3. The model was
successful and
profitable
Manufacturers solve similar tasks
But in the new
conditions the model
is not working.
And the issue is
not the crisis
We need to grow
both topline and
bottomline
1 2 3
4. But perhaps not all of us accept
the real problems
The market has changed,
but our mindset is the same
Distribution Model
Segmentation
TradeTerms
Something has happened
with our sales –
“crisis, it seems”
6. 2000 2010
Retail chains
Distrbutors
Manufacturers
The market has changed irreversibly
Retail chains are growing and competing for the best prices
The margin is going from production to retail
From distribution the margin has already gone
Those who do not feel it today – will confront it to-morrow
Manufacturers, overstepped $1mlrd, escaped from this problem
How the other producers must behave on the new market ?
Margin split
24. 0 5 10
Megapolis
SNS
Kubanopt
Pivdom
CDK
2006
2007
2008
2009
In 2000s new type of
Pan-Russia distributors appeared
…and caught up in turnover
key manufacturers and retailers
Megapolis:
190 branches
140 000 outlets covered
13 000 employees
$ mlrd / year
27. 2006 2010
Will FMCG catch up pharmaceutical
market in consolidation ?
Pharmaceutical
Others
TOP 5 distributors
FMCG
2006 2010
8% 70%
28. Consolidation of distribution –
was one of the ways to save the margin
Vertical
Integration
Retail
Chains
Own brands
production
Enter new
product
categories
Enter new
territories
Warehousing
Logistic
Horizontal
integration
Services
29. Horizontal integration of distributors is initiated by
producers
Manufacturers, overstepped $1 mlrd, decrease number of their distributors
The best distributors get new cities on expense of the weak ones
30. Horizontal integration of distributors is initiated by
producers
Manufacturers, overstepped $1 mlrd, decrease number of their distributors
The best distributors get new cities on expense of the weak ones
Then they organize “general price”, it can be used by other producers
31. Except sales, merchandising function
has also changed
Retailers planogrammSales
Producer planogramm
Share of shelf
Additional space
32. And merchandisers also became national
Shared services (1 person merchandises
several producers) was the reaction to
reduction in the functional
There are national agencies with salary fund
$10+ mln a year
Why are their services cheaper ?
Due to scale effect they organize
processes better than manufacturers
Merchandiser spends more time in the
outlets and less on the way
34. Strata Population N of cities
А over 1 mln 13
В 500’000 – 1 mln 22
С 100’000 – 500’000 132
D less 100’000
Why100 distributors?
24 City-satellite
44 Administrative center
63 Remote city
35. Strata Population N of cities
А over 1 mln 13
В 500’000 – 1 mln 22
С 100’000 – 500’000 132
D less 100’000
24 City-satellite
44 Administrative center
63 Remote city
100∑=
Why100 distributors?
36. These 100 cities «weigh» 75% of the market
There are 230.000 outlets in Russia
100.000 of them are in these 100 cities
100 cities are covered by distributors
The other cities are covered by wholesale
40%
75%
Numeric Weighted
the other cities
TOP 100 cities
Outlets
distribution
37. Usually one distributor
is selected in the city
The strongest one !
Many manufacturers hired sales
representatives
Then manufacturer has to be the
“preferred supplier”
38. Service of distributor is:
Warehousing, delivery, cash
collection
Additional credit
Legal flexibility
Fast decisions
39. Agent drives the truck with
product, when he gets an order,
he collects it and delivers to the
outlet
Agent takes the order, passes
to warehouse, and it is
collected and delivered the
next days
Delivery can be provided by two types:
Pre salesVan sales
40. In each city there can be three models
DSD
Direct Sales
and Delivery
DS3
Direct SalesThird
party delivery
3PD
Third Party sales
and Delivery
Warehousing
and delivery
Manufacturer
Distributor
Distributor
Sales
management
Manufacturer
41. What system is this ?
One national distributor over Russia
1000 merchandisers of manufacturer
Two persons come to the outlet:
To take the order
To merchandise
42. What system is this ?
Distributor opens entity, which sells only
manufacturer product
Sales agents are in distributors headcount,
but fully managed by manufacturer
Manufacturer approves of distributor’s P&Ls
and ensures bottom line
43. Control over shelves
Cost to serve
What system to use ?
