Institutional

Consumer

Retailer
(or) Dealer

Distributor

Company/
Clearing &
Forwarding
Agent

Consumer

Wholesaler

Bank

Warehousing
Clearing &
Forwarding
Agent

Company

Retailer
(or) Dealer

Distributor

Consumer

Wholesaler

Institutional
Consumer

Bank

Wholesaler

CASH PAYMENT

Consumer
REPAYMENT

Company/
C&F

CREDIT PAYMENT

Retailer
(or) Dealer

Distributor

CREDIT CARD

Bank

Institutional
Consumer

Warehousing
Clearing &
Forwarding
Agent

Company

Retailer
(or) Dealer

Distributor

Consumer

Wholesaler

Bank

Institutional
Consumer

NEGOTIATION OF MARGINS AND TERMS and schemes

Retailer
(or) Dealer

Distributor

Company

NEGOTIATION
OF TERMS

Wholesaler

NEGOTIATION
OF TERMS

NEGOTIATION
OF TERMS

Warehousing
Clearing &
Forwarding
Agent

NEGOTIATION OF
PRICE

Consumer

NEGOTIATION OF MARGINS AND TERMSF

NEGOTIATION OF TERMS/schemes: INSTITUTIONAL BUYERS

Bank

Institutional
Consumer

Warehousing
Clearing &
Forwarding
Agent

Company

Retailer
(or) Dealer

Distributor

Consumer

Wholesaler

Bank

Institutional
Consumer

Warehousing
Clearing &
Forwarding
Agent

Company

Retailer
(or) Dealer

Distributor

Consumer

Wholesaler

Bank
Institutional
Consumer

Company
Locationwise packwise order
Production Unit
Stock
Position

Finished goods
Warehouse

Carrier
selection
/rate
terms

Insurance
service
provider
selection/rat
e terms

Despatch
quantity

Transhipment

Despatch

Excise Duty

State-wide
Warehouse/C&F

Warehouse
Location, size
and terms

C&F Selection
and terms

Distributor Selection criteria

Market Coverage
planning.
Stock planning

Dimensioning of
distributors, Select
and appoint

Market potential assessment

and Zoning,

Get Approval and Agreement, Sign the

TOT between Company and Distributor
1. Clawback & Margin
2. Damaged goods Replacements
3. Deposit
4. Billing and payment terms

Create the dealer in

systems

Check ROI

C&F

Distributor
Transit
Insurance,
Transit charges

Vat applicable

Key Outlet selection criteria

Organise market into

beats/routes,
Enlist and categorize the
outlet by type and potential

Company

Coverage frequency

1. Billing and credit terms

2. Damaged goods Replacements
3. Stock norms

Market Coverage
planning.
Stock planning
Manpower
planning

Create the dealer in

systems

Margin/ schemes/Display contracts

Distributor

Retailer

 Logistics availability and convenience

Freight cost optimisation. Minimise back freight
Volume/ turnover
Control
Admin manpower cost

 Clustering/Zoning of localities or towns

o Coverage convenience
Market potential
Number of outlets and desired servicing frequency
Range and diversity of products

 Financial depth Liquidity

Resources
Profile and personality of the promoter
Retail relationship/ Business Experience
Contacts and ability to leverage
Fit with Current lines handled

 RTGS
Cheque
Defined credit period
o Credit defined basis deposit
o Credit without reference to deposit

Margin structure across FMCG companies

Sr. No

Company

Market covered

Kalyan

Margins

Billing terms

Security deposit
(Lacs)

RTGS

17

Distributor

Retailer

6%

10% + Schemes

7.50%

12%

5%

12%

Cheque

5.87%

10%
Tooth
brushupto 40%

RTGS twice a week

No Deposit

Coke

Pepsi Foods

Britannia

Colgate

Marico

Adheri East & West

Average 4% / 5% Per
Care,
4.5% Hair
Oils, 3% on edible oil,

Oils 5%, Balance 10%

Cheque DDR

BG of 7 lac

Cadbury

Sholapur

5.5%

10% + Avg Sch of 2.5%

RTGS

ITC

FORT

Cig 1.45% Foods 3%

10%

RTGS

NO DEPOSIT

Voda

Andheri west

1.25%+ 0.5% Incentive

2.50%

RTGS

Airtel

Malad east

1.30%

2.50%

RTGS

0.5

10

Idea

Taloja Khargar

1.50%

2.50%

RTGS

0.5

Andheri

Ville Parle

Andheri east

Andheri

Saki Naka

Cheque

Daily Billing

No Deposit

Margin structure across FMCG companies

Sr. No

Company
Market
Number
Market
Market
Sales
subsidy for Number Number
Turnover
credit (
Company
of
coverage
credit (
Manpower distributor of beats of units
(Lac)
number of
outlets
frequency
lacs)
manpower
days)
Company
Alternate/
Coke
2200
12
Y
34
12
Bi weekly/ 180
15
2.2
Weekly

Pepsi Foods

1500

13

Britannia

1200

Colgate

1400

Marico

Paid up
stock in
number
of days

33

Biweekly

65

2.5

1.0

42

weekly

100

25

6.5

36

1.25

Weekly

55

0.5

15

2020

14

84

Weekly

120

14

3.0

Cadbury

450

10

Daily /
alternate

50

2.6

12

ITC

Cig 950
Food 450

19

Built in
margin

13

Daily

7.0

Voda

480

16

Airtel

400

10

10

Idea

250

Daily /
alternate
Daily /
alternate
Daily

Cig 750 Cig Cash

Food 120 Food 25
200

7.5

1.0

195

0.3

75

0.0

Margin structure across FMCG companies

Sr. No

Company

Monthly
Opex

Warehouse
space

Warehouse
rental ( Reimbursement
Rs./Month)

Coke

1050000

10000

700000

Pepsi Foods

373160

1100

77000

Britannia

329500

300

21000

Colgate

197000

600

42000

Marico

405800

1000

70000

Cadbury

500

15000

ITC

274000

2000

200000

Voda

141000

Airtel

108000

10

Idea

81000

Merchandising

Returns policy

MIS

Palm Top billing dispatch next day.

