12950828 Distribution Management of Hindustan Unilever Ltd
-
Upload
mukesh-jain -
Category
Documents
-
view
227 -
download
0
Transcript of 12950828 Distribution Management of Hindustan Unilever Ltd
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
1/32
A St udy on D ist r i bu t i on
Managem en t o f
H indu st an Un i l eve r Lim i t ed
Submitted To
Prof.S Govindrajan
By
PRADEEP NARAIN g08075
SANJEEV KUMAR JHA g08086
SATADRU BAGCHI g08088
SOUMITRA DHALI g08090
TARUN KUMAR SAHA g08095
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
2/32
2
Content
Page
1.Introduction
Hindustan
Unilever
Limited
3
2. DistributionNetworkofHUL2.1.EvolutionoverTime 42.2.DetailOverview 5
3. ChannelDesign 124. InitiativestakentoImprovetheDistributionNetwork 145. FieldForceManagement 166. AnalyticalFramework 187. FinancialAnalysis 268. References 33
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
3/32
3
1. Introductionr Hindustan Unilever Limited
HindustanUnilever
Limited
(HUL),
formerly
Hindustan
Lever
Limited
(it
was
renamed
in
late
June
2007asHUL),isIndia'slargestFastMovingConsumerGoodscompany,touchingthelivesoftwoout
of three Indianswithover20distinct categories inHome&PersonalCareProductsand Foods&
Beverages.Theseproductsendowthecompanywithascaleofcombinedvolumesofabout4million
tonnesandsalesofnearlyRs.13718crores.
HUL isalsooneof thecountry's largestexporters; ithasbeen recognisedasaGoldenSuperStar
TradingHousebytheGovernmentofIndia.
Themissionthat inspiresHUL'sover15,000employees, includingover1,300managers, isto"add
vitalitytolife."HULmeetseverydayneedsfornutrition,hygiene,andpersonalcarewithbrandsthat
helppeoplefeelgood,lookgoodandgetmoreoutoflife.ItisamissionHULshareswithitsparent
company,Unilever,whichholds52.10%of theequity.The restof the shareholding isdistributed
among360,675individualshareholdersandfinancialinstitutions.
HUL's brands like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic,
Pepsodent,Closeup,Lakme,BrookeBond,Kissan,KnorrAnnapurna,KwalityWall'sarehousehold
namesacross the countryand spanmany categories soaps,detergents,personalproducts, tea,
coffee,brandedstaples,icecreamandculinaryproducts.Theseproductsaremanufacturedover40
factoriesacrossIndia.Theoperationsinvolveover2,000suppliersandassociates.HUL'sdistribution
networkcomprisesabout4,000redistributionstockists,covering6.3millionretailoutletsreaching
theentireurbanpopulation,andabout250millionruralconsumers.
WehaveanalyzedthedistributionnetworkofHULfromthefollowingaspects:
1. EvolutionofHULsdistributionnetwork2. Transportation&Logistics3. ChannelDesign4. Initiativestakenforchannelmembermanagement.5. Fieldforcemanagement6. AnalyticalFramework7. FinancialAnalysis
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
4/32
4
2. Distribution Network of HUL
2.1. Evolution over Time
TheHULsdistributionnetworkhasevolvedwithtime.ThefirstphaseoftheHULdistribution
networkhad
wholesalers
placing
bulk
orders
directly
with
the
company.
Large
retailers
also
placed
directorders,whichcomprisedalmost30percentofthetotalorderscollected.Thecompany
salesmangroupedalltheseordersandplacedanindentwiththeHeadOffice.Goodsweresentto
thesemarkets,withthecompanysalesmanastheconsignee.Thesalesmanthencollectedand
distributedtheproductstotherespectivewholesalers,againstcashpayment,andthemoneywas
remittedtothecompany.
The focus of the second phase,which spanned the decades of the 40s,was to provide desired
productsandqualityservicetothecompany'scustomers.Inordertoachievethis,onewholesalerin
eachmarketwasappointedasa"RegisteredWholesaler,"astockpointforthecompany'sproducts
inthatmarket.Thecompanysalesmanstillcoveredthemarket,canvassingforordersfromtherest
ofthetrade.HethendistributedstocksfromtheRegisteredWholesalerthroughdistributionunits
maintained by the company. The Registered Wholesaler system, therefore, increased the
distributionreachofthecompanytoalargernumberofcustomers.
Thehighlightofthethirdphasewastheconceptof"RedistributionStockist"(RS)whoreplacedthe
RWs.TheRSwas requiredtoprovidethedistributionunitstothecompanysalesman.Thesecond
characteristicof thisperiodwas theestablishmentof the"CompanyDepots" system.This system
helpedintransshipment,bulkbreaking,andasastockpointtominimisestockoutsattheRSlevel.In
therecentpast,asignificantchangehasbeenthereplacementoftheCompanyDepotbyasystemof
thirdpartyCarryingandForwardingAgents(C&FAs).TheC&FAsactasbufferstockpointstoensure
that stockoutsdidnot takeplace.TheC&FA systemhasalso resulted in cost savings in termsof
directtransportation
and
reduced
time
lag
in
delivery.
The
most
important
benefit
has
been
improvedcustomerservicetotheRS.
The role performed by the Redistribution Stockists includes: Financing stocks, providing
warehousing facilities, providing manpower, providing service to retailers, implementing
promotional activities, extending indirect coverage, reporting sales and stock data, demand
simulationandscreeningfortransitdamages.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
5/32
5
2.2. Detail Overview
ThedistributionnetworkofHUL isoneofthekeystrengthsthathelpittosupplymostproductsto
almostanyplaceinthecountryfromSrinagartoKanyakumari.Thisincludes,maintainingfavorable
trade relations, providing innovative incentives to retailers and organizing demand generation
activitiesamongahostofotherthings.EachbusinessofHULportfoliohascustomizedthenetwork
tomeet itsobjectives.Themostobvious functionofproviding the logistics support is to get the
companysproducttotheendcustomer.
Distribution System of HUL
HUL's products, are distributed through a network of 4,000 redistribution stockists, covering 6.3
millionretailoutletsreachingtheentireurbanpopulation,andabout250millionruralconsumers.
Thereare35C&FAs in the countrywho feed these redistribution stockists regularly.The general
tradecomprisesgrocerystores,chemists,wholesale,kiosksandgeneralstores.HindustanUnilever
provides tailor made services to each of its channel partners. It has developed customer
management and supply chain capabilities for partnering emerging selfservice stores and
supermarkets.Around2,000suppliersandassociatesserveHULs40manufacturingplantswhichare
decentralizedacross2millionsquaremilesofterritory.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
6/32
6
(Fig. 1 Schematic of HULs Distribution Network)Distribution at the Villages:
The company has brought all markets with populations of below 50,000 under one rural sales
organisation.Theteamcomprisesanexclusivesalesforceandexclusiveredistributionstockists.The
teamfocuses
on
building
superior
availability
of
products.
In
rural
India,
the
network
directly
covers
about50,000villages,reaching250millionconsumers,through6000substockists.