DSD
3PD
DS3
Fast development with minimum
investments
Cheap non branded products
low sales, low marginal product
3PD
High sales,
high marginal product
Short shelf life products
DSD
45. Cost to serve vs. control — many have
high cost low productive model
DSD
3PD
DS3
Control over shelves
Cost to serve
High investment,
No result
46. Control over shelves
Cost to serve vs. control and only
specific get distribution for free
DSD
3PD
DS3
Cost to serve
«Creep -
product»
47. Usually models are adequate
to turnover and margin
Control over shelves
Cost to serve
DSD
3PD
DS3
48. 3PD distributors
are not manageable
In the past the targets were like this
We have to convert
operations to DS3
Hired 500 sales
representatives
50 000 outlets
covered
1 2 3
49. Conversion to 3PD —
is adherence to the route
The model should be
“easy to sell” to distributors
The model should allow
manufacturer to get ROI in a year
“General
price”
“mixed”
teams
“ballast”
product
Exclusive
teams
50. 900 Euro
manufacturer
contribution
Sales per agent
30.000 Euro
Distributor’s
markup
3% = 900 Euro
Distributor’s
contribution
Sales increased twice up to
60.000 Euro
In a year
3% = 1.800 Euro
distributor contribution
Agent wages
1.800 Euro
and stops investments of manufacturer in a year
DS3 model should be
“easy to sell” to distributors …
Agent wages
1800 Euro
51. Nowdays DS3 inTraditionalTrade
became less effective
Sales per outlets dropped – delivery
cost increased
Quantity of shops decreased, traffic
jams intensified – effectiveness of
routes decreased
So agent’s salary eats the margin
Only those who overstepped $1 mlrd
do not feel it yet
52. How to make DS3 cheaper ?
If your average order less than minimum delivery lot
If you already can not pay the salary to the agent
Then mixed teams — is your solution !
53. How to organize and manage
mixed teams ?
The products should :
Not compete among themselves
To be within one category
To have similar sales per outlet
Belong to markets with equal volatility
Have similar consumer loyalty to brands
54. Your contribution to agents wages:
For the Euro of your sales agent gets
commission more than for the other
products
Ideally they pay fix part, and you pay
bonus :-)
Hoe to organize and manage
mixed teams ?
The products should :
Not compete among themselves
To be within one category
To have similar sales per outlet
Belong to markets with equal volatile
Have similar consumer loyalty to brands
57. Methods of Regulation of rebates
On invoice discount
Cash bonus (noVAT)
Free product
Marketing services agreement
(bank transfer or cross
cancellation of debts)
58. Tax code
On invoice discount < 20%
Each channel has its price list
Discounts are accompanied with
the documents
59. Discounts classificator – important sales instrument
Name of discount
Condition of charge
Retrospect / Prospect
Method of regulation
Budget owner
Maximum value
. . .
Prepayment
Transfer is on our account
Retrospective
On invoice discount
Sales director
3%
. . .
60. I recommend to evaluate discount
annually
Sales volumes
Depth of discounts
А
В
61. I recommend to evaluate discount
annually
Sales volumes
Depth of discounts
А
В
ВА
64. Before the law
Price for distributor
Retail Shelf Price
TraditionalTrade Local chains National Chains
Manufacturer
Price for retail
Unified national invoice price
Personal Rebate
65. Retail Shelf Price
TraditionalTrade Local chains National chains
Price for distributor
Manufacturer
Price for retail
Unified price is destroyed,
RB converted to discount
On-invoice discount
After the law
66. Retail Shelf Price
TraditionalTrade Local chains National chains
Price for distributor
Manufacturer
Price for retail
Unified Price remains,
RB converted into marketing
Marketing services
After the law
67. Transit of rebates into marketing
If rebates were not converted to discounts, they were transited into marketing
Transit of money into marketing services rose prices by 30%
In conttrast to cash bonus, marketing agreements are imposed by 38% tax
68. Saved Unified National Price
Converted extra RB into marketing
Huge manufacturers with strong competitors
How did it influence the market players ?
69. Huge manufacturers who dominated in
the category unalternatively won
As they did not have RB
over legal 10%
Even if they had — RB
decreased down to 10%
70. Small manufacturers are
washed away from shelves
Because they can not develop
brands during such a growth
of prices on promotion
instruments
71. Due to the Law we will decrease
the distance withWest Europe
Set of brands onWE
shelves is repetitive
The Law «thins out»
number of small
producers in Russia
73. If marketing will be prohibited …..
Chains increase “service
level”
By penalties chains can take
the leftover of RB, and it can
not be parted from supply
contract
75. Government price regulation
was before the Law
Bunge 2007
Price was frozen for 6 months
The market price increased by 20%
The same happened withWimmBillDan
76. Formation of commodity market prices
starts from the crop
Since buckwheat was the usual
crop failure
Crop failure - the only way the
farmer "recapture" loses in the
years of overproduction
Only in the EU government
during overproduction buys
crops at a fixed price
0
50
100
Январь
Февраль
Март
Апрель
Май
Июнь
Июль
Август
Сентябрь
Октябрь
Ноябрь
Декабрь
Rur/kilo
Raw materials
2010
Q1 Q2 Q3 Q4
80. Everybody can buy
distribution contract now
ст 9 п 10, ст 13
It is impossible to prohibit or charge change of owners of
the contract
In conjunction with the illegal restriction of the territory,
theoretically “Pan Russia distribution” can be purchased
81. And you can not oblige distributor to sell :
ст 9 п 12
promote all SKUs
place POSM
motivate sales agents
set responsibility for distribution
translate retail promos
serve clients )
