Project Submission

Sales and Distribution Management – ITC (Food & Beverages)

Submitted to

Professor K. Dasaratharaman and Professor Govindrajan Srinivas

In partial fulfilment of the requirements of the course

Sales and Distribution Management

By

Group 11

Jatin Rajpal [188116]

Meet Shah [188145]

Parth Gupta [188170]

Rahul Gupta [188189]

Soumya Gupta [188245]

Sumit [188249]

Date: 17-08-2019
Acknowledgement
In order to study the sales and distribution network of ITC Limited, we contacted the
distributor “Lakshmi Prasad Anoop Kumar” of ITC in the state of Jharkhand. We took the
insights about the food and beverages distribution channel over multiple conference calls,
where the distributor helped us to understand the channel design, channel member
management, field force management, transportation and logistics and details related to the
analytical frameworks incorporated by the company.

We are extremely thankful to “Lakshmi Prasad Anoop Kumar” without whom, the project
would not have been possible.
About the industry – Food and Beverages (FMCG)
1. Market size - The FMCG market in India is expected to reach USD103.7 billion by the
year 2020, at a CAGR between 20% and 25%, during the forecasted period. Food and
beverages constitute 44% of this market
2. Market Trends – The consumers are looking for more personalisation and innovation
in this category. There is a high spend on advertisements and products are being made
available in the smaller package sizes. Companies are majorly outsourcing the
production to third parties and they are also launching premium products in the
category in which they operate
3. Basis of customer segmentation in the market – Customer segmentation is basically
on two parameter. One is the geography, where rural market contributes 40% to the
revenues and urban market contributes 60%. The second factor is demography, where
income levels plays a significant role
4. Key Developments – Consumers are moving towards organic foods and so is the
industry supplying the same. Along with organic, a major development is towards
providing a healthy diet with availability of multigrain, vitamin rich foods. Also, there
is a lot of change in the preference of the consumers, where the companies are coming
up with exotic flavours. There is a lot of emphasis being laid on both innovation and
differentiation of the products.

About ITC Limited

ITC Limited was incorporated under the brand name of Imperial Tobacco in the year 1910. The
company has an annual turnover of USD8.31 Billion and a market capitalization of USD50
Billion. For the first six decades, the company’s existence were primarily devoted to the growth
of cigarettes and leaf-tobacco businesses. ITC backward integrated to printing and packaging
business for cigarettes in the year 1925.

The first major diversification came in the year 1975, where the company entered the
hospitality sector with the acquisition of hotels. Over the next couple of decades, ITC entered
into many new businesses mainly, paperboard business, edible oil, restaurants, apparels,
stationary, personal care, IT, etc.

FMCG contributes to 25% of the revenues of ITC with Aashirvaad contributing close to INR
4500 crores in revenue and Sunfeast close to INR 3800 crores. The company is scaling its
manufacturing infrastructure by investing in building state-of-the-art infrastructure across the
country to scale up its FMCG business. Currently, ITC’s consumer goods reach 6 million retail
outlets and a substantial investment is m=being made in developing alternate and emerging
channels such as e-commerce, modern trade, etc.
The company has set a target of achieving revenues of INR100,000 crore from the FMCG sector
by the year 2030.

Channel Design

Figure 1: Sales and Distribution Channel

A distribution channel is defined as the chain of businesses or intermediaries through which
a good or services passes till it reaches the customer or the end consumer. An efficient
channel leads to a greater profitability for all the intermediary and therefore is a significant
part of the supply chain. For the food and beverages segment of ITC, following are the major
channels:
1. Factory/Company Godown → Distributor → Stockist → Wholesaler → Retailer
2. Factory/Company Godown → Distributor → Wholesaler → Retailer
3. Factory/Company Godown → Distributor → Retailer
4. Factory/Company Godown → E-commerce/Modern Trade/Institutional Sales

CHANNEL 1: Factory/Company Godown → Distributor → Stockist → Wholesaler

→ Retailer
The distributor orders the products from the factory or the company godown which are
delivered to the distributor. The distributors sales force then takes order from the stockist
(There is one stockist for a population of 55,000 to 60,000)and the orders get delivered to the
stockist. Following this, the stockists deliver it to the wholesalers and retailers. In the entire
chain, the sales force involved is of the distributor.
Frequency of delivery
Factory to distributor → Twice a week
Company godown to distributor → Twice a week
Distributor to Stockist → Once a week
Stockist to Wholesaler → Twice a week
Wholesaler to Retailer → Depends on frequency of visit of retailer to stockist (can be daily)