(Fig. 2 Rural Distribution Model of HUL)
HULapproached the ruralmarketwith twocriteria theaccessibilityandviability.To service this
segment, HUL appointed a Redistribution stockist who was responsible for all outlets and all
businesswithinhisparticulartown.Inthe25%oftheaccessiblemarketswithlowbusinesspotential,
HUL
assigned
a
sub
stockist
who
was
responsible
to
access
all
the
villages
at
least
once
in
a
fortnight
andsendstockstothosemarkets. Thissubstockistdistributesthecompany'sproductstooutletsin
adjacentsmallervillagesusingtransportationsuitabletointerconnectingroads,likecycles,scooters
ortheageoldbullockcart.Thus,HindustanUnileveristryingtocircumventthebarrierofmotorable
roads. The company simultaneously uses the wholesale channel, suitably incentivising them to
distributecompanyproducts.Themostcommonformoftradingremainsthegrassrootsbuyandsell
mode.ThisenablesHULtoinfluencetheretailersstocksandquantitiessoldthroughcreditextension
and trade discounts. HUL launched this Indirect Coverage (IDC) in 1960s.Under the Indirect
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
7/32
7
Coverage(IDC)method,companyvanswerereplacedbyvansbelongingtoRedistributionStockists,
whichservicedaselectgroupofneighbouringmarkets.
Distribution at the Urban centres:
Distributionof goods from themanufacturing site toC& Fagents takeplace througheither the
trucksorrailroadsdependingonthetimefactorfordeliveryandcostoftransportation.Generally
themanufacturingsite is locatedsuchthat itcoversabiggergeographicalsegmentof India.From
theC&Fagents,thegoodsaretransportedtoRSsbymeansoftrucksandtheproductsfinallymake
thelastmilebasedonthelocalpopularandcheapmodeoftransport.
New distribution channels
Project Shakti
Thismodel creates a symbiotic partnership betweenHUL and its consumers. Started in the late
2000,ProjectShaktihadenabledHindustanLevertoaccess80,000ofIndia's638,000villages.HUL's
partnership with Self Help Groups(SHGs) of rural women, is becoming an extended arm of the
company's operation in rural hinterlands. Project Shakti has already been extended to about 12
states Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar
Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal. The respective state
governments and severalNGOs are actively involved in the initiative. The SHGs have chosen to
partner with HUL as a business venture, armed with training from HUL and support from
governmentagencies concernedandNGOs.Armedwithmicrocredit,women fromSHGsbecome
directtohomedistributorsinruralmarkets.
Themodelconsistsofgroupsof(1520)villagersbelowthepoverty line(Rs.750permonth)taking
microcredit frombanks,andusing that tobuyourproducts,which theywill thendirectly sell to
consumers.Ingeneral,amemberfromaSHGselectedasaShaktientrepreneur,commonlyreferred
as'ShaktiAmma'receivesstocksfromtheHULruraldistributor.Afterbeingtrainedbythecompany,
the Shakti entrepreneur then sells those goodsdirectly to consumersand retailers in the village.
EachShaktientrepreneurusuallyservice610villages in thepopulationstrataof1,0002,000.The
ShaktientrepreneursaregivenHULproductsona`cashandcarrybasis.'
ThefollowingtwodiagramsshowtheProjectShaktimodelasinitiatedbyHUL.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
8/32
8
Project Streamline
To cater to the needs of the inaccessible market with high business potential HUL initiated a
Streamline initiative in1997.ProjectStreamline isan innovativeandeffectivedistributionnetwork
forruralareasthatfocusesonextendingdistributiontovillageswithlessthan2000peoplewiththe
help of rural substockists/Star Sellers who are based in these very villages. As a result, the
distributionnetworkdirectlycoversasofnowabout40percentoftheruralpopulation.
UnderProjectStreamline, thegoodsaredistributed fromC&FAgents toRuralDistributors (RD),
whohas1520ruralsubstockistsattachedtohim.Eachofthesesubstockists/starsellersislocated
in a ruralmarket. The substockists then perform the role of driving distribution in neighboring
villages using unconventional means of transport such as tractor and bullock carts. Project
Streamline being a cross functional initiative, the Star Seller sells everything from detergents to
personalproducts.
Higherqualityservicing, intermsof frequency,creditand fulllineavailability, istobeprovidedto
ruraltradeaspartofthenewdistributionstrategy.
Thediagram
in
the
next
page
shows
the
model
of
Project
Streamline.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
9/32
9
Hindustan Lever Network (HLN)
It is thecompany'sarm in theDirectSellingchannel,oneof the fastestgrowing in India today. It
alreadyhas
about
several
lakh
consultants
all
independent
entrepreneurs,
trained
and
guided
by
HLN'sexpertmanagers.HLNhasalreadyspreadtoover1500townsandcities,covering80%ofthe
urbanpopulation,backedby42officesand240 service centresacross the country. Itpresents a
rangeofcustomisedofferingsinHome&PersonalCareandFoods.
TheNewCompensationplan forHLNpartnersprovidesnew excitingwaysofearning substantial
income in addition to offering rewards like revenue sharing through the innovative concept of
pools
Mother Depot and Just in Time System
Inordertorationalisethelogisticsandplanningtask,aninnovativestephasbeentheformationof
theMotherDepotandJustinTimeSystem(MDJIT).CertainC&FAswereselectedacrossthecountry
to actasmotherdepots. Eachof themhas aminimumnumberof JITdepots attached for stock
requirements.AllbrandsandpacksrequiredforthesetofmarketswhichtheMDandJITsservicein
a given area are sent to the mother depot by all manufacturing units. The JITs draw their
requirementsfromtheMDonaweeklyorbiweeklybasis.
Leveraging Information technology
HULcustomersareservicedoncontinuousreplenishment.ThisispossiblebecauseofITconnectivity
across theextended supply chainof about2,000 suppliers,80 factories and 7,000 stockists.This
sophisticatednetworkwith its voice anddata communication facilitieshas linkedmore than 200
locationsalloverthecountry,includingtheheadoffice,branchoffices,factories,depotsandthekey
redistributionstockists.TheyhavealsocombinedbackendprocessesintoacommonSharedService
infrastructure,which
supports
the
units
across
the
country.
All
these
initiatives
together
have
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
10/32
10
enhanced operational efficiencies, improved the service to the customers and have brought us
closertothemarketplace.
RS Net Initiative:
TheRSNetinitiative,launchedin2001,aimsatconnectingRedistributionStockists(RSs)throughan
internetbasedsystem. ItnowcoversstockistsoftheHome&PersonalCarebusinessandFoods&
Beveragesincloseto1200townsandcities.Togethertheyaccountforabout80%ofthecompany's
turnover. RS Net is one of the largest B2B ecommerce initiatives ever undertaken in India. It
provides linkages with the RSs own transaction systems, enables monitoring of stocks and
secondarysalesandoptimisesRSsordersandinventoriesonadailybasisthroughonlineinteraction
on orders, despatches, information sharing and monitoring. The ITpowered system has been
implementedto
supply
stocks
to
redistribution
stockists
on
acontinuous
replenishment
basis.
Today, the sales systemgets toknoweverydaywhatHUL stockistshave sold toalmostamillion
outletsacrossthecountry.InformationonsecondarysalesisnowavailableonRSNeteveryday.
RSNet ispartofProjectLeap.ProjectLeapbeginswiththesupplierrunsthroughthefactoriesand
depotsandreachesuptotheRSs.ThisensuresHULsgrowthbyensuringthattherightproduct is
availableat the rightplace in the rightquantitiesandat the right time in themostcosteffective
manner. Leap also aims at reducing inventories and improving efficiencies right through the
extendedsupplychain.
RSNethascomeasaforcemultiplierforHULWay,thecompany'sactionplantonotonlymaximise
thenumberofoutlets reachedbutalso toachieve leadership ineveryoutlet.RSNethasenabled
stockists toplaceordersonaContinuousReplenishmentSystem.This in turnhasunshackled the
fieldforcetosolelyfocusonsecondarysalesfromthestockiststoretailersandmarketactivation.It
hasalsoenabledRSstoprovide improvedservicetoretailoutlets.Simultaneously,HUL isservicing
theruralmarket,keyurbanoutlets,andthemoderntradeasasingleconcern.
