Understanding Sales and Distribution

of ITC Ltd.
Introduction
Fast moving consumer goods
(FMCG)
Hotels
Paperboards & Packaging
Agri Business
Information Technology
Indian conglomerate
headquartered in Kolkata

Established in 1910

Annual turnover of US$ 8.31
billion and a market
capitalization of US$ 45 billion
in 2012-13

Employs over 25,000 people at
more than 60 locations across
India

Part of Forbes 2000 list
Business Segments About the Company
FMCG Categories
FMCG Business
Cigarettes & Cigars Personal Care Foods
W.D. & H.O.
Wills
Gold Flake
Navy cut
Insignia
Classic
Bristol
Aashirwad
Sunfeast
Bingo
Kitchens of
India
Mint-O
Candyman
Essenza Di
Wills
Vivel
Fiama Di Wills
Engage
Superia
Distribution Channel
ITC
Distributor
Retailer Wholesaler
Retailer
Stockist
Retailer
Distributor
Profile
Exclusive distributor (carries no other brand); exclusive territory for each distributor
Carries all ITC FMCG products
IT system of ITC in place - contains classification of retailer & wholesaler
Selection criteria: Investment capability, market reputation and ability to service the
market
Economics
Margin for food and personal care products for a distributor is 3% while that for
Cigarettes is 1.45%
Average ROI for a distributor is 25-30%
No credit is extended to distributor by ITC however distributor offers credit to
wholesalers and retailers
Distribution expenses like salaries of the sales persons, fuel costs of the vans, etc. are
initially borne by distributor which are then reimbursed by the company subsequently
Key Responsibilities
Supplying to Retailers, Wholesalers & Stockists
Achieving annual targets received from Assistant Sales Manager
Wholesaler
Profile
Independent wholesalers - free to sell various product lines of different brands
No exclusivity multiple wholesalers in a particular area
Wholesaler serves to increase the penetration of ITC products
Economics
Gets all categories of products Personal care, Food and Cigarettes from ITC
distributors at a price which is 1% lower than the price at what the distributor sells to
the retailer
Selling price of the wholesaler is not fixed & hence they can sell at any price (even
below his purchase price Loss leader)
Credit terms if any offered to the wholesaler may depend on the distributor serving
him and he may or may not pass that credit facility to the retailers
Key Responsibilities
Supplying products to retailers, however wholesaler being independent and non
exclusive has no obligation to achieve a certain level of sales (targets)
Sales at the wholesaler level is more due to the pull of the products

Profile
Beedi shops, mom-n-pop stores, etc.
Minimum purchase value per month for a retailer to be serviced by a distributor
Economics
Gross margins range from 9-15% depending on the product category
Promotional schemes, display schemes for retailers
Key Responsibilities
Maintaining correct inventory levels, proper display of ITC products, product
knowledge to the end customer
Stockist & Retailer

