Professional Documents
Culture Documents
Submitted By:
Saurabh Nagar
Reg.No-05XQCM6081
DECLARATION
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.
PRINCIPAL’S CERTIFICATE
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 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
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
CONTENTS
INTRODUCTION 12
The Organization
Marketing Strategies
Promotion
FOBO Distribution
COBO Distribution
Introduction to the Study
DISTRIBUTION NETWORK 27
Introduction
Challenges 2007-2009
OBSERVATIONS AND RECOMMENDATION 47
Sample Distribution
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.
LIST OF ABBREVATIONS
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.
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.
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.
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
FOBO Distribution
COBO Distribution
¾ Gujarat.
¾ Maharashtra.
¾ Karnataka.
¾ Kerala.
¾ West Bengal.
¾ Tamil Nadu
UP - COBO
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
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.
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.
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
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.
¾ One-Level Channel
¾ Two-Level Channel
¾ Three-Level Channel
Retailer
Distributor Retailer
Manufacturer Manufacturer
Distributor
Sub-Distributor Retailer
31
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 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.
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.
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).
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
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
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
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
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
Low per capita income resulting in Low per capita consumption No. of
distributors as high as 20% of the total COBO distributors
• 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
Challenges 2007-2009
Contemporary GTM
IS DISTRIBUTOR HEALTHY?
Volume Size No. of Volume Avg. Vol. % of % of Dist. Avg Avg Avg
Distributors Vol IPC CPC 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%
OBSERVATIONS
AND
RECOMMENDATIONS
48
Sample Distribution
17%
31%
26%
26%
<15k
15-25k
25-50k
50k and above
REGION
WISE
DISTRIBUTION
8%
10% 24%
Kanpur
Lucknow
12% Allahabad
Varanasi
Uttranchal
Bareily
8%
38%
CITY/DHQ/UPC
WISE
DISTRIBUTION
40%
CITY
51% DHQ
UPC
9%
Distribution of Vehicle
Figure shows the average number of vehicle used by the less than 15k
volume distributor
1.4
1.2
1
During the Season 0.8
0.6
0.4
0.2
0
mechanised nonmechanised
0.8
0.7
0.6
0.5
During the off-Season 0.4
0.3
0.2
0.1
0
mechanical non-mechanical
0.8
0.7
0.6
0.5
During the mini season 0.4
0.3
0.2
0.1
0
mechanical non-mechanical
52
4
3.5
3
2.5
2
1.5
1
0.5
0
season mini season off season
Above figure shows the average number of manpower used by less than 15k
distributor during the year.
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
Distribution of Vehicle
Figure shows the average number of vehicle used by the less than 15-25k
volume distributors.
2
1.5
During the Season
1
0.5
0
mechanised nonmechanised
0.9
0.8
0.7
0.6
During the off-Season 0.5
0.4
0.3
0.2
0.1
0
mechanical non-mechanical
55
1.4
1.2
1
0.8
During the mini season 0.6
0.4
0.2
0
mechanical non-mechanical
0
season mini season off season
15% of the distributors fall under this category contributing 19% of the Unit
volume
DOLLY COLD SAMKAT HANUMAIM RAJ J P TRADERS AVERAGE
DRINK(KNP) MOCHAISI (LKO) EIMTERPRISES (ALL)
ALL)
15K-25K
IPC 28 30 28 26 24 27
CPC 7 7 7 8 7 7
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.
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
Distribution of Vehicle
Figure shows the average number of vehicle used by the 25-50k volume
distributors
2.5
0.5
0
mechanised nonmechanised
1.2
0.8
During the off-Season 0.6
0.4
0.2
0
mechanical non-mechanical
1.8
1.6
1.4
1.2
1
During the mini season 0.8
0.6
0.4
0.2
0
mechanical non-mechanical
59
9
8
7
6
5
4
3
2
1
0
season mini season off season
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
Distribution of Vehicle
Figure shows the average number of vehicle used by the more than 50k
volume distributor
4
During the Season
3
0
mechanised nonmechanised
2.5
2
During the off-Season 1.5
0.5
0
mechanical non-mechanical
62
3
During the mini season
2
0
mechanical non-mechanical
16
14
12
10
8
6
4
2
0
season mini season off season
Above figure shows the average number of manpower used by less than 15k
distributor during the year.
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
¾ With SKU proliferation opportunity in the smaller distributors/
towns to push the growing SKU's further and improve range
availability in the market
¾ 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.
¾ Opportunity of making more SKU's available by reducing the load
size.
¾ 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
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
ANNEXURE:
SELECT BIBLIOGRAPHY
1. Online Research
www.google.com
www.indiainfoline.com
www.businessstansard.com
www.expressindia.com
www.pepsico.com
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:
-----x----