Adexa iCollaboration suite
In 2000, HUL identified improved supply chain management as a critical business priority and
launched a comprehensive initiative, Project Leap, tasked with increasing supplier/distributor
responsiveness,reducing inventorybuffers,andoptimizingplanningandscheduling.HULchosethe
AdexaiCollaborationsuiteforfacilitatingcentralizedmonitoringoftheSCM,livecustomer/supplier
collaboration,and integratingdemandanddistributionplanningwithproduction scheduling.With
theaggregated
view
of
data
provided
by
the
iCollaboration
suite,
HUL
was
able
to
combine
sales
and
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
11/32
11
distributioneffortsonthediverseproductlines,whichresultedinsignificantsavingsonthecostside
for inventoriesanddistribution.HULupdates inventorypositions, shipmentsandcustomerorders
onadailybasiswiththesesoftwarepackagesandcangetapulseonthemarketrealtime.
(Fig.
3
HULs
Turnover
Compared
with
Competitors,
2006)
(Fig.4
HULs
Market
Leadership
across
various
FMCG
Categories)
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
12/32
12
3. Channel Design
HindustanLeverLimited(HUL)hastwotypesofchannelselling
i. Regular(traditional)retailchannel,ii.
Direct
Selling
Channel
in
the
name
of
Hindustan
Lever
Network
(HLN).
HUL has a well entrenched high distribution model which comprises of C&FAs, Redistribution
Stockists,wholesalersandretailers(asshownearlier).HindustanUnilever'sdistributionnetwork is
recognizedasoneofitskeystrengths.ItsfocusesonProductavailability,Brandcommunication,and
higherlevelsofbrandexperience.
HULs Sales Breakrup through different channels:
Sales Break-up Through Different Channels
7%
60%
33%
Modern Retail Urban General Trade Rural Areas
Channel Structure (Special Focus is on Jamshedpur)
Typically,thegoodsproducedineachoftheHUL's40factoriesaresenttoadepotwiththehelpofa
carryingandforwardingagent(C&FA).Thecompanyhasitsdepotineverystateofthecountry.The
C&FAis
athird
party
and
gets
servicing
fee
for
stock
and
delivery
of
the
products.
In
each
town,
thereisatleastaredistributionstockist(RS)whotakesthegoodsfromtheC&FAandsellsthemto
retailoutlets. In Jharkhand theC&FA is inRanchiand Jamshedpur is servicedby3Redistribution
StockistsatSakchi(M/sOmPrakashAgarwal),BistupurandParsudih.
TheHULmanagementrealizedcertainproblemswiththeexistingsalesmodel.First,themodelwas
not viable for small townswith small population and small business.HUL found it expensive to
appointone stockistexclusively foreach town. Secondly, the retail revolution in the countryhas
changedthepatternthecustomersshop.Largeretailselfserviceshopsarebecomingcommonplace.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
13/32
13
In response of these problems, HUL redesigned its sales and distribution channel and the new
systemisknownas'diamond model'inthecompany.Atthetopendofthediamond,therearethe
selfserviceretailstoreswhichconstitute10%ofthetotalFMCGmarket.Themiddle,fatterpartof
thediamondrepresentstheprofitcenterbasedsalesteam.Inthebottomofthepyramidistherural
marketing and distribution which accounts for 20% of the business. As a result of the new
distributionplanthecompanyhasplannedtoreducethenumberofRSinsmalltowns.
RedistributionStockists:
TotalnumberofRSinJamshedpur=3(atSakchi,Bistupur,Parsudih). Thisisgoingtobereducedto
onlyonewitheffectfromnextmonthofthisyear.
Sales Margin: 4.76% which includes cash discount, unloading expenses from depot,distribution
expenses
to
retailers,
incentive
schemes
&
other
incidental
expenses.
Modesoftransportused:Rickshaw,tempo. Incentiveschemes:Before2000holidaypackagesandtoursbutafter2000nononmonetary
incentiveforRS.
Software systems and Information System: UNIFY 8.3 (Developed by IBM & CMC). Thissoftwareneedstobesynchronizeddailyandthesystemupdatesanyinformation/incentive
schemes/salesfiguresetctoandfromthecommonsharedplatform.
Areas
of
Operations:
Marked
for
each
of
the
RS.
SellingOperations:RSssellsthegoodsto o Wholesaler(gets 1.5%max.discountfromRS)o Retailers(gets 1.0%max.discountfromRS)
Wholesaler:
GetscashdiscountsandotherschemespromotedbyHUL(getspointsunderVijetaScheme).
Retailers:
TotalretailerbaseinJamshedpur: Approximately1070. SalesMargin:Dependsontheproduct
o Soap,detergents 8%onMRPo Cosmetics 10%onMRPo Fooditems 8%onMRP
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
14/32
14
Incentive schemes:
Companyprograms(SchemeDiscounts+CashDiscounts)
TPRschemesbasedonSales(1%to4%)
Vijetaschemeisnotforretailers.
Field Sales Force:
Tomeet the everchanging needs of the consumer, HUL has set up a distribution network that
ensures availability of all their products, in all outlets, at all times. This includes, maintaining
favourable trade relations, providing innovative incentives to retailers and organizing demand
generationactivitiesamongahostofotherthings.
Theimportant
activities
that
HUL
field
sales
force
does
are
(i)
target
chasing
and
(ii)
reporting
on
a
dailybasis.Account information ismaintainedonpalmtopsgivenbyHUL.Duringourresearchand
informalsurveyofHULfieldsalesforce,wecametoknowthatforthelasttwoyears,trainingisnot
beinggivenatalltothesalesforce.
HULhaslimitedthenetworkchannelsellingtocategoriesofHome&PersonalCare(HPC)andFood
productswithexclusivebrands for thischannel.That is, theseparticularbrands (products)areall
exclusive
to
HLN,
specifically
developed
for
the
Direct
Selling
channel,
and
not
available
in
the
retail
channel. The general trade comprises grocery stores, chemists, wholesaler, kiosks and general
stores.HindustanUnileverserviceseachwithatailormademixofservices.
4. Initiatives taken to Improve the Distribution Network
HULhastakenthefollowinginitiativestoimproveitsdistributionnetwork:
Setting up of a fullscale sales organisation comprising key account management andactivationtoimpact,fullyengageandservicemodernretailersastheyemerge.
ServicingChannelpartnersandcustomerswithcontinuousdailyreplenishment. LeveragingscaleandbuildingexpertisetoserviceModernTradeandRuralMarkets. Delayeringofsalesforcetoimproveresponsetimesandservicelevels. Revampingof itssalesorganisation inthe ruralmarketsto fullymeet theemergingneeds
andincreasedpurchasingpoweroftheruralpopulation.HULsdistributionnetworkinrural
Indiaalreadydirectly coversabout50,000villages, reachingabout250million consumers
throughabout6,000substockists.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
15/32
15
Implementationofsupplychainsystemthatconnectsstockistsacrossthecountry,andalsoincludesabackendsystemconnectingsuppliers,allcompanysitesandstretchingrightupto
stockists. IT toolshavebeendeployed forconnectivityacross theextended supplychains.
BackendprocesseshavebeencombinedintoacommonSharedServiceinfrastructure.