CHANNEL 2: Factory/Company Godown → Distributor → Wholesaler → Retailer

Factory to distributor is same as explained above. The salesmen on the pay-scale of the
distributors, visit the wholesaler and orders are taken. The wholesaler to retailer sale is same
as above.
Frequency of delivery
The frequency of delivery from the distributor to the wholesaler depends on the order
quantity of the wholesaler, usually it is twice a week. Wholesaler to retailer is same as above
CHANNEL 3: Factory/Company Godown → Distributor → Retailer
The key accounts as well as HoReCa and medical stores are catered through this channel. The
stock flows directly from the distributor to the retailer. The salesman are on the pay-scale of
the company in this case.
Frequency of delivery
The frequency of delivery is twice a week in this case (distributor to retailer)

CHANNEL 4: Factory/Company Godown → E-commerce/Modern

Trade/Institutional sales
The sales to e-commerce websites such as Grofers, Big Basket, Amazon Pantry, etc., as well
as to modern trade outlets, such as Big Bazaar, Spencer’s, etc., and institutional sales to
military, etc., happens through the company directly.
Frequency of delivery
The frequency of delivery depends on contract to contract basis, the major driving parameter
is the volume.

Role of Channel Members

Factory: The SKU’s that are manufactured in the vicinity of the distributor are delivered
directly from the factory. The role of a factory, in the channel, is to receive orders from the
distributor and deliver it to the distributors via trucks or containers.
Company Godown: If a particular SKU is not manufactured in a nearby factory, then it is
delivered from the nearby godown. Also, the company has a stock recording app/portal called
Astra. If an SKU, at the end of the distributor, is falling below a certain predefined limit, then
the order is placed directly through this portal and in that case, the company godown fulfils
that order.
Distributor: The distributor manages the sales force as well the supply to stock to the stockist
(channel 1) and wholesaler (channel 2). The distributor also delivers to the retailers (the stock
is sold by the sales force of the company). The main role is to maintain optimum stock in the
tail, as well as, taking care of stock outs (if any)
Wholesaler: The wholesaler has to maintain the availability and visibility of the products and
offer the same to the retailers, as and when required.
Retailer: The key role of the retailer is to maintain the stock at their outlets and provide
visibility of the products to the customers so that they purchase the same.
Sales Force: The sales force has two major roles. One is to take orders for the channel
members. The second is to decorate the shelves of the retailer by negotiating for the shelf
space from the retailers and giving them non-cash incentives for the same. They also make
the channel members aware of any scheme that is running on a particular SKU or order/value
quantity.

Flow of Information
The flow of information takes place through 4 channels, they are as follows:
1. Astra → The web portal used by the company and distributors to keep records
2. Vajra → The mobile application used by the salesmen to take orders and write
remarks
3. Forum → The online billing system
4. Area Sales Manager/Senior Manager/Area Supervisor

Figure 2: Screenshot of the Astra web portal

The company and the distributor use the web portal called Astra. This web portal keeps all
records of the stock with a distributors, the orders placed as well as the payments. The online
billing system called Forum is linked to this web portal, which generates bills as and when an
order is placed/dispatched. Vajra app is used by the sales force to take orders from the
channel members.
A major flow of information takes place through the field visits by Area sales manager or
supervisors. The manager/supervisor keeps a track of the availability and visibility of
products, conducts interviews with retailers to gather information on various parameters
such as brand recognition, brand loyalty, etc. The managers are also present at the retailer
end for a new product launch, setting up a stage and making the customers aware of the
product.
Usage of E-commerce
As explained above about the web portal Astra and ordering application Vajra to take orders
from the channel members. The same are used for taking orders from e-commerce portals as
well, to take orders directly from sites like Nykaa, Grofers, Big Basket, Amazon Pantry, etc.
The billing system works in accordance with the credit period as specified for various accounts
in the application. ITC readily sells through all the major third party e-commerce portals and
it caters to their needs. However, ITC doesn’t have any exclusive E-commerce portal of its
own.