Distributor invoicing based on
Vat / LBT
Company
100% within expiry date
inventory norm and secondary
booked
Palm Top billing dispatch next day.
100% within six months
Distributor invoicing based on
Vat
By Sales Man
except rat bitten
inventory norm and secondary
booked
Palm Top billing dispatch next day.
Distributor invoicing based on
Vat
100% within expiry date
inventory norm and secondary
booked
Palm Top billing dispatch next day.
Vat 0.65% of
1 merchindiser
Distributor invoicing based on
billing built in
0.12% of Sale built in Margin
from Company
inventory norm and secondary
margin
booked
Done by Company
Palm Top billing dispatch next day.
100% Vat
but cost debited 100% return policy (Oficially
Distributor invoicing based on
reibursement
to distributor
/ Unofficially)
inventory norm and secondary
48000
booked
100% Vat
VMI Palm Top billing punched in era
Company
0.5% built in margin
reibursement
software
Palm Top billing dispatch next day.
Vat
Salary
100% repacement
Distributor invoicing based on
Company
Vehicle cost
irrespective of expiry
inventory norm and secondary
booked
Electronic recharge & RCV on
0
Company
NA
software
Electronic rechargeon software &
0
Company
NA
RCV is tracked as a % of Etop
Electronic rechargeon software &
0
Company
NA
RCV is tracked as a % of Etop

Assignment: Tasty Chocolates

1. Please work out the price-structure for each variant/product and each location
with details of Basic price, Freight, Excise Duty, CST, GST, Landing Price(s) of
Branch/Super Stockist/Stockist/Retailer and Margins . You may assume that sales tax is
applicable as given in the case and there is no VAT
a) The price working factors Octroi in states where the municipality is levying it. However this working is for that
municipality only . For sales outside the municipality Octroi would not be applicable and hence the realisation
/contribution would improve.
As sales outside Octroi location is not available, the net realisation/ contribution working for those states has been
made applying the levy on entire sales
b) As new markets have been opened the weighted contribution/realisation base on last year sales would be
misleading

2.UP Sales-Tax Incidence

The billing price by company does not change with the change in sales tax incidence
However the channel margins get reduced while the sales tax value goes up

Assignment: Tasty Chocolates

3.
Octroi is an entry tax levied by the local bodies such as municipalities and
corporations. If the state of Kerala imposes octroi how will the price-structures be
different under the conditions
a.
If the Branch and the Warehouse are located within the octroi bounds?
b. If the Branch and the Warehouse are outside the octroi bounds?
The question is wrongly framed. Octroi is an entry tax levied by the local bodies such
as municipalities and corporations
Hence Octroi for entire state is actually not possible
A] However if we were to proceed with the assumption that Octroi is applicable for
entire state The warehouse will have to be located within the state -- otherwise CST
will get invoked Further as Octroi will be applicable for entire state its incidence
cannot be avoided irrespective of where the warehouse is located The price working
will have to factor Octroi before sales tax
B] If we assume that Octroi will be applicable only for the municipalities (Cochin,
Trivandrum and Calicut) in Kerala , we should locate the warehouse outside the
municipal limit in those towns and Octroi will be applicable AFTER sales tax for the
municipal town billing

Assignment: Tasty Chocolates

6.
What sales/marketing decisions will be based on this analysis
Sales/marketing decisions based on the analysis General Product-wise and locationwise realisation will facilitate decision on
1. Market to concentrate and focus on from advertising and marketing spend
perspective.
2. Product to drive aggressively based on contribution.
3. Evaluate by branch against the Opex for that branch
4. Evaluate if in high tax/ cost states--- we should peg a higher price to improve
contribution
5. Evaluate need for and role played by Super Stockist in markets where we have one
Evidently in these markets we should be saving on sales manpower opex and /or
minimising credit risk/improving working capital. Evaluate if the price we pay is
worth the gain
6. Evaluate locating warehouse outside the municipality in states where Octroi is
applicable

Quiz
1. A new company launching confectionery products has the choice of following
distributors in Bangalore. All the distributors have financial and resource strength
Whom will you select and why
a. Sunflower Oil
b. Eagle Flask
c. ITC cigarette
2. A new company launching Fruit Juices with excellent credentials is still challenged by
market expectation of 7 days credit to the distributor. What should they do
a. Run the credit risk
b. Ask distributor to place security deposit for 10 days turnover and convert that as
credit limit ( Pay attractive interest on the deposit how much?). Will the
distributors find this attractive
c. Offer 2% CD and 7 days credit and expect most of the distributors to opt for the CD
terms
3. Situation: ( Only) Distributor in Mangalore quits suddenly and ceases to service the
market as he does not want to extend any more credit. He wants to return his stock to
the company to square his O/S. You realise that it will take about 15 days to scan the
market and get a new party what will you do

4. Company announces a 10% price reduction (on a product) and announces limited price
protection for market stock . For your Coimbatore distributor it covers only 50% of
market stock ( Distributor + Retailer). You may take 15 days to liquidate the balance
stock. The new price is expected to be advertised after 15 days. What to do