Apr 15, 2013

How to setup distributions for Brands/Private Labels in Kirana Segment

Article Written by  Balwant Rana, Retail & PL 

Dear Readers 

This post is dedicated to those readers who want to start their own business in India's most innovative Kirana Retail Market.  Based on feedback from readers I am getting most of the requests related to food products. Most of them are from business families and a few are new entrants who are willing to start their own business.  Well, today I will explain how you need to explore the market in a very short period of time and without big expenditure on the marketing end. There are certain small-2  strategies that help a new Enterprise to start with.  

My session with Kirorimal college was dedicated to business opportunities for new entrepreneurs after 2014 and how the future of the retail market is going to change in a big way. 

Can you imagine, Indian Retail still run by mom & pop i.e. small Kirana stores, said to have 12 million stores and still 90% of market is unorganized,  USD 600 Billion dollar size of the market is there, less than 1% is online with companies like Amazon, Flipkart & snapdeal, 

The expected Market by 2020 is around USD 1 trillion, with 3% online penetration and 12 % organize retail.  

Private Label by Reliance fresh, Big Bazar, Easyday, and many other organized retailers going to change FMCG company's fate, for them it would be a great challenge. my predictions about Reliance is on a higher side,  may in next 2  or 3-year reliance retail /fresh come with big agenda for retail transform and by then it would be a direct collision with Amazon or Future group & Flipkart. However, Flipkart's own situation is a little bit of high fever and low recovery. 

This is just a brief about retail,  now let's come to our main topic of private label branding in India. 

Retail in the Food segment is full of opportunities but at the same time full of challenges for new entrants. The majority of the food market i.e. main staples or ready-to-eat segment is dominated by big corporate and MNC's propelling the market with huge market budgets and burning money. Even there are market leaders at the regional level having a strong grip line of business. So introducing a new brand is not an easy task for newcomers but always there is space for everyone who has passion and wants to do hardship.   

You must have read my previous post where I have mentioned what to do and how to do new experiments in the new market with a new line of products. Here first I will give you a brief on some marketing techniques which are needed to adapt at this moment because of the competitive business scenario.  

Before we start we should benchmark the following thing for our business: Short-Term and Mid Term Planning.
Product: Private Label - Food Products
Product Category: Let's say 5  with  15 SKU size. 
Focus Market:  1000 retailer 
Focused market:  Mid size  say upto Tier II cities
Packaging: Consumer Packing. 
Manpower:  50. 
Operating Cost:  Rs. 10 Lakh per month. including Bank interest on credit lines. 
Marketing Plan:  Rs. 5 Lakh per month
Logistics :   4 or 5 Semi load capacity Truck/ Pickup/ VAN.
Warehouse/ Manufacturing facility:  5000 sq feet Area. 
Machinery:  Semi-Auto or Manual - Pouch Packaging.
Financial Plan:  50 Lakh Initial investment,   1 Cr. Banking Line  Total 1.5 Cr. 
Credit Exposure:  First 6 month 1 Month,  Next 6 month 15 days, Second Year first 6 months 10 days and next 6 month 7 days. Credit period depends as per the market Terms & conditions for the product line. 

Sales annual Target:  25 Cr. 
Monthly Cycle: 2   ( 15 days credit in the market) 
Gross Profit: 6 -10 % 
Break-Even: 2 Year from the commencement of Business. 

Basics of New Business setup 

1. Business Plan
2. Execution Plan
3. Marketing Plan
4. Compliance

Before you moved on to your business path you need to align 3 main elements of management:
1. People
2. Process
3. System

All you need to describe in your execution planning.

Primarily market survey 

First of all, prepare a business plan from an industry expert consultant.  It should have a minimum of 70 pages which shall cover business planning in detail with a financial projection for the next 5 years.

Once Business Plan is prepared then you should frame Policies, Strategies, and Standard Operating Procedures ( 'SOP's). This would be your execution plan for giving shape to business.  The main element of the 'Execution plan is the development of the Product portfolio and allied packaging solutions. Manufacturing process, Supply Chain Management. 

Define Organisational Structure..  Financial Plan and based on the plan you should start recruiting Executive officers.  These Head hunters will be the owner of their domain.  Once they will be onboarded they will start working on individual departmental SOPs and policies.  

Compliance:  As per the nature of your product line you need an FSSAI license, registration of Company name, Trademark for Brand name registration, Income Tax PAN, and other required compliance certificates and registration. It is very much important.  You need to hire a consultant who will help you to get all the required details. 

You are ready to go in the market:   
So far you have managed and aligned the following resource
  • Money
  • Material
  • Manpower
  • Machine
  • Market
  • Mentors
Execution plan role is to make things smooth and prepare a platform for your product where it become Measurable, Salable  and Marketable  

Now Role of Marketing Execution comes :

The marketing plan consists of framing marketing policies, Sales Planning, and marketing activities, altogether it helps to generate a revenue stream for the company. 

You are ready to launch your product in your focus market. Now you need to map your market so that your sales executives visit the focus customer and start generating sales orders.  