LaunchingofProjectShaktithroughwhichthecompany isabletoextend itsoperations invillages.HULhasalso includedseveralNGOsandstategovernmentsas the initiativehelps
ruralwomentoimprovetheirfinancialposition.
LaunchingofHULNetworktoleveragethechannelofdirectsellingbypresentingcustomisedofferingsin11homeandpersonalcareandfoodcategories.Startedin2003,italreadyhasa
baseof300,000consultantsacrossthecountry.
StartingoffranchisedLakmeBeautySalonsandAyushTherapycentrestoofferstandardisedservices,
in
line
with
the
strategy
to
leverage
the
equity
of
its
brands
through
relevant
services.
Finding out Innovativeways to reach out to its consumers, particularly in rural areas byleveragingnonconventionalmedialikewallpaintings,cinemavans,weeklymarkets(haats),
fairsandfestivals.
InitiatingtheconceptofSuperValueStores(SVS)inurbanareastopartnertraditionalstoresto provide a range of services ranging frommanaging their inventory to setting up POS
(point
of
sale)
banners.
In
addition
to
this,
to
boost
up
traditional
retail
in
the
face
increasing
inroadsmadeby large,modern retailing chains like Spencers,RelianceFreshetc (where
HULissqueezedharderfordiscounts),HULstartedrestructuringsomeoftheselectedSVSs
intotheformofselfserviceretailshopsalamodernretails.Thisistoprotect&maintainthe
competitiveadvantagethatHULhasoveritsbiggestcompetitorsintheothermarkets(e.g.,
P&G),withitsverydeepdistributionreachthroughtraditionalretail.
LaunchingtheUnicareschemewithupmarketpharmaciesandretailerstosale itspremiumbrands.
Undertakingseveralinitiativesfortraditionalchannelsinordertoimproveitscapabilitiesatthefrontendbydevelopingskillsforstockists'salesforce.Under'ProjectDronacharya',the
FMCGmajorcontinuouslyimpartedtrainingtoover10,000stockistsalesmen.
Launching of several promotional schemes for existingwholesalers and distributors. Forinstance,ithasstartedtheVijeta RishtaJeetKaschemelastyeartoprovideaplatformfor
thewholesalerandHULtogrowthebusinessbyearningpointsandredeemingthem.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
16/32
16
5. Field Force Management
TheworkingcycleofatypicalHULfieldforcememberisfrom21stofeverymonthtothe20thofthe
nextmonth.Duringthisperiodheisgivenvarioustargetsthathelpstoachievecompanyobjectives
and
gives
him
a
chance
to
prove
his
performance
relative
to
other.
Tostartwiththefieldforcememberisgivenaparticularareaandhisresponsibilityistocatertoall
theretailersinthatarea.Whiledecidingtheareaforeachmemberofthefieldforce,thecompany
makessurethattheoperatingareaofeachfieldmemberdoesn'toverlapwithhisothercolleagues.
Therearevariousmethodsusedbythecompanyto incentivizethefieldforce MonetaryandNon
Monetary.
InHUL,thefieldforceisevaluatedusingQOC(QualityofContribution).Itconsistsof4components
1.SecondarySale(Maxpoints=2.5)
2.Eco(Maxpoints=0.5)
3.Focus(Maxpoints=0.5)
4.FCS(MaxPoints=0.5)
ECO
SECONDARY
FCS
FOCUS
QOC
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
17/32
17
SecondarySale Basedon theoperatingarea,eachmember isgivenaspecific target in termsof
value(e.g.,Rs.15 lacs)fortheoperatingmonth(21st20
thofnextmonth).Ifheachieves100%of
thetargethegets2.5points,ifheachieves95%targethegets1.5points.Thesepointsareusedto
addtothetotalQOCscoreaswellaslinkedtomonetaryincentive.
ECO/WidthpackTargetThisisusedforthepenetration/reachofcertainproductsintheexisting
market.ThefollowingisatypicalECOtargetassignedtoafieldforceagent:
LuxInternational 105outletsx1SKU
PearsSoap 135outletsx1SKU
Rin 104outletsx1SKU
BreezeSoap 100outletsx1SKU
Theoutletsmentionedarewithintheoperatingareaofthepersonand1SKU=Rs.27/.Basedon
thistheFieldpersoncalculatesnumberofpacksheshouldselltotheretailers.Theconcernedagent
receivesthistargetaround25th
ofeachmonthandhastocompletethistargetwithinthe5th
dayof
nextmonth.Upon completion he gets additional 0.5 points added to hisQOC score alongwith
monetary incentive associated with it. However if this is not met within 5th, he looses the
opportunity.
Focus/
Depth
Pack
target
This
is
mainly
used
to
increase
the
sales
volume
of
certain
products.
A
typicalFocustargetisgivenbelow:
LuxInternational Rs20,640/@Rs6/ perunit
LifeBuoy Rs70,220/@Rs10/ perunit
Wheel Rs99,000/@Rs10/ perunit
BreezeSoap Rs27,000/@Rs10/ perunit
This targetneeds to be achievedwithin 20th
of nextmonth.Upon achieving the target the field
personis
awarded
0.5
points
which
is
then
added
to
his
overall
QOC
score.
FieldCapabilityScore(FCS) Inthiscomponent,thefieldforcepersonsarerequiredtoensurethat
the scheduledvisit/outletbilling is such thatat least15 itemsaredemandedperorder. If this is
achieved the retailergetsadiscountof1%on thebilledamountandon theotherhand the field
persongetsanadditional scoreof0.5which isadded tohisQOC score.Each scheduledvisitper
outlet isoneperweek. Forexample if thereare100outletswithin theoperatingareaofa field
personthenthenumberofvisitperweekis100andtotalnumberofvisitpermonth=100x4=400.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
18/32
18
Thesalesperson isrequiredtoachieve90%successratetoget0.5pointsforhisQOCscoreandat
least65%forasatisfactoryperformance.
Non Monetary Methods
TheotherpurposeoftheQOCscoresistohighlighttheperformanceofthefieldpersonamonghis
peers.Basedon theQOCvariousawardsaredistributed to the fieldpersonsat theendofevery
month. These awards are also known as MOC Star awards.MOC stands forMonthly operating
Cycle.
IfQOCscore>4.5Thepersoniseligiblefor7staraward IfQOCscore>4 Thepersoniseligiblefor5staraward IfQOCscore>3.5Thepersoniseligiblefor3staraward
Inthe
event
of
exceptional
performance,
management
representatives
from
the
regional
office
cometothezonalofficetodistributetheawards.Thephotographoftheawardwinnersisdisplayed
intheofficeasasourceofinspirationforothersalesperson.
Target Setting Mechanism and monitoring
Theregionalofficemonitorstheperformanceofvariouszones.Athoroughanalysis isdoneatthe
end of eachmonth and based on that theweak products are identified or those forwhich the
demand
has
weakened.
This
is
the
basis
of
setting
ECO
and
FOCUS
targets
for
the
field
persons.
Each
fieldpersonisgivenapalmtopwhereinhecanfeedtheentriesonthespotwherethetransactionis
done.Thissolvesbasicallythetwopurposes
a)Thefieldpersonisfreedfromthetedioustaskofmaintainingcumbersomerecordsandcanthen
concentrateonthejob(thusITisreplacingsomeofthefieldforceorotherchannelmembers),
b)Thesolditemisimmediatelyupdatedinthecompanyinformationsystem.
