference and unique motto to deal in all over the world. Nestl believes that they should think about their organizations globally but they deal with people by interacting with them locally.

THINKING GLOBALLY ACTING LOCALLY

INTRODUCTION TO NESTL INDIA

Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large number of co-packers, Nestl India is a vibrant Company that provides consumers in India with products of global standards and is committed to long-term sustainable growth and shareholder satisfaction. The Company insists on honesty, integrity and fairness in all aspects of its business and expects the same in its relationships. This has earned it the trust and respect of every strata of society that it comes in contact with and is acknowledged amongst India's 'Most Respected Companies' and amongst the 'Top Wealth Creators of India'.

AN OVERVIEW
Nestls relationship with India dates back to 1912, when it began trading as The Nestl Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. After Indias independence in 1947, the economic policies of the Indian Government emphasized the need for local production. Nestl responded to Indias aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestl to develop the milk economy. Nestl has been a partner in India's growth for over nine decades now and has built a very special relationship of trust and commitment with the people of India. The Company's activities in India have facilitated direct and indirect employment and provides livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods. The Company continuously focuses its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings.

BRANDS OF NESTLE IN INDIA:

Milk products and Nutrition

NESTL EVERYDAY Dairy Whitener NESTL EVERYDAY Ghee NESTL Milk NESTL Slim Milk NESTL NESVITA PRO-HEART MILK NESTL Fresh 'n' Natural Dahi

NESTL Fresh 'n' Natural Slim Dahi NESTL Jeera Raita NESTL NESVITA Dahi NESTL MILKMAID Fruit yoghurt NESTL MILKMAID NESTL NIDO NESTL Dahi

Beverages

NESCAF CLASSIC NESCAF SUNRISE Premium NESCAF SUNRISE Special NESCAF CAPPUCCINO NESTEA ICED TEA WITH GREEN TEA NESTEA ICED TEA NESTEA Instant Hot Tea Mixes NESCAF 3in1

Prepared Dishes and Cooking Aids

MAGGI 2-MINUTE Noodles MAGGI Vegetable Atta Noodles MAGGI CUPPA MANIA MAGGI Healthy Soups MAGGI Masala-ae-Magic MAGGI Sauces MAGGI Pichkoo MAGGI Pizza Mazza

MAGGI MAGIC Cubes MAGGI Vegetable Multigrainz Noodles MAGGI Bhuna Masala MAGGI Coconut Milk Powder MAGGI Pazzta MAGGI Sanjeevni Cup Soup

Chocolates and Confectionery

NESTLKITKAT NESTL KIT KAT chunky NESTL MUNCH NESTL MUNCH pop choc NESTL MILKYBAR NESTL MILKYBAR Choo NESTL Bar-one NESTL Milk Chocolate POLO NESTL Eclairs NESTL MILKYBAR Eclairs NESTL MILKYBAR Crispy Wafer

DISTRIBUTION STRUCTURE OF NESTLE INDIA

Distribution plays important role in success and failure of any organization. The organization may fail, if its distribution networks are not efficient and unable to provide the necessary items at required place and at reasonable time. Distribution system of Nestl is one of major source of competitive edge over its existing rivals. Nestl has its own distribution networks equipped with all necessary transportation facilities. They transport their products at major regional sales offices, which are situated at different cities of India. These sales offices (distribution centres) have their own vans with sales people who sell and transport goods to the small retailers.

In general Nestl follows the above sequence for distribution of its products. In India this strategy is working very effectively and efficiently. By the above diagram, we can understand that the products are sent to the C&F Agents of the company from its Manufacturing Unit. Then at later stage its been sent to Distributor and Super Stockist. Here, Distributor is the responsible person to manage the availability of products in his area, whereas Super Stockist supplies the goods to Re-Distributor who is responsible to manage the availability of outside the region of Distributor. Then the Distributor and Re-Distributor supply the products to Wholesaler and Retail in their respective region or area. There will be a single C&F Agent for every state who supplies the goods to the Distributor. Now, distributor will be appointed by the company for every urban city. That distributor will be having responsibility to maintain the proper flow of goods in his region. Whereas on the other hand there will be a Super Stockist in the same city who will supply the products to the Re-Distributor who will be there at the nearby places of that city

DISTRIBUTION STRUCTURE OF NESTLE INDIA IN NCR

FORMAL STRUCTURE INFORMAL STRUCTURE

Wholesalers are not a part of the formal structure of Nestle Indias distribution network for NCR. They make bulk purchases from the distributors directly thereby leveraging on the margins.

