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Chapter 1 Introduction

1.1 company profile

Nestl India is a subsidiary of Nestle 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'.

HISTORY
Nestl was founded in 1867 on the shores of Lake Geneva in Vevey, Switzerland and its first product was Farine Lacte Nestl , an infant cereal specially formulated by Henri Nestl to provide and improve infant nutrition. From its first historic merger with the Anglo-Swiss Condensed Milk Company in 1905, Nestl has grown to become the world s largest and most diversified food Company, and is about twice the size of its nearest competitor in the food and beverages sector. Nestl s trademark of birds in a nest, derived from Henri Nestl s personal coat of arms, evokes the values upon which he founded his Company. Namely, the values of security, maternity and affection, nature and nourishment, family and tradition. Today, it is not only the central element of Nestl s corporate identity but serves to define the Company s products, responsibilities, business practices, ethics and goals. In 2004, Nestl had around 247,000 employees worldwide, operated 500 factories in approx. 100 countries and offered over 8,000 products to millions of consumers universally. The Company s transparent business practices, pioneering environment policy and respect for the fundamental values of different cultures have earned it an

enviable place in the countries it operates in. Nestl s activities contribute to and nurture the sustainable economic development of people, communities and nations. Nestl s 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 India s independence in 1947, the economic policies of the Indian Government emphazised the need for local production. Nestl responded to India s 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. Progress in Moga required the introduction of Nestl s Agricultural Services to educate, advise and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans. Nestl set up milk collection centres that would not only ensure prompt collection and pay fair prices, but also instil amongst the community, a confidence in the dairy business. Progress involved the creation of prosperity on an on-going and sustainable basis that has resulted in not just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving hub of industrial activity, as well. For more on Nestl Agricultural Services.

DYNAMIC EXPANSION
The history of Nestle includes the development of many different products as well as acquisitions, mergers and the purchasing of shares in companies, mainly abroad. Over the course of the years, this enabled it to broaden its range of products and diversify its operations, while at the same time strengthening the economic foundations of the company. Amongst the most important acquisitions were Carnation in Los Angeles (milk, culinary products and pet foods) and more recently Rowntree Mackintosh in York (chocolate and confectionery), Buitoni in Perugia (pasta) as well as Perrier in France(mineral water). Nestle, which does 98% of its business outside Switzerland, also has interests in non-food sectors, in cosmetics (a large share holding in L'Oreal) and ophthalmic products (acquisition of Alcon Laboratories Inc.) while continuing to give priority to food products.

NESTLE TODAY
Nestle is now the world's largest food company. It is present on all five continents, has and annual turnover of 74.7 billion Swiss francs, runs 509 factories in 83 countries and employs about 231,000 people the world over. The Company owes its current status to the pioneering spirit inherited from its founders which continues to inspire it, to its concern with quality and to its constant search for new ways of satisfying man's nutritional needs.

Wherever possible, it sets up factories locally, employs personnel from the country concerned and relies on indigenous raw materials. Its agricultural services provide assistance to improve the quality and yield of the raw materials it uses. Much attention is devoted to professional training and to the integration of the Company in its economic and social environment.
KEY STATISTICS: As on 31st December 2010 NESTLE INDIA LTD Sales Revenue :RS. 6,382.78 cr EBITDA : Rs.1,281.87cr
PAT: Rs.818.66cr.

Company Mission Statement:


At Nestl, we believe that research can help us make better food so that people live a better life.

1.2. Definition and purpose of the project Nestle India ltd. has a division Nestle Professional which is into the Vending machine Business. The business involves placing their coffee vending machine at different sites and then supplying the premixes required for that machines. The machines are generally placed in the offices, malls, railway station etc. The distribution of these machines and their premixes are done to several distributors spread across the country. Nestle Professionals currently does an annual turnover of Rs. 120 Cr. Across the country The purpose of this project is to calculate and analyze the Return on Investment (ROI) of these distributors. 1.3. Scope and objectives of the project

The Scope of the project is to calculate and analyze the ROI of distributors located in Mumbai and Pune. In Mumbai Nestle Professional have around 30 distributors while in Pune there are about 5 distributors. The objective of the project is as follows : 1. To calculate the ROI of these distributors. 2. To analyze the ROI of these distributors. 3. To benchmark the ROI for these distributors. The company has never undergone such kind of exercise for their distributors before hence with the help of summer trainees the company wants to benchmark an ROI for these distributors. CHAPTER 2. Review of Literature 2.1. Theoretical framework, background theory, hypothesis
Vending machine dispenses a product or a service, and it is a fairly new concept in India. Economic growth, development of cities, lifestyle and eating & drinking habits have opened a huge market for these machines which can cater to consumers directly. There exists a high potential for growth, both in sales of these machines and goods & services sold through these machines.

