RURAL DISTRIBUTION STRATEGIES

FOR HUL AND P&G

Introduction
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Problem Statement Study the rural distribution models of HUL and P&G and analyze their strategies to increase reach and reduce costs of their distribution processes and systems in rural India.
Understanding of the rural distribution models of HUL and P&G

Project Objectives

To understand financial structure of channel members and role of technology Gain perspective on the challenges in rural distribution and Channel conflicts

Presentation Flow
Introduction and overview of the two firms Rural Campaigns run by HUL ad P&G in India Rural Penetration Model of HUL and P&G Challenges in Rural Marketing

The BIG Word

Snapshot of the two companies

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Consumers

700 million

650 million

Direct Outlets
Consumer Categories Brands

2 million

1.3 million

20

10

35

13

P&G Rural Penetration Model

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Strategic Focus

Winning in the market place

Ensuring direct coverage

Typical sales = Rs. 5-10 lakhs

Sub-Distributor Model
> 50 km from existing branch or difficult to reach Increasing reach in villages with < 20,000 population Salient Features

What is it?

1 sales exec. per Sub-D 350 stores per Sub-D

Future of Rural Model at P&G

Power Villages
Identified 70,000 villages Cost to serve < 10% of Revenue

Focus on Rural Bihar

Target power villages = 7,086 Current Business = Rs. 11.2 Cr./month

Current reach = 10% of such villages

Plans to increase 5-10% per year

Added 25 new Sub-D in Bihar

Total ACV of Power Villages = 54.1%

HUL Rural Penetration Model: Project SHAKTI

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Reach of 3 million households Recruit micro-entrepreneurs Shakti Ammas and Shaktimaans to act as salespeople & brand ambassador Make and sell HULs health & beauty care products to lowincome rural consumers

Project Shakti

Redistribution Stockist (RS) responsible for delivering till Shakti Point

Shakti Ammas/Shaktimaans purchase the goods and deliver & sell to thousands of villages Shakti point given 3% margin on retail landing price reimbursed by RS (1.25)& HUL ((1.25))

Business Model

Current
Shakti Ammas 45,000

Future
100,000

20-40 Shakti points per RS

No. of villages
Population reach

135,000
150 million

500,000
600 million

Future of Rural Distribution at HUL

6 Extend Project Shakti Increase Shakti Ammas & Shaktimaans Launch in other states Challenge: Lack of control over the distribution of stock Inventory being resold in retail stores owing to rate cutting Maha Coverage Model Increase reach to uncovered retail stores by providing a fixed payment to Redistribution Stockist (RS) Challenge: Rampant fake billing Inability by additional stores to purchase stock on regular basis owing to small size Project Columbus Give a fixed lumpsum pay to retailers to serve additional retailers in the nearby areas Challenge: Lack of control over distribution of stock Project Gateway to Rural Pilot project with Indias largest bank SBI Create joint distribution model by partnering with banks & telecom companies Cover 6.38 lakh villages; create economies of scale Started in Maharashtra; plans to expand to Bihar & UP

Fake billing

Financial Structure
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P&G Sub-Distributor
Cost Parameters Fixed Cost Commission DSE Salary App. Salaries Wholesale Margin Others % of Sales 4.00 1.00 2.50 2.63 0.60 1.00 Cost Parameters

HUL Shakti
% of Sales 4.76

Margin of Redistribution Stockist

Additional margin to Shakti Point

3.00

Reimbursed by RS

-1.25

Delivery till RS point

1.00

Total

11.7%

Total

7.51%

Campaigns in Rural India

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HUL
Turns rural men and women into entrepreneurs 48,000 women across 135,000 villages

P&G
Increasing product awareness in rural areas
Live demonstration on use of products like diapers Coverage of 40,000 villages in 2010

Project Shakti

Lifebuoy Swasthya Chetna

Awareness on the importance of washing hands with soap Reached around 120 million people in over 50,000 villages

Reduction in SKU size

Make products more affordable for rural consumers Reduction in price of whisper to Rs.25

Integrated Rural Development

Began in UP in 70s with 5 villages; grew to over 200 villages within 10 years Helped increase milk supply in the region

Introduction of more affordable brands

Launch of Tide Naturals in 2010 Increase in pack size without increasing price

Challenges in Rural Distribution - Channel Conflict

99

CREDIT
HUL
Credit to wholesalers 15 Days Credit to retailers 7 to 15 Days

P&G
Credit to wholesalers 7 Days Credit to retailers 7 Days

PRICE CUTTING
HUL
3% Discount at Shakti point 1.5-2% Discount at Wholesale point

P&G
Same Rate across outlets (1.5% discount to
wholesaler) Still 4 Products available cheaper in City Wholesale Market

Challenges in Increasing Distribution - Logistics

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Lack of Pukka Roads

Narrow roads (only certain vehicles

can reach these places) Problems during rainy season

Uneven Terrain
Lack of warehouses to lease Pilferage

Safety of products
Legal requirements (only specified value of products allowed per vehicle)

Rising fuel costs

Other Challenges
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Lack of Awareness - Promotion (Sales Promotion and Advertising) Strategy

Restricted Purchase Power

Additional Personnel Requirement to Increase Reach

Technology to Reduce Challenges

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Both P&G and HUL leverage the hand-held wireless PDA device in rural areas to take orders; this helps the company to get real time information on demand patterns and trends, manage inventory and production better, as well devise efficient sales promotion programs to drive sales

Both companies also leverage geo-tagging (GPS) technology to map individual retailers and to find the approximate distance and time required to reach these shops from the nearest highway

Recommendations
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P&G P&G is a relatively new entrant in the Indian FMCG market vis--vis HUL. Therefore, the company has been focusing on a high cost, high quality model direct reach model in rural India. In low throughput regions, the company should focus on sub-distributors regions to decrease costs In high throughput regions, P&G should look to increase the number of distributor branches to increase its reach Multiple sales executive per sub-distributors will help reduce fixed costs and will help increase total margins The company should also make sure that the incentives of the employees are linked to shops covered

Moreover, the fake billing problem can be reduced by ensuring that GPS based billing is adopted across the organization

Recommendations
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HUL The company should limit the sales per Shakti point to ensure that price cutting and forecasting of stock to wholesales is reduced The company should extend project UNIFY in rural areas to make sure that the data is available till the retail store The company should continue the shift in Shakti model from a women self help group model to a rural retailer model especially in UP and Bihar The company should also make sure that the incentives of the employees are linked to shops covered Moreover, the fake billing problem can be reduced by ensuring that GPS based billing is adopted across the organization