6. Analytical Framework
WetriedtoanalyzeHULsdistributionnetworkinthelightof20mostsignificantvariablesthataffect
thedistributionpartofchannelmanagement foranyorganization in thebusinessofmarketing&
sellingofgoods.Thevariables,theirexplanationsandtheirimpactontheHULsdistributionnetwork
aregivenbelow
1. NumberofConsumersIn retailbusinessdominatedby traditional stores likeKiranaStoresetc (Indian retailbusiness
falls
in
this
category),
higher
the
no.
of
consumers,
higher
will
be
the
no.
of
channel
intermediaries.Theimplicationofthisisthattherewillbemany layersinthechannelinsucha
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
19/32
19
situationandmanagingsuchacomplexdistributionnetworkbykeepingtabsoneveryplayerwill
beahuge task.Moreover,Transport&Logistics (T&L)supportprovidedby theorganization
needstobewellorganized.
Implicationfor
HUL
HULskeystrengthliesinmanagingitsdistributionnetworkinIndia.HULisIndiaslargestFMCG
company with unmatched distribution network, which is built over a century focusing on
traditional retail. HUL's distribution network comprises about 4,000 redistribution stockists,
coveringabout6.3million retailoutlets reaching theentireurbanpopulation,andabout250
million ruralconsumers in India. Itssaid thatHUL isable to touch the livesofabout2outof
every 3 Indian consumers. This achievement is due to the sheer strength of its distribution
network(products
should
be
good
as
always,
otherwise
they
will
find
no
buyers
in
the
long
run).
Foracomparison,P&G,worlds largestFMCGmajor,doesnotfind itsname inthe listoftop5
FMCGmajorsinIndiaasitsstrengthliesinmanagingmodernretail(biggestexample,WalMart),
butnottraditionalretail.
2. GeographicDispersionofConsumersAgain,thisiscloselyrelatedwiththepreviousvariable,moresoinalarge,geographicallydiverse
country like in India.With the increase in thisdispersion level,more intermediariesandmore
layersare
required
in
the
distribution
network
so
as
to
effectively
reach
the
length
&
breadth
of
the country. Obviously the T&L management for such an organization would be critical to
accomplishthis.
ImplicationforHUL
Foracountryasgeographicallydiverseas India,panIndianpresence&market leadershipcan
only be possiblewhen products reach even the remotest parts of the country. HUL is very
successfulin
achieving
and
maintaining
this
reach
due
to
its
distribution
network.
3. FrequencyofPurchaseIf the frequency of purchase is high, then transport intensity in the last mile (i.e., from
distributortoretailers)increasesmanifold.ForFMCGproducts,asathumbrulewecantakethat
themeantimebetweentwopurchasesis~90days.Withtheintroductionofsmallerformfactor
packagingforFMCGgoods(Re.1/ shampoosachetsbeingaverygoodexample),thetransport
intensityincreasedfurther.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
20/32
20
ImplicationforHUL
HULhasabout4000 redistribution stockists,who supply toapprox.6.3millionoutletsacross
India.Sincemanufacturingisdoneat40plantsaroundthecountry,rationalizingthelogisticsand
planningis
ahuge
task.
An
innovative
step
in
that
regard
has
been
the
formation
of
the
Mother
DepotandJustinTimeSystem(MDJIT).CertainC&FAswereselectedacrossthecountrytoact
as mother depots. Each of them has a minimum number of JIT depots attached for stock
requirements. All brands and packs required for the set ofmarketswhich theMD and JITs
service inagivenareaaresenttothemotherdepotbyallmanufacturingunits.TheJITsdraw
theirrequirementsfromtheMDonaweeklyorbiweeklybasisandsupplytostockists inthat
area,who,inturn,supplytoretailers.
4. TendencytoPostponePurchaseIfthetendencytopostponepurchaseislesser,thentheproductwillbeeasiertodistribute.For
example,products/serviceslikeFireExtinguishers,LifeInsuranceetc.aresuchthatthoughthese
are needed, the overall tendency for the consumers is to postpone the purchases these
products/services can be termed as necessary evil. For this kind of products, regular
reinforcementinthemindsofconsumersbecomesnecessary,salesfieldforcebecomescritical
anduseofexpertfieldforceiscommonplace.
Implicationfor
HUL
Since FMCG products are used regularly and these products are not necessary evils,
distributionnetworkofHULdoesnotrequireanyexpertfieldforcetosellitsproducts.Onlythe
recent diversification ofHUL into HomeWater Purification business (Pure It brand) needs
dedicatedfieldsalesforce.
5. LevelofFamiliarity/Knowledge(ofconsumer)abouttheProductIf
the
level
of
familiarity
of
consumer
with
the
product
is
higher,
lower
will
be
the
importance
of
fieldsalesforceandhigherwillbetheimportanceofchannel.
ImplicationforHUL
SinceFMCGgoodsareverymuchfamiliartoconsumers,channelanditsdifferentmembersare
very much important to HUL and field sales forces function is mostly limited to channel
managementandensuringavailabilityofproducts.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
21/32
21
6. DegreeofBrandLoyaltyIf the consumers aremore brand loyal, then less pushwill be required from the channel
memberstoselltheproductsastherewillbesufficientpullordemandfromtheconsumers.
Thisimpliesthatforproductswith loyalcustomerbase,effortsfromthechannelmemberscan
bemuchlesserforfinalofftaketohappenwhichinturnleadstolessermarginstothechannel
members for thoseproducts.For fastermovingproducts (mostlydue tobrandpull), retailers
maynotbeaversetoslightlylessermarginsasrotationoftheproductsishighandthushis/her
ROIisprotected.
RetailersROI=Investment
RotationinM arg
ForaFMCG
player
with
anon
established
brand,
margins
to
channel
members
and
point
of
sale
(POS)advertisingarebothimportant.
ImplicationforHUL
AsHULenjoysleadershippositioninmanyFMCGsegmentslikeSoaps,Detergents,PersonalCare
productsetcwithstrongbrandswithcontinuouspull,HULhaslesstoworryaboutmarginsto
channelmembersorPOSadvertising.Butthissituationcanchangeconsiderably inthefaceof
riseofasignificantcompetitorhavingalmostthesamereachasHULhas(e.g.,ITCasitseating
intoHULsmarketsharecontinuouslysinceitenteredFMCGsegment).
7. PurchasedonImpulseThe impulsepurchaseproducts likechocolates,toffees,colas, icecreamsetc. followSaysLaw
whichstatesthatSupplyCreatesDemand,implyingavailabilityoftheseproductsarethemost
criticalaspect forthesetobesoldandconsumed.Thisstressesonthe fact thatT&L forthese
productsbecomesveryimportant.
Implicationfor
HUL
HULhasonlyoneproduct inthis impulsepurchasecategory KwalityWalls(icecream).HUL is
#2afterAmul inthisFMCGsegment.To increasethisbrandssale&marketshare,availability,
visibilityandconsumermindsharehastobeincreasedandimprovedaswell.
8. LevelofInvolvement(LOI)Level of involvement (i.e., time & effort spent by the consumer) generally depends on the
productcost.
If
LOI
is
higher,
lower
is
the
importance
of
availability
and
more
critical
is
the
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
22/32
22
supplyof information as consumerdecisionprocess dependsmore on elaborate information
search.
ImplicationforHUL
AsFMCGproductsaregenerallyLowInvolvementProducts,HULhastobothermoreonensuring
availabilityoftheproducts,ratherthansupplyofinformation.
9. PurchasedasaBasketofGoodsTheproductswhicharegenerallyboughttogetherbyconsumersasabasketofgoods(e.g.,Rice,
Flourpowder,Cookingoiletcatthebeginningofthemonth)aretobemadeavailabletogether
forfinalofftake.