Both goods and services can be sold through vending machines. Goods include pre-packed beverages, snacks, newspapers etc. Services include bill payments, recharge cards like mobile talk-time recharges, tickets and so on. There are different kinds of vending machines for different purposes. Some type of vending machines include machines for snacks and beverages (packed foods), hot beverages (tea and coffee), magazines and newspapers, tickets and machines for services like recharges etc. The market Sales of goods and services through vending machines are pegged to be worth $1 billion by 2012. According to Pulin Dani of Plus Beverages, a vending machine manufacturer, approximately 12-15% of the potential market for vending machines has been tapped in India till now. So, a huge market is still untapped. Estimates suggest that globally, the industry mix of products sold through vending is 40% for canned beverages, 19% for snacks, 8% for hot

beverages and 33% for other products. However, vending of services is a fairly new concept and is expected that the share of services would increase considerably in the coming years. As of now, hot beverages vending machines for tea and coffee has the substantial share in sales of machines in India. These machines are mostly found in offices, shopping-malls and restaurants. The Business Manufacturing of vending machines is just like any other manufacturing activity. Most of the components required to manufacture or assemble a machine are available in India. some sophisticated components and systems like currency recognition system are imported. In India, there are no regulations as such regarding manufacturing vending machines. However electrical equipment norms regarding machines needs to be followed. The cost of a vending machine depends upon its size, sophistication, payment system and other special features. A typical, small, basic snack & beverage vending machine costs around Rs 40,000 in India on the lower side. A hot beverage machine costs around Rs 10,000 on the lower side. These machines are also available on rent. In this business model, monthly operation charges are paid to the owner of the machines whereby the owners provide the machine and services such as maintenance or as agreed in the contract. The vending operators (those who install and run vending machines) decide and arrange for the location and pay electricity bills and space rentals. Generally its the vending operator that decides on the products to be sold through vending machines. Monthly operational charges for a typical snack and beverage machine is around Rs 7,500. According to Pulin, most of the machines are on rent in the market and are very often owned by the operators. According to a study by the National Automatic Merchandising Association (NAMA), scale of operation does affect the profitability of the operators. However, according to Pulin, businesses can be operated with just 4-5 machines and still be profitable in India. Main revenues of the vending operator come from the sales of products through these machines. However, other options like advertising seem to have a substantial scope. Advertisements could be done both by displaying products in the front-glass machines or by putting ads on the machine itself. Challenges In India, conventional vending business models and machines have not done well. Major reasons are consumer habits, non-availability of machines suitable for Indian conditions and the availability of cheap labor. People are yet not very comfortable using these machines because of complications, trust and other factors. Also, currency recognition and especially of notes has been an issue as prices of products is generally such that payments through coins is not convenient. Instances of vandalism and rough use have also been an issue and has deterred

installers/operators from making investments in these machines. Machines often break down because of dust, heat etc. Furthermore, availability of cheap labor has come in the way of popularity of vending through machines. One of the major reasons for vending is to bring down the labor cost and especially when labor cost is the major chunk of cost. But in India this advantage has not accrued to vending businesses till date. Other areas that need to be taken care of is keeping machines well stocked, goods should be quality products, quick repairing in case of breakdown, keeping machines clean etc. Overcoming challenges There is a huge scope for machines that are designed and that can be designed addressing the issues faced by old vending machines in India. Currency recognition is a major step to solve the payment problem. Other payment modes such as through mobiles, credit cards also seem feasible. New vending machines available in the market have the option to accept currency (both notes and coins), give the change back in terms of notes and coins, accept payments through cash cards etc. Also, these machines are being tried to be put on networks whereby information is easily available and thereby increasing efficiency. However, according to Gary Partridge, International Sales Director, Seaga, a vending machine manufacturer, real time networking (telemetry) is an interesting concept but in India it is costly. The information provided would unlikely help to reduce cost and only minimally increase efficiency at this stage of the industry development. Other measures like installing machines in safe places like metro stations, hotels etc., where no explicit security is required for these machines, could be a good way out. Changing habits and lifestyle are likely to give a big boost to this industry. Vending is a fairly new concept in India. According to Gary, the exciting aspect in India about vending is that India does not have a long history of vending. There are no pre-conceptions in India about what is vended. So, a lot more different products could be vended through vending machines. Also, the impact of slowdown on vending business has not been significant. Industry estimates suggest that the industry will experience substantial growth and will lay down opportunity open both for vending machine manufacturers and operators. The Distributor The process of installation of vending machine at clients site and supply of premixes to them is done through distributors. For the distributors of Nestle Professionals the complete investment on machines has to be borne by the distributor itself. The distributors earn revenue on the commission for the supply of premixes. The company has fixed a commission rate of 10.80% on M.R.P of the premixes with the distributors. The distributors run their business completely in credit basis. i.e. the distributors gave their clients a credit of around 60 90 days. The maintenance of these machines was also the responsibility of the distributor. The ROI of the distributor was given as:

ROI = Profit/Investment Where Profit = Revenue Expenses (Operating expense + Distribution expense + Maintenance expense) Investment = Market Credit + Stock in hand

CHAPTER 3. Research Methodology 3.1.1. Research Design


According to David J. Luck and Ronald S. Rubin, "A research design is the determination and statement of the general research approach or strategy adopted/or the particular project. It is the heart of planning. If the design adheres to the research objective, it will ensure that the client's needs will be served." The study is intended to calculate the Return on Investment(ROI) of the distributors and analyzing the profit/loss made by the distributor and find out the reasons for low ROI of the distributors. The study undertaken is Analytical in nature. The Distributors ROI is calculated keeping in mind the turnover and the location of their business.

3.1.2 & 3 Data Collection Sources and method


I. Primary Data collection

The data collected was mainly primary in nature. This data consist of :

y y y

The revenue earned by the distributor from different sources pertaining to nestle only. All the operating, distribution and maintenance expense incurred by the distributor. The market credit given by the distributor.

All this primary data put together would help us get the ROI of the distributor but before finalizing the ROI the data had to be checked and authenticated which was done through the secondary data readily available at the company.

II.

Secondary Data Collection.

The secondary data consisted of: y y y y The turnover of every distributor The stock in hand at the end of every month. The subsidies given to the distributor on machines. The machines purchased/sold by the distributor.

This secondary data was collected from the company. This secondary data was used to authenticate the information supplied by the distributors during primary data collection. These data was easily available in the company records and was a good help for data verification.

3.1.4. Data Collection Instrument Excel sheet was provided for the calculation of ROI. This Excel sheet consisted of the main page with 4 annexure to it. y Main Page The main page consist of recording of the revenue and expense of the distributor along with the market credit and stock in hand which would be required to compute the ROI. It also had formulas attached to its cell to compute every element as a percentage of

distributor s turnover. The figures were recorded for annual income/expense and a monthly average was computed from it. A formula was also attached to calculate the ROI of the distributor putting together all the data collected. y Annexure 1 The distributor received different commission rate for different kind of products/premixes. This data was available in annexure 1 of the excel sheet. The annexure was so made that only the annual turnover of the distributor had to be entered manually for different products and it would compute the commission received for different product/premixes. The total commission would be placed on the main page of the excel sheet on the revenue side. y Annexure 2 Some distributors were given some subsidy on the purchase of the machine by the company. The subsidy was decided taking into account the site where the machine is being placed and revenue that site/machine projected to generate. Number of machine the subsidy is received on and the amount received on each machine is recorded in annexure 2. This sum total is then placed on the main page on revenue side as amount received from company as subsidy. y Annexure 3 The investment on the machine was the responsibility of the distributor. Hence one of the cashless expenses for every distributor was the depreciation on these machines. The life of these vending machines was 5 years. Nestle calculated the straight line method of charging the depreciation hence depreciation was charged at flat 20% of the cost for the machine purchased in the last 5 years. i.e. the machines purchased between the 2006-2010. Annexure 3 recorded the number of machine purchased of every type by the distributor. The cost of this machine was already placed against the type of machine. Total Cost = no.of machine * cost of each machine

Depreciation = total cost * 20% The total depreciation is then computed and placed on the main page. y Annexure 4 The investment of the distributors included 2 things according to Nestle Professional Market Credit and average Stock in Hand. The market credit was recorded directly by what the distributor would claim. But the stock in hand was calculated with the help of annexure 4 of the excel sheet. The stock ending of every month in the last year was recorded and a sum average was taken. This average would give the average stock in hand by a distributor which was calculated and placed on the main page.

3.1.5. Sampling Plan The scope of the project was to cover the distributors located in Mumbai and Pune. The Mumbai had around 30 distributors dedicated to Nestle Professional doing a business of around Rs.20Cr. annually in all. While Pune had 5 distributors doing a business of Rs. 8Cr annually in all. In Mumbai 10 distributors were selected for calculation ROI on the following basis: y Monthly turnover upto Rs.500000 y Monthly turnover between Rs.500000 & Rs.1500000 y Monthly turnover above Rs.1500000 4 distributors. 3 distributors. - 3 distributors.