OWNERSHIP TRANSFER

STOCKS ARE COMPANY PROPERTY

FACTORY

Transfer Challan

MOTHER GODOWN
Transfer D.A

C&S AGENTS

C&S AGENTS

C&S AGENTS

INVOICING AGAINST PAYMENT

C.D

C.D

C.D

STOCKISTS

Stocks manufactured at the factories and co-packers reach the C&S through mother Godowns. The stocks stored at C&S are the property of Nestle. Encashment of stocks are done through Invoicing to Cash Distributors C&S as per the guidelines given to them. They also receive and store support materials like give aways, stickers and complementary items etc.

TRANSPORTATION:
From the factory to the distributor stage the company ensures that there is availability of cool chain for transportation. At the mother godown (Located at Sahibabad) there is temperature control by hired cold storage. For the purpose of transporting certain products like chocolates from the mother godown to the Cash Distributor Dedicated Air Conditioned Vans are used (especially for the summer seasons).

COMPANY POLICY AND GUIDELINES:

The company has created two kinds of distributors, namely Trade and Chocolate. The former deals with the Maggie range, Nestle dahi, Aquafina etc. Chocolate deals with all confectionery items like chocolates, sweets etc. A representative of each distributor goes to the various outlets, once or twice a week (depending upon the area), takes the order and then either delivers the goods there and then, or on the same day. It has been realized that a retailer has a limited pocket for a days purchase. If one sales representative goes for an order with 50 SKUs the retailer will only buy what his pocket allows, for a one-time purchase. Whereas, if two different sales people go, representing different distributors there is a possibility both will get an order and the company will witness better sales. The company has also taken an initiative for deeper reach and penetration into the market with its operation STING. Whereby the sales representatives of the company go on bicycles and try to fulfill the order of small ignored and unserved outlets. For example the panwallas, the kinara stores etc.

SELECTION OF DISTRIBUTORS
Criteria are: 1) Capital investmentThis is dependent not only on the present required turnovers but also on the estimated future capital investments that will be required by the distributor (based on companys growth plans in the area). Amounts required vary from area to area and markets to markets. 2) Relevant experienceIt is imperative that the distributor has had some prior experience as a channel member in the FMCG sector so that no training is required to be imparted to him on aspects of the business. The distributor should not be dealing in competitors products and should be able to function as a dedicated channel for Nestle. For example, while deciding on a distributor for chocolates, an obvious preference would be an existing

distributor for other products of Nestle. This is because he will pay attention to the entire range of the products and not focus on any particular SKU only.

3) InfrastructureAppropriate infrastructure (depending on the market served and overall volumes) should be therea) Godowns / storage space. For chocolates, air conditioned godown space (with wooden padding will be required). b) Delivery vehicles c) Salesmen However there are no written guidelines that are fixed for the above criteria and the company exercises its discretion based on markets to be served.

INCENTIVES
Schemes spread over 2-3 months- These schemes encourage specific target
achievements. Targets are given as indexed growth rates based on weights. For example the meaning of 10% growth for a distributor having sales of Rs.20000 will have a different meaning from one having sales of Rs. 1 lacs. The prizes in the schemes can be monetary- for example additional 2% margin on turnover Or non monetary for example free T.V. sets on achievement of targets.

Certificates- Certificates of acknowledgement for achieving the targets for a name

like Nestle are priced by the distributors. They frame them and display them in their offices.

EVALUATION
Once a distributor is appointed the company generally does not take away business from him, except when the underperformance has been observed over long periods. While evaluating his performance, his targets performance is studied relative to that of other distributors in the nearby area (because growth patterns may vary by regions).

DISTRIBUTION IN PRACTICE (DIP) TRAINING

There are proper training programs for the C&S agents as well as distributors. Following are the modules included in the program:

Nestle Quality System

Good Warehousing Practices (GWP) Good Distribution Practices.

Major aspects of the program include:

1. Stacking as per norms:

FIFO basis of Inventory management is used. Stocks are kept in pallets away from the walls of godown. Stacking is done in an orderly fashion and the different batches are visible. There must be moving space between various stacks.

