CANDY AND CHOCOLATE

INDIA: LAST MILE

DISTRIBUTION CHALLENGE
CASE
Manik Jain 316
Raghav Bhasin
328
Sourabh Kumar
349
Suraj Tripathi

Indian Confectionary Market

Indian confectionary market - by consumption (2010)

Organized Indian confectionary market by revenue (INR billion)

Indian confectionary market - by products (2010)

11
6.5

35%
65%

Organized Unorganized

20%
46%
34%
Chocolates
Gums

Sugar Candies

Local sourcing of raw materials by unorganized players led to cost reductions, while organized players
like CCI had to source it globally, invest in brands and trademarks
In 2010, different product segments chocolates, sugar candies, gums grew 20%, 5% and 9%,
respectively
Market was driven by sales of monopacks; chocolates available at 1.7 million outlets while candies and
gums were available at 5 million outlets

Rural Opportunity
Penetration of confectionary products (2010)

Rural penetration of confectionary products (2010)

15%

75%

2%

10%

Rural consumption expected to grow at CAGR of 5% in the period

Rural India

2015-2025
~68% of the population in rural India
Steady rise in per capita income of rural, with 50% of GDP coming

Rural
confectionary
market

from rural market

Per capita consumption of confectionary in India one of the lowest at
20 gm; it will only get worse in rural India
Potential expenditure on confectionary products is higher in rural
than urban

CCI Profile
Revenue (INR billion)

Revenue - by products

1.3
15%
10%
75%

Confectionary
Beverages
Prepared Foods

Present
RTM
C&FA

Distributor

Wholesaler

Retailer

Present challenges faced by CCI

Owing to scattered nature of population, reaching rural customer is
Accessibility

Penetration

Recruitment

Seasonal
Demand

difficult
Problem with hub and spoke as most rural parts are quite far from
Penetration
by retail shops in rural India is low, especially tier 5 and 6
urban centers
villages (with population less than 10,000)
Recruiting right personnel for the job is another major hurdle
Though wages may be low in rural, but attrition is high
As majority of rural depends on agriculture, so cash flows of big
chunk is seasonal, which is bound to impact demand of candies,
chocolates, etc.

Lack of
Information

Limited knowledge of behaviour, tastes and preferences of rural

customer

Alternative 1: Superstockist Model

Supersto
ckist

CCI

Superstockist Model
Price per monopack
Retailer(12.5%
margin)

1
0.875

Wholesaler(11%
margin)

0.7787

Substockist(5.5%
margin)

0.7359

Superstockist(11%
margin)
CCI's revenues

0.6549
65%

Substocki
st

Wholesal
er

Advantages
Additional

Retailer

Customer

Challenges
Requires increased

intermediary to

resources and

increase distribution

generates less

reach

revenues

Offers advantages of

The stockists may

scalability and

create holdup

operational flexibility

problem

Sustainable option
as there are no
channel conflicts

Alternative 2: Haats
Advantages

Potential Reach
Revenue
penetration
Activation
Cost(Per area)

378,400,000
68 to 80.1 depending
upon the RTM

Weekly markets;

A promising forecast

43000 Haats in India

of sales cant be

Haats were preferred

made, given the

over rural retail

2,835,000

Challenges

outlets
Single Haat would
cater to 20-60
villages
Had 5000-12000
visitors per day
More stalls, more
competition
Huge market reach

nature of stalls
Haats are active for
only a few days

Alternative 3: Vans
Advantages
Mobility from village
to village
Equipped with
audio/video facilities

Challenges
Expensive option as
Vans cost Rs.3,500
per day excluding
sample costs

to catch attention

Most of the villages

Widely used in rural

dont have road

markets for creating

infrastructure, so

brand awareness

reach remains an

Distribution of
products at retail
counters

issue

Alternative 4: SHGs
CCI

Superstockis
t

SHG

Retailer

Advantages
Potential
Reach

7,000,000 Sub
Stockists

Revenue
75 to 80 depending
penetration
upon the RTM

Higher Margins for CCI

Customer

Challenges
Cultural issues could

Opportunity for CSR

inhibit the expansion

7 million already

plans

established SHGs in
India
Better demand
forecasts, as sellers
represent the buying
community very well
Banks journey with
SGHs would enable us

SHG moment not

even across India

Alternative 5: Mobile Traders (1/2)

Assuming a margin of 12% for each stages
in distribution channel profit for CCI for each mode

Retaile
r
CCI

Super
Stocki
st

Mobile
Trader

Custom
er
Haat

Sell Price
Super
stockist
margin
Retailer
Mobile
Trader
Margin
CCI Revenue

Margins Retailer

12%

House
Holds
1

Haat
1

0.09293 0.1056 0.1056

12%

0.12

12%

0.1056

0.12

0.12

68.15% 77.44% 77.44%

Alternative 5: Mobile Traders (2/2)

Salient Features

Each trader covers 2 villagers per day; works for

27days per month

Advantages
Can reach villages

Can sell value pack or other low cost items

with population

Itinerary coincides with haat timings

<10000

Initial 1500 stipend; after activation commission

only on sales

Display box, umbrella, audio system, loan for

cycle provided by company
Market size

Villages : 5,93,615; Population :

679,012,061
No. of Villages with Population >2,000 :
95,212
Total target Customers (assuming 20%
infants or old) : 269837602

Can cover areas

without good roads
Can act as
salesperson,

Challenges
Monitoring Mobile
traders is difficult
Operation and
financials of mobile
traders need to be
worked out
Converting rural

distributors,

consumer behavior

activation agent

is difficult

Can sell products to

Effect in

households, retailers

competitors market

and haats

is unknown

Alternative 6: Post Office

CCI

Distribut
or

Retail
er
Indian
Post

Mobile
Trader
Haat

Salient Features

Post offices: 1,54,149

Letter Boxes: 5,64,701

Post office in rural areas: 90%

Billing Cycle : monthly

Market size

Villages : 5,93,615

Population : 679,012,061

No. of Villages with Population >2,000 :

95,212

Total target Customers (assuming 20%

infants or old) : 269,837,602

Custom
er

Advantages
Can reach villages
with population
<10000
Wide coverage in rural
India
Many schemes for
brand activation
Monthly billing system

Challenges
Can only be used to serve
retailers and mobile traders
Cannot operate as stand alone
system
Susceptible to bargaining
power of India Post
Nature of product prohibited
tie-ups

Recommendations

There is no single option which is cost effective, scalable and easy to operationalize

However Haats comes very close to it

Highly cost effective and good operational efficiency make Haats even more desirable

Also the added advantage of Haats is that they can influence the rural consumer behaviour

Ease of operationalization can be achieved if local super stockists can handle the Haats

Haats with stalls present a different new market compare to existing retail shops in rural areas