Methods of Managing Key Accounts and Modern Trades

Referring to Channel 3 and Channel 4 as explained above, The key accounts are managed
directly by the sales force of the company. However, the supply of stock to these key accounts
is through distributors only. The sales force or the pay role of the company is dedicated to
specific key accounts to build a rapport and long term relationships with each of these
accounts. Modern trade is directly managed by the company itself. There is no role of the
distributors in modern trade. The sales are made by the sales force of the company as well as
the supply is managed by the company directly and not through the distributors.

Channel Member Management

Monetary Methods to reward channel
There are no monetary methods that the company follows to reward any of the channel
member i.e. General trade, Modern trade or Institutional trade. The gross profit margin is in
itself built in for the channel member. There is no cash incentive for them.

There are some instances of product for example, such as few of the company soap brands
they are slow moving items, sometimes the distributor have to sell them off at a discount
which is greater than the distributors margin to either retailer or wholesaler, in such cases
company shares the discount to maintain a minimum profit margin for the distributor. This is
only applicable for General trade and not for modern trade or institutional trade.

Non-Monetary Methods to reward channel

There are no separate non-monetary method to reward the Institutional and Modern trade
for the purchases made by them, as they already purchase the products from the company
using their high bargaining power and take all of the profit margin which is usually distributed
in the whole distribution channel in addition to the some part of other expenses such as
logistics etc which is incurred by the company in case of General trade.
For General trade there is an annual prize for the distributors who achieve or exceeds the
target set by the company and also there are company run schemes for example currently a
scheme is running on Ashirwad Atta, that on selling certain tonnes of Ashirwad Atta the
company is fiving Xiaomi TV, but this promotional scheme is also for Super Stockist and not
for the Distributor.

Target Setting Mechanism

Targets for the distributors are decided by the company based on the previous year sales of
the region, new product launches, amount of below the line marketing spends plan by the
company ASM, and the growth potential of the region. Based on the target set and achieved
the distributors are entitled for the annual prize given by the company.

Targets of Modern trade and Institutional trade are set for the Key Accounts managers of the
company and they have to fulfil to sell on the behalf of the channel, in other words targets
are not given to the channels to achieve but targets are given to the employees of the
company managing those channels to achieve by pushing their accounts to buy more and sell
more through their trade channels. Increments and promotion of the Key Account managers
are based on the achievement of their targets. The promotions usually run inside the modern
retail store are a mix of efforts of both, the company as well as the modern retail channel.

The Monitoring Mechanism

For General trade every week Area manager and/or Area supervisor visit the area to keep the
track on cross selling done by the distributors in other distribution areas, or the wholesaler
selling in other distributor region. They visit the market and collect feedback from the market
regarding the availability of the stock and timely delivery made by the company distribution
channels, keeps an eye on the tracks of movement of the stock, if there is any attempt of
cross selling by the wholesaler or the super stockist. For monitoring of flow of orders company
have an ERP “Vajra” built in place for order management by the sales force for order
management, Billing and Payment etc. between the retail store and Distributor and ERP
“Astra” built for the distributors for ordering, Billing and Payment etc. to the company,
basically for company and Distributor.

For Modern trade and Institutional trade, the sale is monitored through “Astra” ERP and
through the key account managers. The sales executives keep a track of daily and weekly sale
and based on sales they keep in pushing stock if sales are going well or plan a promotion for
the store specific to push on the sales.

Training and HR Inputs provided to channel partners

In General trade, there is no such training planned for the distributors as the owners of
distributorship, but sales staff and field staff is provided with training every three to four
months. In case of key accounts manager for Institutional as well as Modern trade. They are
the part of corporate training program at the corporate level which goes on time to time and
are taken care by the learning and development department of HR department.

Field Force Management

The field force is of two types. The first one is company sales force which is on company
payroll and deals with big retailers, hotels, cafes, pharmacies, etc and the other one is
distributors field force which deal with wholesalers & Stockist.

