An Irate Distributor

Case Analysis

Amritha | Christo Milton | Dharani Babu | Rachitha | Vivekanandan

 NutriPower and NutriJam products from NutriPack have entrenched
themselves strongly in the Indian FMCG market with significant market shares
Market Share of NutriPower Market Share of NutriPower FMCG Value Chain
and NutriJam in India and NutriJam in Maharashtra
(in percentage) (in percentage)
NutriPack
Kid Energy
NutriPower NutriJams Junior
Others
Health Northr
(12%) (10%) Healthy ange
y
Big n Mazaa CFA
Strong
Keswa
ni

Bonny
Distributor

Others Others Nutrip

NutriJa
m
ower Wholesaler

 NutriPower has a market share of 12% in Health  In Maharashtra, NutriPower has the third largest
Food Drinks category and a CAGR of 25% market share with 19%
 NutriJam has a market share of 10% in a market  NutriJam has a value market share of 42% that is Retailer
with a size of INR 10 billion the second largest in the state

Source : Case Exhibit 1 and 2

 Jalgaon has 16% of Central Maharashtra’s population but generates less
than 10% of sales, thus there is significant unpenetrated market potential
Population by Districts in District Value Contribution in
Central Maharashtra Central Maharashtra
(in percentage) (in percentage)
30 30

25 25
Discussion
20 20
 Need to increase
15 15 product
penetration
10 10
 Exploit untapped
market potential
5 5
in district of
Jalgaon
0 0
Nashik Jalgaon Aurangabad Jalna Nashik Jalna Aurangabad Jalgaon

 Jalgaon has 16% of Central Maharashtra’s
population with a density of 359 persons per sq km
 Jalgaon’s per capita income of Rs 16,210 is 8th
highest in the state implying that the district is a
potential market for Nutripack
Source : Case Exhibit 5
 Despite a high share of population, the district
value contribution is only half that of Jalna that has
a population only half of Jalgaon.
 There is scope for improving penetration in Jalgaon
given the potential market size
 While the value share of NutriPower and NutriJam have been increasing in
Central Maharashtra, Jalgaon’s value shares have been declining
Value Market Share trends Value Market Share trends
for NutriPower from 2008-11 for NutriJams from 2008-11
(in percentage) (in percentage)
20 44

42
19
40
Discussion
18
38
 Need to arrest the
36 downward trend
17

34  Improve value
16 share of products
32
in major central
15 30 district
2008 2009 2010 2011 2008 2009 2010 2011
Central Maharashtra Jalgaon Central Maharashtra Jalgaon

 The value share of NutriPower has increased over
the last 4 years in Central Mahrashtra while the
value share of the same in Jalgaon has declined
 The downward indicates the pressing need to
improve sales in the district
Source : Case Exhibit 7 and 8
 The value share of NutriJams has increased over the
last 4 years in Central Mahrashtra while the value
share of the same in Jalgaon has declined
 The downward indicates the pressing need to
improve sales in the district
 NutriPack has a strong distribution coverage in Central Maharashtra, but
Jalgaon has not been effectively covered and this needs to be redressed
Brand share in Retail Outlets Brand share in Retail Outlets
carrying Health Food Drinks carrying Jams The lack of sufficient
(in percentage) (in percentage) distribution outlets
100 80 has also resulted in
90 low weighted
70 distribution
80
60 Discussion
70
50
60  Need to increase
50 40 distribution of
NutriPack in
40 30 Jalgaon
30
20
20  Improve weighted
10 10 distribution in
Jalgaon
0 0
Central Maharashtra Jalgoan Central Maharashtra Jalgoan
NutriPower Healthy Bonny KidEnergy Mazaa NutriJams Keswani Northrange
 Close to 70% of retail outlets in Central Mahrashtra  NutriJams has close to 60% coverage in Central
carry NutriPower health drink Maharashtra
 However, the corresponding number in Jalgaon is  However, the distribution in Jalgaon is less than
below 50% indicating that close to half the market 30% leaving a market of over 70% untapped in the
is untapped jams product range
Source : Case Exhibit 9 A-D
 The pressing needs to increase penetration, value market share and
distribution make Jalgaon attention-worthy and require Kumar to act

Need to  With only 8% of sales coming from a district with 16% of

increase Central Maharashtra population, there is a need to increase
Penetration penetration and hence make the district attention worthy

Need to  With value market share trends moving in the opposite

increase Value direction to that of Central Mahrashtra there is a strong need
market Share to buck the trend

Need to  The number of distribution outlets need to be increased and

increase this requires the attention from Kumar in order to increase
distribution penetration and value market share