Implicationfor
HUL
ThisaspectpartlyappliestoHULsproductsassomeproductslikeshampoos,soaps,detergents
mayfallinabasket.EfficientdistributionnetworkofHULensuresavailabilityofallsuchproducts
ateachsellingpoint(individualretailer).
10.Speed&ComplexityofDecisionMakingProcessIfthespeed is low,thenthecomplexityofthedecisionmakingprocessishigherandgreater is
the
importance
of
field
sales
force
and
the
salespersons
skill,
knowledge
and
quality.
ImplicationforHUL
ForFMCGproducts,complexityofdecisionmakingprocessisnotthereandso,speedofdecision
makingishigh.ThismeansthatforHUL,fieldsalesforceisoflimitedfunctionalusage.
11.PresentofExpertInfluencerintheDecisionMakingProcessRoles of sales field force vary depending upon whether expert influencer (e.g., doctors) is
presentin
the
process
or
not.
If
present,
then
consumer
buying
behavior
may
become
subcontractedandtheexpertinfluencerbecomesanothercustomerofthenetwork,apartfrom
the enduser. In that situation two groups of sales force are needed to cater to both the
segments.
ImplicationforHUL
ForFMCGgoods,roleofexpertinfluencerislimited.Butcompaniestrytoassociatebrandswith
regulatory bodies/authorities and show advertising with experts commenting upon superior
virtues of a product in an attempt tomake the buying behaviour shift frompicking/variety
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
23/32
23
seekingtosubcontractedandmakeconsumersmoreloyaltothebrand.ThesearetrueforHUL
also(e.g.,PondsIntitute).
12.ElementofCrisisPurchaseExistsIf
element
of
crisis
purchase
exists
in
the
buying
decision
of
aproduct
(for
example,
bulbs
&
tubes),thenitsavailabilitybecomescritical.
ImplicationforHUL
Noneof theproductsofHUL fallunder thiscategory.Nevertheless,availabilityofproductsof
HULisnecessaryforotherreasons.
13.ElementofRiskAversionExistsIf
the
level
of
involvement
of
the
consumer
in
buying
decision
process
is
higher,
risk
taking
tendency of the consumer will be lower or consumer will be more risk averse. In such a
situation,channelmemberscanunsellabrandbygivingexplicitor implicitsuggestions.This
implies that insuchacase,sellingdependsonmanycaseshowthecompany istakingcareof
channelmembers(keepingthemhappy)suchthattheyarenotluredbyothercompetitorsor
directedbygrievancessoastounsellthebrand.ThissituationisprevalentmostlyinConsumer
Durables(likeTV,Refrigeratorsetc.).InFMCGgoods,thesituationdoesnotexistperse.
Implicationfor
HUL
HUL isnotaffectedfor itsFMCGproductsbythisvariable.ForwaterpurifierPureIt,thiscan
haveconsiderable impact if itssalestartstohappenthroughchannelmembersratherthanby
fieldsalesforceasishappeningnow.
14.PerishabilityoftheProductIftheproductisperishable(havingsmallshelflife;examplesnewspaper,milk,fruitsetc),then
thedimension
of
speed
in
reaching
the
end
consumers
becomes
critical
&
T&L
assumes
great
significanceforthecompany.
ImplicationforHUL
TheFMCGproducts thatHUL sellsarenotperishablebynature,buthave limited life.So this
aspectisnotcriticalforHUL.
15. TimeBandAssociatedwiththePurchaseoftheProductIf
there
is
seasonality/cyclicity
for
the
demand
or
purchase
of
the
product
(examples
newspaper,milk aremostondemand in the 1st threehoursof theday; cookingoil, rice etc
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
24/32
24
grocery items are most on demand in the 1st week of the month), then high T&L and
infrastructuralrequirementsareneededforthelastmileforthetimebandwhendemand is
maximum. It ispossible tohave idle capacity in theareasmentionedaboveoutside thepeak
requiredtimeband.
ImplicationforHUL
ForsomeoftheproductsofHUL,theabovestatedvariable issignificant.Forexample, inFood
segment,BrandedAttaAnnapurna;insegmentslikeLaundryDetergents,Shampoo&HairOil
etc. this element of demand time band exist to a certain extent. This underscores the
importance of T&L for HUL as the transport intensity between distributors and retailers
increases inthe1st&4
thweekofamonthfortheproductsmentionedabove.This isoverand
abovethe
regular
replenishment
of
stocks
at
retailers
done
by
distributors.
Festivals
like
Holi
etc.
may also increase the demand for personal care items like soaps, shampoos etc for a short
periodanddistributionnetworkshouldbegearedupnottomissanysuchopportunity.
16.FungibilityFungibility is the property of a good or a commoditywhose individual units are capable of
mutualsubstitution.Examplesofhighlyfungiblecommoditiesarecrudeoil,wheat,orangejuice,
preciousmetals,andcurrencies.Fungibilityhasnothingtodowiththeabilitytoexchangeone
commodityfor
another
different
commodity.
It
refers
only
to
the
ease
of
substitution
of
one
unit
ofacommoditywithanotherunitofthesamecommodityforallintentsandpurposes.
Fungibility isdifferentfrom liquidity.Agood is liquidandtradable if itcanbeeasilyexchanged
for money or for another different good. A good is fungible if one unit of the good is
substantiallyequivalenttoanotherunitofthesamegoodofthesamequalityatthesametime
and place. It is said that commodities are fungible, goods tangible, services intangible,
experiencesmemorable&transformationsareeffectual1.
As an example,oneRs. 100/ banknote is interchangeablewith another.Cash is fungible.A
barrelofWestTexasIntermediatecrudeoilisfungible(directexchange)withanotherbarrelof
thesamecrudeoil.Oil(ofthesametype)isfungible.
Fungibilitydoesnotimplyliquidity,andliquiditydoesnotimplyfungibility.Jewelscanbereadily
bought and sold (the trade is liquid), but individual diamonds, being unique, are not
interchangeable (diamondsarenot fungible). Indian rupeebanknotesare interchangeable in
London(they
are
fungible
there),
but
they
are
not
easily
traded
there
(they
are
not
liquid
in
London).Incontrasttodiamonds,goldcoinsarefungible.Theyarealsoliquid,especiallyundera
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
25/32
25
gold standard.Thecombinationof fungibilityand liquidity isoneof the reasonswhygoldhas
successfullyservedasmoneyforthousandsofyears.
Further,afungiblethingcanbecomenonfungibleundersomecircumstances.Forexample,an
oldcoin
or
acurrency
note
may
assume
avalue
which
is
way
above
its
face
value
due
to
historical reasons or due to some defects in it which makes it unique from others from a
viewpointwhichseesitdifferentlythanitsintendedpurpose.
Theoutcomeofproduct fungibility isthatthemore fungibleaproductbecomes,higher isthe
chancethatpartsofthedistributionchannelitcanbereplacedbyIT.Agoodexampleofthisis
dematerialization (Demat)route forsharetradingnowwherethere isnophysicalexistenceof
shares.
ImplicationforHUL
As branded FMCG goods are not fungible per se (branding is done to decommoditize &
differentiatetheproduct),theimportanceofchannelmemberswillcontinue.
17.DegreeofCustomizationPossibleDegreeofcustomizationdirectlyaffectseconomiesofscale;higherthecustomization,lesserthe
economiesofscale.Also,criticalityofsalesfieldforceincreaseswithcustomizationlevelsofthe
offering.