2. Good Warehousing Practices

Security Fire Fighting: Appropriate provisions are made to handle emergency caused due to breakage of a fire. Cleanliness Pest Control Temperature record and maintenance at A.C. Godown Proper ventilation The required Licenses as per the local laws have been obtained. For Eg. Sales tax etc. Transportation: Effective, reliable and quick transport is available to and from the warehouse. Proper Loading / unloading: The labours have been properly trained to ensure that no damage to the goods take place at the time of loading / unloading. Remittance: Timely deposits of remittances are ensured. Proper records are maintained with regard to Sales tax and exemption certificates.

3. Accounting
A stock register is maintained to record receipts and dispatches with detail of accompanying documents. Shortages (if any) are accounted for separately. Sales tax and Octroi are handled by C&S. A separate register is maintained for materials which are meant for free distribution. All the related expenses that are incurred are paid by C&S and are subsequently reimbursed by the company.

4. Handling of Bad Goods:

The bad goods are separated and marked saleable or unsaleable appropriately.

FORECASTING AND TARGET SETTING

Target setting is a result of negotiation between the distributor and the company. Mid month targets for the next month are given by the company at around 5 th -10th of a month. These are set for the Sales officers, ASMs and Branch Managers in the hierarchy and driven down by them. At the month end the distributor can negotiate these targets in the range of +/- 10%. The branch manager is responsible for coordinating targets of the factories and the targets of the individual product managers.

Inventory holding

(on an average 3 weeks of inventory is held)

CHANNEL CONFLICTS
Earlier large areas used to be assigned to the distributors and there used to be some scope for confusion or conflict due to overlapping. However, now the number of distributors have increased and there is clear earmarking of the areas as well as markets for each distributor by the company and there is hardly any scope for conflicts based on areas. There are a few sources of channels conflicts like-

WHOLE SELLERS
As discussed above, these are not a part of the formal structure of Nestle Indias distribution network for NCR .They make bulk purchases from the distributors directly thereby leveraging on the margins. Typically the wholesaler gets a margin of about 2%-3% from the distributor, of this he retains 1 % and passes on the remaining 2% as discount to the retailer. It is this discount which induces the retailers to buy from wholesalers in areas like sadar bazaar in old Delhi etc. Such sales based on undercutting can be a source of irritation to the distributors who are not supplying to the retailers but are suffering due to selling by the whole seller in their areas. Out of the 7 retailers covered, only 3 bought from the company distributor. These 3 retailers are: Aggrawal Shop, Polka Bakery and Duggal stores.

Reasons to buy from the distributor:

Distributors provide these people with good service, replacement of spoilt products, occasional credit and maintain good cordial relations with them. Since these people buy in good quantities (2-3 cartons), they usually dont face a stock out. Thus the system of 1visit per week suits as long they are

provided with their requirements on call, occasionally in case of urgent need. The big outlets are also provided with dispensers frequently as compared to the smaller shops in the same market. (same is the case with fridges)

Reasons to buy from the Wholesalers:

The wholesalers, as compared to the distributors, provide higher margins. These small shops can purchase the minimum required quantity as and when needed. There is a convenience factor as there is order on call facility, all round the clock.

CREDIT POLICY:
Nestle India Limited: The distributors are termed as Cash Distributors because the company charges the distributors before the stock is delivered; the company has connected the distributor online and the transactions happen online. The Distributor: The distributor sells goods on credit; the period of credit ranges from 1-2 week. The wholesaler allows discount of 1% on cash payment (policy followed by the wholesaler).

STOCK POLICY:
As per the company regulations the distributor is supposed to maintain a stock of 3 weeks; the distributor maintains a stock of 3 -3.5 weeks in monetary terms it equals to Rs. 30 lakh for the distributor. The stock is formalized by the company; the dealer can negotiate on 3-4 end days, the stock policy is formed for the month. The distributor to push in slow moving SKUs clubs them with fast moving SKUs for the retailers. DUMPING: the company dumps significantly on the distributors, the distributor has to manage the supply by the company. The distributor has some resentment on the issue but has to content with it, the result is the stock gets blocked and distributors stores it till the expiry and then return it; result: cash crunch for the distributor and loss for the company in the long run.

LEAD PERIOD:
Wholesaler: The lead periods in providing stocks to the dealers differs from the SKU
and quantity ordered; some SKUs are delivered correspondingly with taking order but some are sent from the warehouses. A higher quantity ordered has to be replenished from the warehouse.