Source : Group Analysis

 Another factor that makes Jalgaon interesting is the exclusive distribution by
Sachin Agency that allows for easier change due to minimal channel conflict

Good
relationship
District Number of Distributors with
Focus on
Channel
Extra
Partners
Margin
Jalgaon 1
Shrewd
Nashik 5 Minded

Jalna 3

Aurangabad 3
Sachin Mandore
Exclusive Distributor for
NutriPack in Jalgaon

Source : Case Exhibit 5

 While of Kumar wants to expand coverage in the market, Mandore does not
wish to undertake additional investments and focus on the existing market
Mandore’ Perspective Kumar’ Perspective

Meeting targets, Good relationship with Sell more to existing customers and add newer
executives implies fine job is being done outlets to cover new customer

Keep optimal inventory, ensure timely delivery Under-tapped territory potential. Depth of
while incurring low cost distribution is the way forward

Visit non-serving outlets for market share No disparity amongst retailers in terms of
knowledge. Keep close eye on salesman discounts. Visit all retailers not just the large

Revenue should not be lost, aggressive

Lose revenue but strictly adhere to credit policy
retailers of brand must not be let to complain

No need to invest until the past investments Control over salesman and other staff is being
start to pay off lost with growth of business

Higher investment and greater commitment

No erosion to working capital/profit.
essential from intermediaries

Source : Look before you leap : McKinsey Quarterly

The requirements of distributors and principals vary in the value chain and
fulfillment of these requirements is essential to achieve their respective goals

Financial Reach
Gain

Product Distributor Territory Market

Control Manufacturer
Share

Relationship
and Brand
Recognition Visibility
Kumar wants to increase the retail coverage of NutriPack products in Jalgaon
and is challenged by Mandore as it create channel conflict and impact return

Financial Reach
Gain

Product Distributor Territory Market

Control Manufacturer
Share

Relationship
and Brand
Recognition Visibility
While there are no product concerns and distribution is exclusive, the burning
question concerning Sachin Mandore is financial gain vs increased reach

Financial Reach
Gain

Product Distributor Territory Market

Control Manufacturer
Share

Relationship
and Brand
Recognition Visibility
Careful analysis reveals that Mandore earns a return of 36% by doing business
with NutriPack that is 3 times higher than the return from People’s Bank of India

Revenue 54000000
Margin 0.045 2430000
Security deposit 1000000
Margin on security deposit 0.08 80000
Net Return 2510000
Expenses Cost Quantity  Sachin Agency has a return of 36% from doing
Van 18000 2 432000 Financial Gain business with NutriPack that is higher than the
Salesmen Salary 4000 3 144000 return from bank
Salesmen Bonus 1000 3 36000
Driver 3000 2 72000
Delivery boy 3000 2 72000  The products distributed by Sachin Agency -
Godown keeper 3000 1 36000
Product NutriPower and NutriJams are both doing well in
Godown helper 3000 1 36000
Comp operator 7000 1 84000
India with healthy market shares and growth
Computer 500 1 6000
Printer 1000 2 24000
Internet 450 5400  Unlike other territories, Jalgaon has an exclusive
Telephone 500 6000 Territory distributor for its products. Thus there is no
Admin 500 6000 horizontal channel conflict issues
Rent 7 3000 252000
Total Expenses 1211400
Secondary Claim 180000 180000
Market Credit 2250000
Avg Closing Stock 2250000
Security Deposit 1000000
Total Investment 6891400
Return 36%

Source : Case Exhibit 11

With Sachin Mandore reassured of financial gain, the next step is to convince
Mandore of additional investment to increase reach and market share in Jalgaon