Target setting Mechanism

For distributor sales personal there is no target setting mechanism in place for regular
products, but they must visit the wholesalers twice a week to take orders and do campaign
promotion as and when the requirement is communicated by the company. The company
rolls out promotions in which they set targets for a set category of products and relevant cash
incentives are provided to the distributor salesman on meeting the target. No non-monetary
in compensation is provided to the sales personals in case of meeting or exceeding the desired
sales.

Monitoring Mechanism
Area Sales Manager or Area Supervisor visits the defined market once a week and check the
availability of the product at various outlets including large retailers, wholesalers as well as
kirana stores and based on this assessment the performance of both the distributor and
company sales is determined.

Training of the Sales Staff

Area Sales Manager or Area Sales Executive provide training to all the sales personal that
includes both, the ITC’s sales personal as well as the sales personal on the distributor’s payroll.
This is done to improve the quality of their sales efforts and make them aware of the new
product & SKU’s that ITC is bringing to the market. This training program is conducted every
3-4 months and sales personal are mandatorily required to attend it.
Transportation and Logistics
Distribution Logistics means the movement of goods, services, cash and other information
within a facility and to the incoming and outgoing shipments of goods and services in a supply
chain. It includes management of inbound and outbound transportation, warehousing,
material and service handling, inventory, order fulfilment and distribution, third party
logistics and reverse logistics. For any company effective management of its logistics
management system is a major challenge which directly affects its distribution efficiency.

Information support also plays an important role in the area of product transportation,
routing and tracking. Authorizing, tracking and handling returns, or the expired goods can
positively impact the service quality and in turn the profitability of the company.

Transportation and Logistics of ITC

ITC transports most of its FMCG products from company warehouse to stockists or
distributors in large containers (as for biscuits, personal care, lifestyle retailing, stationery,
etc.) or heavy trucks (in case of Atta or other similar products). The warehouse dispatches are
divided into three categories-

1. K1 -- That is local or in the same district as distributor.

2. K2 – Hub to hub stock transfer
3. Up country- That is in the same state other than the city in which the hub is present.

The company has certain inventory norms based upon the total sales from each warehouse
for various products.

From Distributors to wholesalers or big retailers depending on the requirement, ITC

transports its FMCG products in pickup vans or Tata 407 trucks. From Wholesalers to small
retailers depending on the geography and the requirement at the retailer end, the FMCG
products are mostly transported through delivery vans, rickshaw, cycles, motorcycles and
autos.

Some of the key features related to ITC logistics are as following-

1. It mainly uses two types of trucks which are four and nine tonnes.
2. The consignment is not shipped if the load is less than 33%
3. Transportation rates are according to the distance irrespective of the load.
4. No set routes are followed, rather the material is transported to the respective
verticals from the hub where the cost of transportation is minimum.
The company sources third party trucks to transport goods from warehouse to distributors.
All these transportation costs are borne by the company.

ITC has deployed SAP module of information technology in their warehouses. The stock
positions are automatically updated in the database as and when the goods are sold from the
warehouse. Whenever the stock levels go below the benchmark level, the replenishment
orders are generated to the company which also takes into account the order lead time. This
way ITC reduces its inventory holding costs by using proper inventory management.

Also, ITC has the system of automatically locating, tracking and inventorying containers. With
the advent of technology ITC now a days also has Web-enabled and mobile enabled Container
Tracking and Monitoring System with real-time information about the containers at remote
locations.

The Analytical Framework

Variables Effecting the Distribution
1. Number of Customer and Geographical Dispersion: As part of its FMCG portfolio ITC
offers a large assortment of product which caters to the demand of large number of
customers both in urban as well as in rural parts of the country which leads to
geographic dispersion thus ITC distribution network consist of large number of
Distributors and Stockist

2. Frequency of Purchase: Frequency of purchase is quite high most products such as

Aashirvad Aata, Classmate Notebooks and other F&B items thus requiring frequent
fulfilment of demand for both the Distributor and the Stockist. This is signified by the
fact the Company fulfils Distributors order demand twice per week and same schedule
is followed by Distributor in fulfilling the demands of both the Stockist and wholesaler

3. Tendency to Postpone purchase: As most products offered by ITC have good demand
patterns thus this tendency was not reflected during our study