ImplicationforHUL
ForFMCGproductsofHUL,whicharemassproduced,suchcustomizationsarenotpossibleand
thuswith higher economies of scale, lower criticality of field forces from the standpoint of
customizationofproductofferings,costsarelowerintheserespectswithHUL.
18.NegativeorPositiveReinforcingProductNegative reinforcingproductsare thosewhicharebought toavoid/reduce theproblem (ex.
insurance, washing machine, car battery etc). Positive reinforcing products are those which
gratify the senses (ex.Perfumes,Chocolates,Vacationetc).Shoppingexperiencebecomesa
criticalaspectforpositivereinforcingproductstoreaffirmthepositivefeelings.
ImplicationforHUL
Axe& Rexonadeodorantsaredistinctlypositive reinforcingproducts fromHUL, including
otherslike
Lux,
Lakme
etc.
So
these
are
seen
in
most
shopping
malls
etc.
with
high
visibility
displaystoreaffirmthefeelings.Consumersarewillingtopayhigherforthesebrands.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
26/32
26
19.Value/VolumeRatio(ValueDensity)oftheProductThisratio isvery important forboththecompanyandtheretailerfor itstwocriticalaspects
T&L costand retailerROI/sq. cm (retailersareactually in realestatebusiness in true sense).
Highertheratio,betteritisforbothcompanyandtheretailerashigherratiosignifieslesserT&L
costperunitvolumetransportedforthecompanyandgreaterROIperunitofshelfspaceforthe
retailer.
ImplicationforHUL
IngeneralforFMCGgoodsandforHULaswell,valuedensity isrelatively lower.Inadditionto
this fact, increasing trend towards using smaller pack sizes increases the packaging density
(increased packaging density increase cost to some extent, but favoursmechanized handling
greatly,reducing
handling
costs).
Since
value
density
is
less,
transportation
costs
will
be
higher
andthusitisofeconomicsensetohavemanufacturingplantslocatedclosuretomajormarkets.
ThisisthereasonHULhasvariousmanufacturingplants(40intotality)locatedacrossIndia.This
is a pointer to the fact most of the major FMCG players (including HUL) use contracted
manufacturing dispersed across the geographic spread so as to lower transportation cost
component.
7. Financial Analysis
Wehave takendata from CMIE databasewhile analyzing the performance ofmarketing& sales
(including distribution) functions of HUL and comparable companies. By comparable,wemean
those companieswhosemaineconomicactivity,asdefined in theCMIEdatabase, is the sameas
HULs.Forexample,maineconomicactivityofHULasdefinedinthatdatabaseis Cosmetics,toilet
preparations,soap&washingprep.Obviously,onemajorFMCGcompany in India, ITC,doesnot
comeunderthispurviewasitsmajoreconomicactivityisTobaccobusinesswhichisnearly85%ofits
totalrevenue.Butforthesakeofcomparison,wehaveincludedITCalsoas itsnon tobaccoFMCG
businessrevenueinFY08wasRs.2511Cr.,nearlyashighasNirma,thesecondlargestplayerafter
HULinHULschosencategory.Butthefiguresforadvertising,marketing&distributionexpensesof
ITC as percentages to its total salesmay not be directly comparable to those figures ofHUL as
product categories are different and the impact of above mentioned variables on these two
companyssales&distributionfunctionisdissimilar.OthermajorFMCGplayersnotincludedinthe
analysis are Nestle, Amul, Britannia & Tata Tea, which are mostly into the Food & Beverages
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
27/32
27
segmentwhereHULhasrelativelylesserpresence(ProcessedFoods&Icecreamsegmentstogether
constituteonlyapproximately5%ofHULstotalsales).InTea,HULispresentsignificantly,though.
Inthefollowingpagesadvertising,marketing&distributionexpensesofmajorFMCGgoods(inHULs
categorymostly)
are
being
shown.
It
is
to
be
understood
here
that
marketing expenses
here
include
commissions, rebates, discounts, sales promotional, expenses on direct selling agents &
entertainmentexpenseswhereasdistribution expensesincludeoutwardfreight.
Exhibit 1: Annual Spend in Advertising, Marketing & Distribution functions in FY 08
Annual Annual Annual Annual
Rs. Crore Rs. Crore Rs. Crore Rs. Crore
Mar-08 Mar-08 Mar-08 Mar-08
Sl.
No.Company Name Sales
Advertising
expenses
Advert. Exp.
As % of
Sales
Marketing
expenses
Marketing
Exp. As %
of Sales
Distribution
expenses
Dist. Exp.
As % of
Sales1 H U L 1 4 9 3 7 . 8 8 1 4 2 2 . 9 9 . 5 3 6 .0 7 0 .0 4 7 3 1 .4 1 4 . 9 0
2 Nirma 2651.15 40.96 1.54 71.87 2.71 136.91 5.16
3 Dabur 2128.17 248.1 11.66 21.4 1.01 66.84 3.14
4 Colgate-Palmolive 1597.3 256.51 16.06 0 0.00 35.36 2.21
5 Reckitt Benckiser 1334.76 207.85 15.57 9.34 0.70 55.88 4.19
6 P&G Home 1079.57 119.45 11.06 44.31 4.10 70.54 6.53
7 Godrej 922.78 61.4 6.65 42.37 4.59 32.27 3.50
8 Emami 586.42 102.92 17.55 27.46 4.68 14.86 2.53
9 P&G Hygiene & Health 556.02 57.95 10.42 40.85 7.35 37.24 6.70
10 Henkel 430.33 0 0.00 40.94 9.51 16.4 3.81
11 Henkel Marketing 417.79 0 0.00 65.64 15.71 17.63 4.22
12 ITC 21467.38 427.83 1.99 68.17 0.32 548.4 2.55
Exhibit 2: Advertising Expenses as percentage of Sales
Adver t is ing Expenses as % of Sales
9.53
1.54
11.66
16.0615.57
11.06
6.65
17.55
10.42
0.00 0.00
1.99
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
HUL Nirma Dabur Colgate-
Palmolive
Reckitt
Benckiser
P&G
Home
Godrej Emami P&G
Hygiene &
Health
Henkel Henkel
Marketing
ITC
AdvertisingExp.as%toSales
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
28/32
28
We can seehere thatNirma,Godrej&Henkel (ITCalso)have lessadvertisingexpenses (as% to
sales)thanHUL.Importantly,Henkelhaszeroadvertisingexpenses in2008,whichmayexplainthe
factthatawareness level inconsumersforHenkelbrands is low.HULadvertising isdonemainly in
case of soaps (for example Dove; donemainly to reaffirm that its not a soap!), shampoos,
deodorants (Axe), laundry detergents (Surf Excel, Rin) etc.With the introduction of home
waterpurifier(PureIt),considerableadvertising&promotionalexpenseshavegoneintoit.
Oflate,weseeverylittleofNirmaadvertisements.Thisisapparentfromitsadvertisingexpenseas
% to sales,which is very low (only1.54%). ITC is altogetheradifferent story.Cigarettes&other
tobacco relatedproductswhich constituteapprox. 85%of its sales,all relate to intoxicationor
habitual consumption patterns having intensely brand loyal consumers and thus almost no
advertising(surrogateadvertisingisdone)isneededeithertoreaffirmthebrandsorintroducenew
consumers to thebrands (there is regulatoryangleaswell).Current consumersof these tobacco
productsare thebiggestadvertisingagents that ITChasandof course, theydo itvoluntarilyand
without knowingwhat theyre doing. Butwhile moving faster into nontobacco FMCG business
ridinghighonitsstrengthofdistributionnetworkmatchingorsurpassinginsomecasesthatofHUL,
ITC has started aggressive advertising campaigns (Fiama Di Wills shampoo, Vivel soap,
Sunfeastbiscuits,Bingosnacksetc),directlyfocusingonmarqueebrandsofHULlikeSunsilk&
Lux,increasingtheheatonBritanniaforbiscuitsandtakingonKurkure&othersnacksandchips
fromPepsi,
Coke
and
others.