In Pune 3 major distributors were selected for the calculation of their ROI.

3.2. Processing and Analysis of Data The ROI of every distributor had to be calculated and had to be analyzed individually. The analysis had to be done on the basis of turnover, commission, total revenue on

the revenue side. While on the expense side major expenses like office rent, depreciation, transportation cost etc. The main objective of the analysis was to find major reason for a distributor s profit/loss. The ROI also had to be analyzed among each other to see which distributor is having a better ROI compared to the other. The analysis was also segmented for the distributors divided on the basis for their turnover. CHAPTER 4. Results and Interpretations 4.1. Details about the outcome interpretation of the research. The summary of the Calculation of ROI is as follows: For Mumbai:
S.R.No 1 2 3 4 5 6 7 8 9 10 TOTAL Distributor Name SK ENTERPRISE QUALITY SALES RM DISTRIBUTOR ACE BEVERAGES INDIA MAITRI CORPORATION SHREE VENDING ABHAY SALES CORPORATION MUSKAAN ENTERPRISE SAGAR ENTERPRISE AMAD MARKETING Turnover (monthly) 1002250 5339697 1529750 501125 738500 305950 896750 738500 1990000 390350 Turnover(yearly) Profit/Loss ROI 12027000 461851 64076364 2999684 18357000 572728 6013500 64051 8862000 199796 3671400 58117 10761000 8862000 23880000 4684200 161194464 4589 -567494 -487252 -57746 3213124

50% 19% 13% 12% 10% 6% 1% -7% -13% -29%

From the summary it can be noted that there no particular pattern for low or high ROI. A distributor like SK Enterprise having a turnover of just around Rs.1000000 per month was doing making a ROI of 50% while those like Sagar Enterprise having a monthly turnover of around Rs.20lack was having a negative ROI making losses.

So there was a need to analyze each distributor individually for the reason of their profit or loss The reasons could be explained by the following graphs (all the graphs are percentage of their net revenue):

TOTAL ADMIN EXPENSE


140.00% 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% 60.86% 37.14% 72.11% 58.47% 46.40% 28.17% 128.32% 91.79% 73.59% 61.87%

Total Admin Expense majorly consist of the Godown rent, Admin Staff Salary, Depreciation of machines. Distributors like Muskaan Enterprise, Sagar Enterprise, Abhay sales Corporation, had over 50 % of their revenue spent on Admin expense. Whereas distributor Muskaan Enterprise had over 100% of its revenue spent on administration. This was very unreasonable. So to analyze further we would look at some other graphs to see how these distributors made their expense on administration.

GODOWN RENT
18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 16.79% 15.39% 11.09% 12.57% 12.38% 7.34% 10.31% 7.53% 11.73%

0.00%

From the above graph it is clear that almost all the distributor spend around 12-18% of their revenue in office or godown rent except Ace Beverage India which doesn t have a godown rent as his godown is a property of his own. So there is no descripancy on this major element of Admin expense.

ADMIN STAFF SALARY


60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 14.97% 33.24% 18.57% 16.16% 13.87% 20.86% 49.53%

10.31% 7.07% 11.19%

From the graph it can be noted that Muskaan Enterprise and shree vending were spending above average. Shree Vending has the same staff for distribution, maintenance and administration hence he spends a little extra on his employees. The other distributors had separate staff for Administration & Distribution. On the other hand Muskaan Enterprise had unrequired staff for his turnover in the business.

DEPRECIATION
60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 50.59% 39.82% 24.63% 11.42% 1.55% 3.64% 6.77% 2.19% 5.03% 11.54% DEPRECIATION

The next major element of Admin expense is Depreciation. There is a lot of variation from distributor to distributor. Sagar Enterprise has invested a lot of money on machines in the last 5 years but his turnover in turn his revenue has not increased in the same proportion to his investment hence the Depreciation cost is 50% to his revenue. Even Muskaan Enterprise has invested a lot on machine in the last 5 years but have not been able to increase their business hence having a high depreciation % to their Revenue.

TOTAL DISTRIBUTION EXPENSE


250.00% 225.00% 200.00% 175.00% 150.00% 125.00% 100.00% 75.00% 50.00% 25.00% 0.00%

55.46% 41.95%

38.79%

51.80% 59.98%

38.53% 38.16% 38.61%

23.41% 9.39%

The Distribution expense on an average is same against their Revenue. Hence there is no major effect on the difference on ROI due to Distribution Expense. In Mumbai Distributors are doing good business except Muskaan Enterprise and Sagar Enterprise due to their cost in depreciation and Admin staff salary being their major expense.