4. Level of Familiarity: Customers are quite aware about most of the products in ITC’s
portfolio and thus the level of familiarity is high and hence sales personal don’t have
to push most products to the retailer or the wholesaler. One fact highlighted during
our survey signalled to the fact that most of the ITC’s brand hold a distinct position in
the minds of the customer and position is not because of the association of the brand
with ITC as most customers are not even aware about this association

5. Degree of Brand Loyalty: As per our study the degree of brand loyalty for Aashirvad
Aata and products under Classmate brand is very high and is high for products like
 Bingo and Yippee Noodles. Though most other products are treated as commodity
hence availability and visibility factor play an important part

6. Purchased on Impulse: As highlighted earlier most product with lower brand loyalty
are purchased on impulse and this is complemented by strong brand parity in F&B
sector with brands like Britannia, Nestle and HUL. One other category where impulse
purchases are high is the candy where low price point complements the
commoditization of the product and hence availability and visibility is an important
factor in the sale of these products which is ensured by the regular visits by the
salesforce and weekly visit by area sales manager

7. Level of Involvement: As most of the products in the portfolio are general goods the
level of involvement during purchase decision is not high. Thus, Brand Loyalty plays a
very important role during buying decision. Frequent brand promotions by ITC also
helps in creating the visibility for the product and helps in assisting purchase decisions
of the customers where level of involvement is low. Targeted promotion is done for
the product for which training is provide to the sales force which helps in strategic
positioning of product and promotion and influencing customers buying behaviour

8. Basket of Goods: Most FMCG products of ITC are generally available at single point of
sale thus helping in creating a Basket of Goods effect. Thus customer purchasing
Sunfeast biscuit are tempted to buy yippee noodles by placing them near each other
as highlighted during our study and survey

9. Speed and Complexity of Decision Making: Most FMCG products of ITC are low priced
so there is a high speed and low complexity of decision making. As a result the field
force requires less efforts to influence the choices

10. Presence of Expert Influencer: As the decision involved is not of very high priced
goods, the decisions are easily made and there isn’t any expert influencer required to
make the decisions

11. Elements of Risk Aversion: There aren’t any elements of risk aversion present as these
are fast moving goods and not something which the consumers have to keep for long
time. This kind of risk aversion mainly exists in case of durables

12. Perishability: Most of the FMCG products due not have very short shelf live, it usually
varies from three months to six months or even more. As a result these products do
not have serious perishability issue and thus the transportation and logistics is not that
much important
13. Time band associated with the Purchase: As these are FMCG products and can be
easily transported and stored without much efforts therefore not very high
transportation and infrastructure is required at the last mile

14. Degree of customization: Field force is not that much critical as there is almost no
customization required for the FMCG products

15. Negative or Positive Reinforcing: As most of the products are of daily use, ambience
doesn’t play that important role but still the sales representatives do take care of the
product placement in modern trade

16. Value/Volume Ratio: Value/Volume ratio for the FMCG products is very less, as a
result the transport cost sensitivity is relatively higher

17. High Brand Parity Index: Except for the Classmate brand most of the ITC FMCG
products have high brand parity index with products varying from HUL, Nestle,
Britannia, etc.
Comparative Financial Performance
Sales

Revenue Comparison
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
2014 2015 2016 2017 2018 2019

ITC FMCG HUL Dabur

Sales Growth
12.00%
Comparative Sales Growth
10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2015 2016 2017 2018 2019
-2.00%

-4.00%
ITC FMCG HUL Dabur

As evident from the charts above, the sales growth for ITC FMCG Sector has been superior
to that of both HUL and Dabur over the last 5 years. This shows the efficiency of the
company in acquiring new customers as well as outperforming its competitors. The main
success for the same can be attributed to various successful product launches during the
period as well as capitalising on the existing products, and taking due advantage of the
robust distribution network of the company.
Marketing Spend with Respect to Sales

Marketing Spend as a percentage of sales

25

20

15

10

0
2014 2015 2016 2017 2018 2019

ITC HUL Dabur

The marketing spend for ITC seems significantly lower than its competitors, however, the total
sales for ITC consists of other businesses which none of its competitors are involved in. One
of the major contributors in ITC’s revenue is the tobacco business (accounting for 65%). The
tobacco business requires significantly lower marketing spend when compared to FMCG
sector. In the absence of absolute data for spends on only the FMCG category, we can
therefor assume the marketing spend for ITC FMCG segment would be similar to its
competitors.
Bifurcation of Marketing Spend
ITC Limited (2019) HUL (2019)

