The Hindu Business Line : Building muscle into reach

After leveraging price, FMCG majors are now overhauling distribution, while looking for novel ways, to keep pace with changing consumer preferences.

An initiative under HLL's Project Shakti

HAVE you heard of the `sachet' salesman, the man on a cycle who pedals to the local grocer to sell sachets of pickles and spices? If not, you may soon get to meet such a person. Because Chennai-based CavinKare Pvt Ltd is using this novel approach to distribute its food products. The company's Foods Division, barely 15 months old, realised the importance of putting in place a comprehensive distribution plan even before its first product hit the shelves. It began by creating two separate brands - Chinni's for smaller pack sizes and Priya for larger packs - so that the two segments can be treated separately. And the company has been using a separate sales force for each brand ever since.

Says Satish Mane, Chief Executive Officer (Foods), at CavinKare: "We have launched pickles and spices in single-serve sachets that cost as little as 50 paise. Besides offering the consumer convenience, they encourage out-of-home consumption and allow consumers to taste a variety of flavours at an affordable price. And instead of using the conventional distribution route, we have created a `sachet' sales force that sells only sachet packs to small retailers including cigarette and paan shops." He says creation of a separate `sachet' sales force ensures that the smaller pack sizes get retailer attention and shelf space and asserts that this is not an experiment but a dedicated mode of sales and the results have been encouraging so far.

Not only CavinKare but several other FMCG companies have also started to use unconventional routes to distribute their products, leaving no stone unturned in their quest for consumers. After waging a bitter price war through most of 2004, the FMCG majors are now eyeing distribution as the next function which needs an overhaul to keep pace with fast-changing consumer preferences. Companies are not only finding it tough to create an extensive distribution network along conventional lines, a la Hindustan Lever Ltd or Coca-Cola India; they are also looking to place their products where there is more visibility.

And, being aware that in smaller towns and villages the access to consumers may be limited, several FMCG companies have taken to unconventional modes of distribution. In a similar quest to capture consumers in remote villages, Kolkata-based Emami Ltd has tied up with the Posts and Telegraph Department to place its products across 5,000 post offices. The pilot project has been initiated in Maharashtra. The President (Sales) of Emami's distribution arm, J.B. Marketing & Finance Ltd, Hari Gupta, says that eventually the company wants to reach all the 1.05 lakh post offices across India. Besides, Emami will also use `e-choupal' outlets - where a computer literate villager conducts trade on the Net - across Madhya Pradesh and Uttar Pradesh to gain better access.

"We chanced upon the idea of using post offices after we realised that the local post office is the communication hub for a small village or even a small town. People invariably visit the post office to get mail, make outstation calls and for other similar purposes and placing Emami products there would be sure to give them more visibility," he adds.

But why this clamour for unconventional distribution methods? The traditional methods of distribution used by FMCG companies can be divided into two categories: Direct distribution or using the wholesaler route. Analysts say that while both these remain viable, somewhere along the line the burgeoning malls, discount stores and even direct marketing methods have made it necessary for companies to try out alternative ways. Also, the saturation in urban markets has turned the attention of FMCG companies to smaller towns, villages and remote areas.

There are two things to distribution," says R. Subramanian, Managing Director of discount retail chain Subhiksha, "one is creating salience in terms of presence and the other is selling." The relative focus, he says, could be different for different products. If a company is into bulky products like atta or detergents the traditional channel works best; the non-traditional channel works best in impulse and or low-value items. "Everything from vending machines, for tea, coffee and now even Horlicks, as well as automatic unmanned vending machines for chocolates to newsmagazines at airports, are novel distribution methods," he adds.

Companies like HLL are constantly looking for new models of distribution. Take the example of self-help groups. HLL has developed a commercially successful model by targeting women belonging to the lower-income strata who can form self-help groups. HLL's endeavour, called Project Shakti, enables women to take micro credit to buy the company's products and then sell these within the community. Enthused by the success of Project Shakti, HLL has extended this to cover 50,000 villages, involving 13,000 rural women in three years.

Also, ITC Ltd has been successful in eliminating middlemen by creating e-choupals where farmers use credit to buy FMCG goods. Yet another example has been set by e-governance projects such as the one being conducted by the Andhra Pradesh Government. Begun as a project to increase the common man's interface with the Government, the e-seva project has roped in Wipro Consumer Care and Lighting (WCCL) to place it products for sale at e-seva points. Says Kumar Chander, Vice-President (Marketing), at WCCL, "This helps us access remote markets and a totally different set of consumers."

CavinKare's personal products division too is enthused by Emami's experiment involving post offices and e-choupals. "The idea of placing products at post offices is very interesting. We may evaluate this option, especially for products such as shikakai powder, shampoo and hair dye," says K.S. Ramesh, Executive Director and CEO, CavinKare.

Again, to meet yet another growing consumer need - of having the consumer's favourite toothpaste, shampoo, soap brand delivered at his doorstep - companies such as HLL have already plugged this gap through projects such as Sangam Direct. The project offers more than 3,500 brands of FMCG products after the consumer has placed his order on the phone.

However, Kumar Chander of Wipro Consumer sounds a note of caution. He says that alternative distribution channels do not offer better margins and are, at best, tools to gain accessibility in certain areas. Also, distribution costs across such channels are identical to those in conventional routes, so there is little saving. He says that while using such channels to expand product reach and gain accessibility has become important for most FMCG companies, the unconventional route is not expected to become a major revenue generator in the coming years.

And, some FMCG majors such as Dabur India Ltd and Nirma do not believe in deviating from the tried and tested conventional methods. So, while alternative distribution options are gaining acceptability, it may be some time before these become a rage.

However, the fact that companies are taking a serious look at the distribution function becomes apparent with more and more instances of companies merging and acquiring to keep this critical function intact. Take the case of Satnam Overseas, a Delhi-based rice exporter which ventured into the ready-to-eat (RTE) segment some time ago under brand name Kohinoor. Having made headway in the RTE business through innovation and addition of new products, Satnam is now keen to acquire another FMCG company. Only, unlike most acquirers who seek a well-established brand, synergistic manufacturing facilities and such, Satnam is seeking distribution synergies.

Says Joint Managing Director Gurnam Arora, "We have mandated management consultant PricewaterhouseCoopers to find such FMCG companies that have proven distribution muscle. We already have brands and a well-thought out marketing strategy in place but distribution strength is the key to survival in the FMCG market. We are keen to acquire such a company and the search is on in India as well as South East Asian markets."

When Korean confectionery major Lotte wanted to enter India, it created two separate companies - one in Chennai by acquiring the erstwhile Parry's and another in Delhi as joint venture with the DS Group - because it felt that the latter would provide massive distribution synergies for its brands.

As Subhiksha's Subramanian points out, distribution reach can never be a differentiator between companies of the same class as it will be a catch-up game; one company opens it out and the other will catch up. But, the key, he says, is cost. "Can you use this at low cost and how do you target to use the right distribution mode for the right product?" is the point he makes.

Competition will finally catch up with whatever distribution mode a marketer can use but the issue is that if the brand has pull it makes life easier in two ways — better sales and distribution cost and the products can also get into outlets where space or capital constrains multiple brands from being stocked thereby giving an advantage. In that context, it looks like distribution is the next function FMCG firms will focus on for the coming year!

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