82. …and now it’s a soother
Earlier you could read
distribution agreement
88. Vertical integration into retail chains – was one of
the ways for distributors to save the margin
Vertical
Integration
Retail
Chains
Own brands
production
Enter new
product
categories
Enter new
territories
Warehousing
Logistic
Horizontal
integration
Services
90. Turned into a beautyfull retailers
Magnit
Dixi
Spar NN
Monetka
Sberegaika
Tander
Uniland
Sweet Life
R-Modul
PalladaTorg
91. Fragmentation of supply will continue further more the price
distance with TOP retailers
1 x
One city – one distributor
92. Fragmentation of supply will continue further more the price
distance with TOP retailers
1 x 5 x
+ direct deliveries to DCs
of local and national
retailers
1+ 2 + 2
One city – one distributor
93. So, will chains return to distribution ?
Distribution centers work perfectly
Prices are lower than distributors’
Price is “washed” from rebates
Direct supply contracts with producers
Distribution can be “bought”
Distributors Chains
Chains -
distributors
94. Resources are restricted —
where to invest ?
OPEX and CAPEX of national start
up even for 2.000 SKUs can be
compared with hundred discounters
Should distribution be in perspective
as profitable as retail ?
There is space for retail brand
developing – who is ready to invest
in non profile business ?
95. There are also mental barriers
Will the shops allow to depend on
one supplier ?
Will the shops buy from
competitor ?
How long will it take to convert
Buying organization into Selling ?
96. Sanctum is under the risks –
the business processes efficiency
Stock level will grow — forecasting
deteriorates when you do not manage
the shop
Transshipments, commodity … pricing
solutions are to be taken quickly and
locally
Orders return to warehouse, assembling
and delivering apiece, cash collection …
105. Coefficient of investment performance
Parameter Sample 1
Revenue Index 80
Investment index 100
Market share index 90
Coefficient of investment performance 72
106. Coefficient of investment performance
Revenue and market
share dropped with the
same level of investments
Parameter Sample 1
Revenue Index 80
Investment index 100
Market share index 90
Coefficient of investment performance 72
107. Parameter Sample 2
Revenue Index 115
Investment index 105
Market share index 110
Coefficient of investment performance 120
Coefficient of investment performance
108. Parameter Sample 2
Revenue Index 115
Investment index 105
Market share index 110
Coefficient of investment performance 120
Coefficient of investment performance
Revenue and market share growth
overruns growth of investments
111. Segmentation by sales volumes
# of retail outlets
100%25 50 75
SalesVolumes
А
В
С
D
Segment А
112. Segmentation by sales volumes
# of retail outlets
100%25 50 75
SalesVolumes
А
В
С
D
Segment А
Segmentation by sales volumes —
volumes of your product or your category?
113. 2-D segmentation with price segments
Price
segment
Объем
D
C
B
A
Low Medium Premium
118. Retail investments need
to be optimized too
There are 22 500 modern
trade retail outlets in Russia
They form 50% of the market
-
10 000
South North
Non active
Active clients with investments
Active clients with investments AND profitable
Active clients with investments AND NOT profitable
# of outlets
119. -
10 000
South North
Non active
Active clients with investments
Active clients with investments AND profitable
Active clients with investments AND NOT profitable
Retail investments need
to be optimized too
There are 22 500 modern
trade retail outlets in Russia
They form 50% of the market
# of outlets
Transfer of investments
improves bottom line and
topline
122. All distributors are different —
how to compare an apple with an orange ?
3 key parameters
Power of distributor
Efficiency of manager
Size of distributor
123. 3PD distributor’s Profile
Territory coverage
ModernTrade
TraditionalTrade
Wholesale
Opportunity to promote product
Sales reps motivation is effective
Promo for retail is effective
All your SKUs are in matrix
General
Growth vs LY
Price architecture
Finance discipline
127. 0%
50%
100%
To cover Russia effectively you need 100
distributors.You have more ?
# of distributors
SalesVolumes
Last 15% clients
weigh 3% sales
100%
128. You can segment the problem and
solutions :
To grow
To consolidate
To convert to sub-distributor
The only client
at regional center
Second client
at regional center
Remote city
130. If your DS3 are more expensive every year …
Chicago
To develop
NewYork
Philadelphia
# active clients
per sales agent
Salary / Sales per agent
Florida
Oklahoma
Washington
San-Hose To convert to 3PD
100
50
10%
131. Perhaps, DS3 is not so effective, as you did not
allocate territories properly …
Producer
Distributor
“General price” DS3 sales agent KAM DS3
Traditional trade,
city
Modern trade,
cityTraditionalTrade, suburbs
Wholesale
136. So we have three key parts of our boat …
Distribution Model
Trade terms
Segmentation
137. So we have three key parts of our boat …
Distribution Model
Trade terms Business
processes
Learning and
development
Segmentation
The Captain
Internal
communications
But the synergy comes when
you get the others
139. But there are no similar yachts, as well as similar
companies.Your strategy should be based on your
competitive advantages
In sales — as on the boat