Financial Reach
Gain

Product Distributor Territory Market

Control Manufacturer
Share

Relationship
and Brand
Recognition Visibility
 The large proportion of untapped market in Jalgaon shows that there is a huge
potential for expansion for NutriPack with positive and high returns for Mandore
Business Case 1 : Increase in market share by 25% Business Case 2: Increase in market share by 50%
Retail Outlets carrying
NutriPower Add Investment : 20.6 lakh | Return : 35% Add Investment : 37.4 lakh | Return : 35%
Revenue 67500000 Revenue 81000000
Nutripower 2008 2011 Margin 0.045 3037500 Margin 0.045 3645000
Security deposit 1000000 Security deposit 1000000
Margin on security deposit 0.08 80000 Margin on security deposit 0.08 80000
No of outlets selling 662 729
Total Income 3117500 Total Income 3725000
Expenses Cost Quantity Expenses Cost Quantity
Total Outlets 1325 1588 Van 18000 4.0 864000 Van 18000 5.0 1080000
Salesmen Salary 4000 5.0 240000 Salesmen Salary 4000 7.0 336000
Percentage Share 50% 46% Salesmen Bonus 1000 5.0 60000 Salesmen Bonus 1000 7.0 84000
Driver 3000 3.0 108000 Driver 3000 5.0 180000
Untapped 50% 54% Delivery boy 3000 4.0 144000 Delivery boy 3000 5.0 180000
Godown keeper 3000 3.0 108000 Godown keeper 3000 4.0 144000
Godown helper 3000 3.0 108000 Godown helper 3000 4.0 144000
Retail Outlets carrying Comp operator 7000 2.0 168000 Comp operator 7000 2.0 168000
Computer 500 2 12000 Computer 500 2 12000
NutriJams Printer 1000 2 24000 Printer 1000 2 24000
Internet 450 5400 Internet 450 5400
NutriJam 2008 2011 Telephone 500 6000 Telephone 500 6000
Admin 500 6000 Admin 500 6000
Rent 7 3000 252000 Rent 7 3000 252000
No of outlets selling 419 342 Total Expenses 2621400
Total Expenses 2105400
Secondary Claim 225000 225000 Secondary Claim 270000 270000
Total Outlets 1060 1270 Market Credit 2812500 Market Credit 3375000
Avg Closing Stock 2812500 Avg Closing Stock 3375000
Security Deposit 1000000 Security Deposit 1000000
Percentage Share 40% 27%
Total Investment 8955400 Total Investment 10641400
Return 35% Return 35%
Untapped 60% 73% Additional Investment 2058000 Additional Investment 3744000
Additional Revenue 607500 Additional Revenue 1215000
Source : Case Exhibit 11 Note: The number of vans and salespeople has not been linearly scaled with the increase in revenue. Unit in INR
 To implement the plan for increased retail coverage, there is a need for
crafting compatible channel incentives to realize channel objectives

• Identify reseller’s requirements for high performance

Step 1

• Based on the requirements, recognize possible bases

Step 2 for incentive rejection

• Consider all performance- related factors that may lead

Step 3 to rejection

• Design incentives such that channel control categories

Step 4 match the bases for rejection

Source : D.J Gilliland/Industrial Marketing Management 33

Mandore’s wanted to maintain stability in the existing system where he had
good retailer relationship and wanted to get the maximum gains out of it

• He was unhappy with the 4.5% given to him by the company

Goal attainment – financial • Wanted the percentage of pending secondary sales to be
success reduced
• Focussed on retailers who paid immediately in cash
Mandore’s Kumar’s
requirements Requirement
• Wanted to maintain the stability of the existing system
Integration Concern –
• Not willing to make changes to the current system by
Stability of the system investing to expand the market

The two parties should have

Pattern Maintenance • He regularly met with his retailers and maintained good
concern – Good relationship relationship goals that are aligned and do
with the supplier and other • Wanted to establish long term relationship with Supplier not conflict with each other.
channel members (NutriPack)
The increased retail coverage will guarantee high returns for Mandore and
Nutripack should aid Mandore in channel activities and pledge its commitment

Immediate and
Goal Rather than increase Assured Return that is
efficient Increased
Attainment margins, provide gifts on greater than return from
increase in bottom Line
concern achieving milestones People’s Bank of India
revenue

Computerized payment Coordinated Development

Integration Task Motivation to Efforts with respect to
handling system which will
Concern – Need coordination make
ensure that retailers pay investments to be made,
for stability activities investment
the distributor regularly eg : Salesforce training

Partial Investment by the

Relationship Certification programme
Capability Pledging company for channel
Concern with for resellers to boost their
Incentives Incentives activities which will show
supplier confidence to invest.
its commitment
 The collaboration between NutriPack and Sachin Agency should shift from a
“Tug of Wars” relationship to a “Strategic Partnership”

Manufacturer Branded Tug of Wars Strategic

STRONG Bulldozers Partnerships

WEAK Opportunistic Shelf – Assortment

Mating Space Bidders Fillers

WEAK STRONG & ADVERSARIAL STRONG & COOPERATIVE

Reseller/Distributor

Source : Look before you leap : McKinsey Quarterly

The key to a successful manufacturer-reseller relationship lies in understanding
the needs of the re-seller and incentivising them to achieve goals of both parties

 Manufacturers and re-sellers have different requirements

 Incentives have to be matched with re-seller requirements

 Factors affecting incentive rejection need to be identified by channel principal to design

better incentives

 Aligning goals of principal and re-seller results in a strategic partnership that is beneficial
for both parties