Advertising expenses as percentage to sales is highest for Emami, which owns brands such as
Navratnahairoil&talc,Boropluscream&talc,HimaniFastRelief,Fair&Handsome,SonaChandi
Chawanprash,Menthoplusetc,eachofwhichisadvertisedheavilyinthemassmedia(e.g.,TV)with
famous&expensivecelebrityendorsers likeAmitabhBachchan,KareenaKapoor,Govindaetc.On
the other hand,we see regular advertising streams for Colgate toothpastes and other oral care
products, inwhich category ColgatePalmolive is themarket leader. ReckittBenckiser advertises
considerablyfor itsbrands likeHerpic,Mortein,Vanish,Clearasil,Dettol,Strepsilsetc,which isthe
reasonforitshighadvertisingcostaspercentageofsales.
MarketingExpenses
Asstatedearlieralso,marketingexpenseshereincludethefollowing
commissions rebates
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
29/32
29
discounts salespromotional expensesondirectsellingagents entertainmentexpensesetc.
Exhibit 3: Marketing Expenses as percentage of Sales
Market in g Expenses as % to Sales
0.04
2.71
1.01
0.00
0.70
4.104.59 4.68
7.35
9.51
15.71
0.32
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
HUL Nirma Dabur Colgate-
Palmolive
Reckitt
Benckiser
P&G
Home
Godrej Emami P&G
Hygiene &
Health
Henkel Henkel
Marketing
ITC
MarketingExp.as%toSales
Herewe see that themarketing expensesofHULareamong the lowest in themarket (only the
second lowest after Colgate Palmolive which has very good brand pull for its Colgate
toothpastes).ThisprovesthatHUL isabletomaintainconsiderablebrandpullthroughadvertising.
ITCagaincomesamongthelowestitstobaccoproductsrequireverylittlepushandhaveveryhigh
rotations.Also,ITCmostlydealswithsmallretailersanddistributors(paancigaretteshopsowners)
whohavemarginalbargainingpower.
AnotherrevelationisthatHenkel,whichhaszeroadvertisingexpenditure,hasthehighestmarketing
expensesamongallothers.But this strategy to push theproducts through the channelpartners
may not be a good one for Henkel as itmight be losing out for the lack of visibility and thus
consumermind share andbrands such asMargo, Fa,Neem toothpasteetc are losingout in the
market.Further, it isalsoapointer to the fact thatHenkels largestbusiness share is in industrial
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
30/32
30
chemicals (adhesives, sealants e.g., popular brand Loctite; this segment constitute ~44% of
worldwide salesofHenkel)and forB2B,advertisingper se isnot thatmuch important.ForB2B ,
important isdirectsellingapproach,which generally requiresnegotiations, volumediscountsetc,
whicharereflectedinhighestmarketingexpenses(aspercentagetosales)comparedtoothers.
P&G is inbetween theextremesandwith considerableadvertisingexpensesalso, it isunable to
createsufficientpullforitsproductsinIndia(asevidencedbythefactthatmarketingexpensesare
also relativelyhigher)or itsgetting stuck for the lackofsufficientdistributionmusclea laHUL in
traditionalretailinIndiaandsuffersfromlackofreachandavailabilityattheendconsumerlevel.
Asmentioned earlier,bothColgatePalmolive andReckittBenckiserbothenjoys very goodbrand
loyalties and market leadership for their key brands like Colgate toothpastes and Dettol (#1 in
antiseptics),Herpic,
Mortein
etc.
This
is
corroborated
by
the
fact
that
these
companies
have
some
of
thelowestmarketingexpenses(aspercentagetosales)inthegroup,asshowninthechart.
DistributionExpenses
Distributionexpensesincludetheoutwardfreightcosttothecompany.
Exhibit 4: Distribution Expenses as percentage of Sales
Dis t r ibut ion Expenses as % to Sales
4.905.16
3.14
2.21
4.19
6.53
3.50
2.53
6.70
3.81
4.22
2.55
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
HUL Nirma Dabur Colgate-
Palmolive
Reckitt
Benckiser
P&G
Home
Godrej Emami P&G
Hygiene &
Health
Henkel Henkel
Marketing
ITC
DistributionE
xp.as%toSales
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
31/32
31
WehaveseenthatT&LplaysaveryimportantroleforHUL&otherswhohavepanIndianpresence
inFMCGbusiness.ColgatePalmolive,Emami&ITChassomeofthelowestdistributionexpenses(as
%tosalesfigures)&P&Ghasthehighest.HULislowerinthisrespectthanNirma&P&G,buthigher
than Henkel. This can be explained somewhat from the impact of the variable, Time Band of
purchase,ontheincreasedtransportintensityforHULinthelastmileforsomeoftheproductslike
householdpersonalcare, laundrydetergent,brandedattaetc inthefirst& lastweekofthemoth.
ITC(tobacco),Henkel(largelyB2B)aremostlyprotectedfromthisimplicationofthevariable.
AnotherimportantthingtorememberthatvaluedensityofFMCGgoodsisrelativelylower,causing
share of transportation costs in the overall cost structure to be relatively higher. This implies
dispersedmanufacturing, locatingmanufacturingplantsnearer tomajormarkets.Soone location
manufacturing to get higher economies of scale and on the other hand, trying to serve
geographicallydiversemarketsmaynotbeeconomicallyattractive forFMCGsector.Comparedto
HULs 40 manufacturing plants across India, Nirma, the 2nd
largest FMCG major in soaps and
detergents category, has 6 manufacturing plants, all located in and around Gujarat. So,
transportationcostofNirma,ifittriestocatertopanIndianmarketwillbehigher.Thisissupported
bythefactthatNirmashigherdistributioncostpercentagethanHUL.ForP&G,thesamereasons
significantlyaffectitsdistributioncostwhichishighestforthegroupanalyzed.
-
7/31/2019 12950828 Distribution Management of Hindustan Unilever Ltd
32/32
32
8. References
1. B.JosephPine,JamesH.Gilmore(1999),TheExperienceEconomy:WorkisTheatre&EveryBusinessaStage,PublishedbyHarvardBusinessPress,254pages.
2. HULWebsite(http://www.hul.co.in/)3. HULCLSAConference,InvestorPresentation(24thSept.,2008).4. ReckittBenckiserWebsite
(http://www.reckittbenckiser.com/site/RKBR/Templates/Home.aspx?pageid=1)
5. ColgatePalmoliveWebsite(http://www.colgate.co.in/app/Colgate/IN/HomePage.cvsp)
6. EmamiGroupWebsite(http://www.emamigroup.com/Brands)7. CMIE8. Wikipedia
http://www.hul.co.in/http://www.reckittbenckiser.com/site/RKBR/Templates/Home.aspx?pageid=1http://www.colgate.co.in/app/Colgate/IN/HomePage.cvsphttp://www.emamigroup.com/Brandshttp://www.emamigroup.com/Brandshttp://www.colgate.co.in/app/Colgate/IN/HomePage.cvsphttp://www.reckittbenckiser.com/site/RKBR/Templates/Home.aspx?pageid=1http://www.hul.co.in/