Let's illustrate this in the following way : 
Your focus market is spreading in 50 KM Radius, Population of the area is around 4 Million, Size of Market in terms of Kirana Stores is approx   10000 Stores.  Your target Stores are among the A and B categories. Let's say you are targeting 10 % of total retailer base i.e. 1000 Stores. So here you have to divide your area into 5 Zones.  Every Zone will be headed by a Sales Executive(SE).  One SE can visit up to 200 Shops in a 6 days week.  30- 35 Stores appx per day per SE.  Here you have to consider one major thing in mind,  if you are launching, let say 5 Products having 15 SKU  so in this situation one SE can visit/cater 30-35 Stores per day but when you have a large product basket, Let say you have more than 15 SKU then in a comfortable and productive way one SE must have 20 Stores per day.  Because they have to sale all products to the visiting stores.  Once you completed a placement at your focus customers than time in taking sales order will be less so SE can cater more stores,  It depends on his personal capacity and relationship with the retailers/ Store. 

Once you have mapped your focus market, now you have to prepare a beat plan.  Following Beat Matrix will help you understand the market visit plan.  

As per the above matrix,  One SE will have 200 Stores on a weekly basis.   Day wise you have to plan out the Market area under one Beat Name.  for example.   you have a market in  3 KM radium having 200 outlets, your sales executive (SE) will visit on Monday to  One Area   in 3 colonies , A , B , C , so here you can give a name to this beat having 3 colonies i.e. D area.  Under this D area this SE will Visit 30 Outlet on Monday.  Now here you have to prepare a few reporting patterns:

a. Daily Sales Report
b. Sample distribution Kit report
c. Scheme distribution Memo.
d. Sales order booklet
e. Payment Follow up form ( for late payment's realization & visit report).
f. Customer Enrollment Form.  (The registration form)

SE will visit all 30 outlets in the D Area on Monday....  Let say out of 30 Stores he could succeed to get sales orders from 10 outlets.  So here we can say that out of 30 Visits 10 calls were productive.

Very Important:   in this example Strength of the Sales team should be likewise:   5 SE  under the supervision of 2 Sales officers.,  Sales officers shall report to you.  Each Sales officer will have 2 or 3 SE whom they will supervise and guide. This hierarchy is needed for smooth sales planning and execution.

Remember  -   You are going to establish a long-term relationship with Retailers so here you need to make some special extra efforts. If possible in the first phase, primarily introduction or launching a product in the market you should visit a retailer with your SE.  This will give be benefiting you in your ongoing relationship with the retailer and in the first go your direct interaction with retailers will give you confidence and at the same time, you will have the proper judgment of the Retailer's shop, his behavior, and business.  Your SE is just a daily wage employee so he will only represent your product but when you are going to interact with them with your individual capacity you will come up with a long-lasting relationship.

But, here the role of your distributor is big because he knows the market and without his inherent knowledge you can not go keep with retailers. I will let you know about the appointment of distributors.

I have seen that some business head has that level of ego which restrict them to visit retailers, here they think that these small retailers don't have status whom he should meet. This is a wrong approach for a Company head/ owner because you are going to establish a relationship with them for your benefit.  The retailer is the main chain between you and your end consumer so he is like King. You have to bow in front of him whatsoever the situation is from your end.

Personal Relationship with Retailer is the Key of your success.

  • keep this thing in mind and try to visit all your focus customers.  
  • Make your calendar according to beat plan and target to visit all your target customers in 365 days time.  
  • Believe me, if you do this 50% of your way towards success is mapped. 
  • Rest 50% of your product's quality,  Product Price Competency,  
  • Timely Delivery and redressal of graveness will help you to reach your goal in a very short period of time.

Since you have started your journey from Surveying the focus market till placement of product to Targeted product, now you need to plan for expansion.

You are matching the pace with the projected Sales plan and accordingly, the business has attended Break-Even Status well within the projected time,  Now you start earning profit.

Here  I have assumed that Break Even status will be very much in 2nd year.  No, you will feel that you win the battle but this is not the real victory.  Remember you have completed only the first phase of your business plan.  So far Retailer's has given you favor due to your personal relationship with them or you increased their margin or did something special where they feel and showing loyalty to your brand. Now you are in 3rd year where end Consumers will decide your fate.

For every new business, if you could succeed to pass through 2nd year and you attend No Loss No Profit status i.e. BEP, the real challenge comes in 3rd year and for some business line, it is 4 or 5th Year.

Why this situation arise?  Let's have a brainstorming on this.   This situation is called " Hammering attention of your Customer".  Here you need to start hammering consumers through marketing activities. Your budget in the initial stage was less than it was required by now you have to double it to create awareness among the consumer base.  You need to do ATL/ BTL activities through the various mean of modern communication methods.  Pull the consumer in a respectful way and bring them to the retailer's shop. This situation is called Pull Strategy. Here you need to bring a WOW element through your marketing activities, Consumer should feel delighted.  But all this will go waste or useless if they found quality issues, availability issues, and pricing issues in your products.

So you need to take care by rotating your head 360 degrees.  Your growth curve takes J  shape for the next 2 year.

Now you can plan Expansion :  
You have attend 100 Cr benchmark in 3 years of continuous operation. Now you are targeting a bigger territory,  want to move to other states.  and you Set your target 500 Crores in next year's

Very soon India Retail is going to fund by foreign VC funds where you can get funds from them, even funding on Private labels shall be available. Year 2014 onward market dynamics are going to change.  A flood of startups is about to come in the Retail segment.  the market is huge.  90% market is a virgin for passionate people like you so if you have passion, idea, and patience let's start your own business.

Soon I am going to provide you with information on the funding Scenario, mechanism of Angel, Seed, VC, Pre-Series, Series A to G, and how this kind of ecosystem works.

In case want to react to my post, you may reach me on my email id and post your comments here.
forgive me for the spelling and grammatical error, if found may please send me to correct the same immediately.

Balwant rana

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