For Pune:
S.R.No Distributor Name 1 SNAP MARKETING Turnover (monthly) 4300000 Turnover(yearly) 51600000 Profit/Loss 837438 ROI 5%

2 TECHNOKRAT

916667

11000004

-64997

-8%

3 KOKIL AGENCIES TOTAL

972134

11665608 74265612

421893 1194334

21%

From the summary it can be noted that there is a huge variation in the ROI of the three Distributors under test. Lets Analyze with the help of graphs:

TOTAL ADMIN EXPENSE


80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Snap Marketing Technokrat Kokil Agencies 50.48% TOTAL ADMIN EXPENSE 74.64% 60.11%

Total Admin Expense consist of mainly the godown rent, admin staff salary and depreciation. Here from the graph it can be seen that Technokrat has major expense having 74% of its revenue being spend on administration expense while the other 2 using 50% and 60% of their revenue on the Administration expense.

GODOWN RENT
12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Snap Marketing Technokrat GODOWN RENT Kokil Agencies 5.31% 4.92% 10.96%

From the Graph it can be noted that Technokrat spends a 10% of its revenue on Godown rent compared to Snap Marketing and Kokil Agencies which spend around 5% & 4% respectively.

ADMIN STAFF SALARY


18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 15.54% 11.59% 11.27% ADMIN STAFF SALARY

Snap Marketing

Technokrat

Kokil Agencies

From this graph it can be noted that Kokil Agencies spend more than average on admin staff salary around 15 % of its total Revenue. While average being around 11 % of the revenue.

DEPRECIATIONS
40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Snap Marketing Technokrat Kokil Agencies 23.15% 20.00% DEPRECIATIONS 37.65%

Depreciation on machine is maximum for Technokrat this shows that Technokrat has invested more in machine in the last 5 years compared to others. The depreciation uses 37% of the revenue for Technokrat. While the average being around 22%.

TOTAL DISTRIBUTION EXPENSE


45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

38.28%

30.45% TOTAL DISTRIBUTION EXPENSE

18.03%

Snap Marketing

Technokrat

Kokil Agencies

The Total Distribution Expense incurred by Snap Marketing is maximum around 38% of the revenue. While Kokil Agency the least of around 18% of the revenue. Snap Marketing owns vehicles of its own for transportation which increases its cost of distribution. Snap Marketing also has its clients located in remote areas of Pune which increases its cost of transportation.

CHAPTER 5. Conclusions 5.1. Salient conclusions from the work y The ROI Calculation revealed that the distributors weren t making profit due to expense mainly in their Administration. y The Administration Expense Included the Depreciation Expense which formed the major expense for every distributor. y The Company Nestle Professional got a fare idea of how their distributors were performing and on which distributor do they have to pay attention to. y The Distributors were ignorant about the cashless expense like depreciation hence they were under the impression that they made good profit citing only their cash profits. y This Project helped the distributors to look at their actual profits and project their business accordingly.

CHAPTER 6. Recommendations and its effect Recommendation 1: The company should make the investment in machines instead of the distributor and decrease the commission level of distributor from 10.80% to around 7.80%. Effect: In Mumbai there are 20 distributors doing a business of around Rs.20Cr. The cost of machine ranges from around Rs. 15000/- to Rs.27000/-. A distributor purchases an average of 15-20 machines. Now if the company reduces the commission level from 10.80% to 7.80% it will save 3% margin. Hence it will save Rs.20Cr*3% = Rs. 6000000/-. The company can use this money to invest in the machines. Assuming average cost of machine Rs.20000/- company can buy 6000000/20000 = 300 machines. Every Distributor would get 15 machines. The company doesn t lose anything. Inturn distributors books of account will show good profits as the major cashless expense that is of depreciation will become nil. The distributor will have a positive frame of mind and would invest more in the premix and will try to grow its business further which will benefit the company itself. This effect would increase the annual turnover of the company. Recommendation 2 Nestle Professionals sell their premixes on M.R.P. whereas their competitors like Lipton Don t have M.R.P. printed on their premix. So the distributors of Lipton have the leverage to increase the price and sell. This is advantageous when the distributors have to supply to small site whose monthly consumption is around 8-10 packets. When Distributors of Nestle try to supply these sites then they are not able to cover their distribution cost. i.e. The cost of transportation is higher than the commission on premixes distributed to these sites as they have to compulsorily sell on M.R.P. On the other hand distributors of Lipton can increase the price of the premix and bare the transportation cost. Small distributors of Nestle like Amad Marketing and Shree Vending can benefit with this.

Bibliography