Coca-Cola in India: Innovative Distribution Strategies with 'RED' Approach

Abstract: This case study deals with the distinctive distribution strategies of Coca-Cola India (CCI) for the rural and urban market segments in India; and the companys efforts towards effective execution of these strategies. CCI built a distribution network in combination with its bottling partners and contract manufacturers. In urban areas, it distributes products directly from bottling plants to retailers. However, owing to lack of proper infrastructure and difficult access to the remote villages, it modified its distribution chains and adopted the three-tier hub and spoke distribution model, to penetrate into the rural areas and increase its sales. Besides its distribution network, CCI adopted Right Execution Daily (RED) strategy for effective execution of its distribution mainly in urban areas, which boosted the sales of the company. RED ensures the proper display, availability and activation of companys products in the retail stores. With the success of RED in urban markets, the company plans to implement it in rural areas. However, given the potential of the Indian rural markets and the challenges it poses, the question that arises is, how far can RED be effectively implemented and what are the challenges the company might face in reaching out to the rural consumers? Pedagogical Objectives:

To understand the wide spectrum of Coca-Cola Indias distribution strategies vis--vis its target segments and explore if it has adopted different distribution strategies for different target segments To understand Coca-Cola Indias Right Execution Daily (RED) and analyse how its effectiveness has become fundamental to Coca-Cola Indias growth To debate on the challenges Coca-Cola India might face in reaching out to the Indian rural markets.

distribution strategy of Coca- Cola - March 27th, 2011 The Coca-Cola Company is a beverage retailer, manufacturer and marketer of non-alcoholic beverage concentrates and syrups. The company is best known for its flagship product Coca-Cola, invented by pharmacist John Stith Pemberton in 1886. The Coca-Cola formula and brand was bought in 1889 by Asa Candler who incorporated The Coca-Cola Company in 1892. Besides its namesake Coca-Cola beverage, Coca-Cola currently offers more than 500 brands in over 200 countries or territories and serves 1.6 billion servings each day. The company operates a franchised distribution system dating from 1889 where The Coca-Cola Company only produces syrup concentrate which is then sold to various bottlers throughout the world who hold an exclusive territory. The Coca-Cola Company owns its anchor bottler in North America, Coca-Cola Refreshments. The Coca-Cola Company is headquartered in Atlanta, Georgia. Its stock is listed on the NYSE and is part of DJIA, S&P 500 Index, the Russell 1000 Index and the Russell 1000 Growth Stock Index. Its current chairman and CEO is Muhtar Kent. Coca Cola Company makes two types of selling 1)Direct selling = In direct selling they supply their products in shops by using their own transports. They have almost 450 vehicles to supply their bottles. In this type of selling company have more profit margin. 2)Indirect selling = They have their whole sellers and agencies to cover all area. Because it is very difficult for them to cover all area of Pakistan by their own so they have so many whole sellers and agencies to assure their customers for availability of coca cola products. Objectives: A firms distribution objectives will ultimately be highly relatedsome will enhance each other while others will compete. For example, as we have discussed, more exclusive and higher service distribution will generally entail less intensity and lesser reach. Cost has to be traded off against speed of delivery and intensity (it is much more expensive to have a product available in convenience stores than in supermarkets, for example). Narrow vs. wide reach: The extent to which a firm should seek narrow (exclusive) vs. wide (intense) distribution depends on a number of factors. One issue is the consumers likelihood of switching and willingness to search. For example, most consumers will switch soft drink brands rather than walking from a vending machine to a convenience store several blocks away, so intensity of distribution is essential here. However, for sewing machines, consumers will expect to travel at least to a department or discount store, and premium brands may have more credibility if they are carried only in full service specialty stores. Retailers involved in a more exclusive distribution arrangement are likely to be more loyali.e., they will tend to Recommend the product to the customer and thus sell large quantities; Carry larger inventories and selections; Provide more services Thus, for example, Compaq in its early history instituted a policy that all computers must be purchased through a dealer. On the surface, Compaq passed up the opportunity to sell large numbers of computers directly to large firms without sharing the profits with dealers. On the other hand, dealers were more likely to recommend Compaq since they knew that consumers would be buying these from dealers. When customers came in asking for IBMs, the dealers were more likely to indicate that if they really wanted those, they could have themBut first, lets show you how you will get much better value with a Compaq. Distribution opportunities: Distribution provides a number of opportunities for the marketer that may normally be associated with other elements of the marketing mix. For example, for a cost, the firm can promote its objective by such activities as in-store demonstrations/samples and special placement (for which the retailer is often paid). Placement is also an opportunity for promotione.g., airlines know that they, as prestige accounts, can get verygood deals from soft drink makers who are eager to have their products offered on the airlines. Similarly, it may be useful to give away, or sell at low prices, certain premiums (e.g., T-shirts or cups with the corporate logo.) It may even be possible to have advertisements printed on the retailers bags (e.g., Got milk?) Other opportunities involve parallel distribution (e.g., having products sold both through conventional channels and through the Internet or factory outlet stores). Partnerships and joint promotions may involve

distribution (e.g., Burger King sells clearly branded Hershey pies). Deciding on a strategy. In view of the need for markets to be balanced, the same distribution strategy is unlikely to be successful for each firm. The question, then, is exactly which strategy should one use? It may not be obvious whether higher margins in a selective distribution setting will compensate for smaller unit sales. Here, various research tools are useful. In focus groups, it is possible to assess what consumers are looking for an which attributes are more important. Scanner data, indicating how frequently various products are purchased and items whose sales correlate with each other may suggest the best placement strategies. It may also, to the extent ethically possible, be useful to observe consumers in the field using products and making purchase decisions. Here, one can observe factors such as : (1) how much time is devoted to selecting a product in a given category, (2) how many products are compared, (3) what different kinds of products are compared or are substitutes (e.g., frozen yogurt vs. cookies in a mall), (4) what are complementing products that may cue the purchase of others if placed nearby. Channel membersboth wholesalers and retailersmay have valuable information, but their comments should be viewed with suspicion as they have their own agendas and may distort information. Outsourcing distribution and manufacturing: Coca-Cola India minimised its capital needs by meeting new manufacturing capacity needs throughexternal co-packers, outsourcing its distribution and meeting its in-market-refrigeration and cooling needs by giving incentives to retailers to self-fund the same through its Own Your Fridge Scheme. Today, the company has an extensive rural and urban distribution network. Coca-Cola adopts a hub and spoke format distribution network ensuring that large loads travel longer distances and short loads travel short distances. The company has increased its village penetration from 9 per cent in 2000 to 28 per cent in 2004 and covers approximately 175,000 villages today. Rural India now accounts for 30 per cent of Coca-Colas sales volumes. Expanding its distribution networks: The company had also decided to expand its retail network by 18 per cent during the financial year 2004-05 taking the total number of retailers to 1.3 million across the country.