Profile
Independent (can carry multiple brands) & exclusive territory, generally assigned to a
geographical area which has a population of 30,000 to 50,000
Economics
Margin for food and personal care products is 4% while that for Cigarettes is 2.45%
Key Responsibilities
Serving maximum number of retailers in his area
Stockist
Retailer
Sales Force Structure
Branch Manager
ASM
(specific for a
product
category)
Area Executive
(4-5 per product
category)
Distributors
(6-7 in number)
Sales Executives
ASM
(specific for a
product category
Area Executive
(4-5 per product
category)
Distributors
(6-7 in number
Sales Executives
Rationale for the structure
Separate sales team within ITC works
according to the product categories
This helps in implementing the
various decisions and objectives of a
particular product category at the
ground level
ITCs objective is to cover maximum
retail outlets directly through
distributors so that maximum product
push can be achieved
To meet this objective ITC reimburses
the sales and distribution costs to
distributors
However ITC decides which retail
outlet to be covered through
distributor so that it can keep a check
on its overall costs
Sales Force Structure
Compensation & Performance evaluation of sales force
Average salary of sales person per month 5k to 11k
Dual Reporting to Area executives and distributor
ITC runs incentives schemes on parameters like lines cut, bills per day,
bill value etc.
Sales Force Size
Determined using workload method
Average no of calls per day by Salesman 25 to 30
Calling frequency Once per week
A salesman covers approx. 180 210 retail outlets
Issues
&
Recommendations
Realisation of lower ROI by distributors
ROI generally obtained 20% or less against the Expected ROI of 25-30%
Approximate Cost of capital 12 to 14%
pressure from the retailers to offer lower prices
To meet targets often distributor has to offer the products at lower prices
Lenient credit terms increases his investment in working capital
Territory conflict between distributors
Recommendations
Ensuring better control over distributors so that they cater to their own territory only
Ensuring the faster collection of damaged and expired goods from the distributor and
crediting the amount as quickly as possible to the distributors account
Slabs for the volume based schemes should not be large and these should be tightly
monitored and controlled so that few distributors do not have an unfair advantage
Implementation Issues and Solutions
Monitoring territories is a problem as the number of retail outlets is very large; this can
be ensured by effectively using the IT systems
Currently no module in the IT system at distributors end to take care of damaged goods
that are taken back; as such an IT module to be added to the existing IT system
Impact due to emergence of the modern trade format
Delhi NCR has a high dominance of modern trade channels they drop prices of certain
products quite low
Retailers demand lower prices from the distributors in order to compete with modern
trade channels
Distributors are not able to meet sales targets due to the emergence of the modern
trade channels
Recommendations
Effectively monitor the modern trade channels ensuring that they do not drop the
prices below a certain level
Company should ensure that the additional benefits given to modern trade stores like
liquidation budget should be used only when it is absolutely necessary
In order the avoid the channel conflict ITC should come up with some SKUs specific to
certain store formats
Implementation Issues and Solutions
Detailed monitoring of schemes like liquidation budget , promotional budget etc. is
difficult; as such ITC can utilize its IT systems effectively for monitoring the behavior of
Modern trade channels
Issues with Personal Care Category
The personal care category does not enjoy similar market reception like cigarettes and
foods
Persistent pressure from the company on channel members to meet their targets
Lack of branding support by the company as informed by distributors and retailers
Company reduces prices to push products in this category but this causes some retailers
with old unsold stock to bear losses to match prices with other retailers
Recommendations
The company should maintain the prices steady in this category as frequent price
fluctuations hamper every channel members performance
Instead of pushing the products in this category efforts should be concentrated towards
creating a pull for the products
Selective stocking of products should be done according to the category of the retailer
Implementation Issues and Solutions
Categorization of retailers for selective stocking is a major challenge
Database of the retailers to be utilized in selection of retailers for selective stocking of
the personal care products
Rate cutting due to emergence of parallel channels
Parallel channels in terms of cash and carry stores and distributors both offering
similar products to the retailers this results in price cutting done by both the
channel members
However these channels differ in offering services to the retailer such as pick-
up, credit terms, returns etc.
Recommendations
Effectively monitor the prices and the services which the cash and carry stores
offer to the retailers
In order the avoid the channel conflict ITC should come up with some SKUs
specific to certain store formats
Implementation Issues and Solutions
Monitoring of the prices and services poses a challenge
Technology systems to be used for better and effective monitoring

Frequent new product launches
ITC launches new products very frequently in the market to remain competitive. At
times these new products are not well accepted by the market and hence a lot of capital
of channel members is blocked

Recommendations
Additional incentives like extended credit period or additional margins to be provided
for limited periods until the product is well accepted in the market
ITC should spend on increasing the visibility during the new product launches
Focus should be on creating pull for the new products rather than focusing on push
Implementation Issues and Solutions
Providing special credit for new products is a bit challenging as ITC deals with
distributors on advance payment terms. IT systems located at the distributors to be used
for implementing the credit policy. Benefits of promotional schemes to be passed in the
same manner as sales and distribution costs
Third party merchandisers to be employed for managing the in store visibility during the
new product launches
References
Kunal Shah Assistant Sales Manager, ITC Ltd.
Contact No.- 9501106856

Leela Krishna Ahuja
Shri Ram Sales Corporation (ITC Distributor) 08826777888
Shop No- 4-5/ 24, Basai Road, Near Bhuteshwar Temple, Gurgaon

Dilip Kumar (Salesman)
Contact No. 8802256951

Gurgaon Sector 14 and Sector 17 retailers covered

(The above mentioned persons were contacted in person and information collected
from them)

www.itcportal.com

Thank You