Distribution of Marketing Distribution of Marketing

Spend Spend

Advertising and Promotions Advertising and Promotions

Distribution and Sales Distribution and Sales

Dabur (2019)

Distribution of Marketing
Spend

Advertising and Promotions

Distribution and Sales

Advertising and Promotion Includes Advertising Spends, Sales Promotion, Market Research, Design Expenses and Other
Marketing Expenses
Distribution and Sales Includes Freight Expenses, Handling Charges, Warehouse Rent, Commission to Agents and Discounts
offered.

The marketing spend for ITC seems different than the competitors again due to the difference
in the product offerings. The advertising and sales promotion expenses are significantly lower
due to the same reason. We can therefore assume that the FMCG segment for ITC (Other
than Cigarettes) would follow a similar pattern to its competitors.
Breakdown of Distribution Costs
ITC Limited (2019) HUL (2019)

Distribution Expenses Distribution Expenses

Logistics Warehousing Commission Logistics Warehousing

Dabur (2019)

Distribution Expenses

Logistics Warehousing Selling Agents

As can be evident from all 3 pie charts above, the distribution expenses comprise mainly of
the logistics and warehousing expenses. This has been true for both ITC and HUL. However,
the commission paid by Dabur is significantly higher as a percentage of total expenses for
Dabur, which denotes a different distribution matrix followed by the company.
Commission Paid to Selling Agents

Comparative Analysis of Commision Paid to Selling Agents

(Taking 2014 as Base Year)
140

120

100

80

60

40

20

0
2014 2015 2016 2017 2018 2019

ITC Dabur

In the above chart, commission paid to agents has been taken as a percentage of the actual
amount paid in 2014. While sales have increased from 2014, as per Chart 1, the commission
paid by ITC has gone down. Similar is the case with Dabur, where in the sales has gone up and
the commission paid is equal to what was paid in 2014. This is an indicator of changing channel
partner policy, and while this change seems to be consistent, it is safe to say such change is
throughout the FMCG Industry.
 Appendix
Snapshot of Financial Data for ITC, Dabur and HUL:

ITC
Sales and Distribution Marketing Total % of Sales
Advertising/Sale Other
Year Sales FMCG Segment Freight Warehousing Selling Agents s Promotion marketing
2019 49862.11 12535.04 1176.49 166.85 27.53 994.63 349.65 2715.15 5.45%
2018 47688.55 11357.38 904.07 152.97 35.87 902.94 348.29 2344.14 4.92%
2017 55448.46 10511.83 836.95 116.9 47.7 792.44 397.37 2191.36 3.95%
2016 51944.57 9731.17 836.86 129.49 54.76 871.27 361.49 2253.87 4.34%
2015 36507.4 9038 890.46 111.18 54.66 754.98 305.91 2117.19 5.80%
2014 33238.6 8121.8 769.19 93.15 46.41 795.89 277.67 1982.31 5.96%

Dabur
Sales and Distribution Marketing Total % of Sales
Advertising/Sales
Year Sales Freight Warehousing Selling Agents Promotion
2019 8533.05 113.2 38.53 23.44 608.33 783.5 9.18%
2018 7748.34 98.41 37.99 21.38 606.71 764.49 9.87%
2017 7701.44 169.57 80.8 49.14 646.14 945.65 12.28%
2016 7868.77 175.98 80.07 47.01 771.63 1074.69 13.66%
2015 7806.37 156.47 76.56 67.23 1124.38 1424.64 18.25%
2014 7054.09 155.23 54.96 91.24 999.67 1301.1 18.44%

HUL
Sales and Distribution Marketing Total % of Sales
Advertising/Sal
Year Sales Freight Warehousing es Promotion
2019 38224 1547 292 4552 6391 16.72%
2018 35128 1547 285 4153 5985 17.04%
2017 33895 1516 267 3542 5325 15.71%
2016 31987 1473 233 4526 6232 19.48%
2015 30806 1411 197 3872 5480 17.79%
2014 28019 1355 206 3675 5236 18.69%
Source : All Data Extracted from Annual Reports of the companies for Respective Years