Company: The stock from the company is provided every month but company keeps
replenishing stocks at the requests of the distributors. It takes 2 days for company to replenish stocks.

Return Policy
The company follows a policy of return when the product has past its expiry date, damaged or has a defect; the replenishment is done with cash and happens at the end of every six months.

Return on Investments
The company does not give any guarantee to the distributor with regard to returns on his investment which is in line with the market credentials of the company.

Sales Force
The company does not have a policy to train the staff of the distributor, the distributor trains his own sales force. The remuneration and all other expenses are borne by the distributor.

Promotion Policy
The company follows a policy for consumer promotions but as regard the trade promotions they are scant rather negligible, the promotions put in extra pressure to push more quantity. The problem of maintenance of the promotional item is considerable and takes in huge energies and money.

COMPETITORS ANALYSIS:
PERFET TI 2.5 4 6.5 CADBU RY 2 4 6 NEST LE 2 3.8 5.8 LOTT E 2.5 6 8.5 WRIGLE YS 2 5 7 COLGA TE 2 5.6 7.6 RECKITT BECKINSER 2 5 7

SUPER STOCKIST SUB STOCKIST TOTAL

PROBLEM:

From the above chart, we can see that Nestl gives the lowest margin to its distributors in the industry. Hence, the margins to the retailers are also reduced. If we consider the motivation of the retailers to keep Nestls products, the throughput or off take of Nestls products is very high and most retailers would be keen to maintain their baskets of goods, the low margins are a dampening factor, as mentioned by a few retailers in our interactions RECOMMENDATION: Considering the low motivation of the Nestl retailers, due to lower margins on products sold by them, company should try to compensate them or give them an opportunity to increase their profits by extending better percentage incentive schemes on purchase in bulk. Instead of harming the profitability of the company by extending greater margins, these schemes would lead to high volume purchase by retailer, thereby increasing the profitability of the company Issues in Implementation: The problem which could emerge while extending greater percentage schemes are that once the retailers get used to higher schemes on a particular product, it becomes very difficult for the company to change/ reduce the scheme on the product. Apart from that, profitability of the company is definitely affected if the scheme is extended in an unplanned manner. Tackling Implementation Issues : These schemes should not be extended on the products haphazardly. In order to implement the schemes, company needs to identify on which products is the scheme suitable. The products which already have a very good pull effect like Maggi need not be given higher schemes. The products which majorly require pull effect like Everyday tetra pack milk, coffee etc should be a part of such incentive schemes. In order to have better control over the channel and prevent retailers resistance while changing/reducing the scheme, company should device a strategy of rotation of scheme among the various products in portfolio, e.g. for JanMar Company could go for higher schemes on Everyday tetra pack milk, for April- Jul it should reduce the scheme on Everyday and increase the scheme on Coffee packs. The company can further decide upon which products it wants to push for a particular time period.

OBSERVATIONS:
As seen earlier, the wholesalers are a cause of conflict in the distribution system. However, the company does not objects to the unwarranted existence of wholesalers as they serve as means to improve the distribution of companys products and the undercutting done by them helps to push up sales in the long run at times. The company introduces contests to motivate their channel partners regularly.

Training of Sales force of Distributors should be taken over by Nestle to ensure optimal performance. The company dumps huge stocks of slow moving SKUs to achieve targets, but in the long run, it results into dissatisfaction of distributor and losses for the company. The selection of Distributors is a very crucial decision for the company. A lot of time and effort is spent to train them. Also, they are not frequently changed.

Visit Details: We visited retail outlets in Ahmadabad; interacted with the retailers. We identified the problems which the retailers are facing and possible suggestions for the company to resolve these issues. We also accompanied a salesman and interacted with him to discuss the working and issues with Nestl distribution channel.

REFERENCES:

A Grounded Exploration of Sales and Distribution Channel Structures in Thirteen Industries in India Leading to a Classification Scheme By Dr Prathap Oburai, Marketing Area, Indian Institute of Management, Ahmedabad, India. http://www.moneycontrol.com/news_html_files/news_attachment/2009/Microsoft %20Word%20-%20Nestle.pdf
http://www.britannica.com/bps/additionalcontent/18/34410955/FMCG-DistributionChannels-in-India-Challenges-and-Opportunities-for-Manufacturers-and-Retailers

Nestle India: Pare exposures by Aarati Krishnan, The Hindu Business Line Sunday, Aug 15, 2004.