SALES AND DISTRIBUTION IN A BEVERAGE INDUSTRY
Sales are all about putting products within easy reach of consumers. Any Beverage Industry does this through a variety of different types of customers, who then sell our products to consumers. A convenient way to think about our customers, or the “channels” through which we reach consumers, is in terms of size and type as noted below.
No single customer represents a disproportionate amount of our net sales. However, when considering both our volume and that of our bottlers, Tradional Trade customers are by far our largest customer. Different channels, and different products and markets, have different requirements. As a result, no one go-to-market system is best suited for all situations. This is why the Beverage Companies go-to-market through a distribution network that offers extraordinary strength and flexibility. At the broadest level of description, these models include Direct Store Delivery (DSD), Warehouse, and Vending/Food Service. These three models, and a few of the more prevalent variations, are described below. In the next few years we will likely see new variations as we search for ways to make our systems more efficient and continue to adapt to the needs of our customers and consumers.
DISTRIBUTION MODELS
1)Direct Store Delivery (DSD)
The first is the Distribution process that involves moving product from a manufacturing plant via a Distribution Center or a Bin (small storage location with no warehouse labor) to the retail outlet. In this form of DSD, sales are made directly at the outlet level by a Route Sales Representative (RSR). The advantage of this approach is that our products are handled with care, stay fresh, and are merchandised for maximum visibility and appeal. This approach also allows us to move new products into distribution quickly and to monitor how the product is selling. Of course, there are variations of this approach. For example, some RSRs are responsible for loading their truck/van inventory (Traditional RSR Picking). In other markets a plant warehouse employee is responsible for loading the truck/van inventory based on a forecasted order (Pre-Pick or small format). In other (larger) markets, a large 24′ truck is preloaded by warehouse employees (Bulk 24).
For organized trade
, sales are made by a Sales Manager or Account Representative (in the case of Pre-Sell) or by a HQ Sales Manager (or Account Rep.), who is selling to a retail organization with a central buying office (in the case of HQ-Based selling to the organized trade). As noted above, the fact that our RSRs are in the stores merchandising the product has a number of benefits. The Pre-Sell or HQ-Based version of DSD allows the RSR (really more of a pure merchandiser in this model) to focus on these aspects while allowing a dedicated salesperson to handle the selling.
2)Distribution Center
This is a centrally managed process where products are bulk-shipped to a broker’s DC or warehouse (e.g., Spencer’s). Then, the 3rd party distributors move our products to the retail outlet, and retail store employees stock the shelves. Clearly, this is a less expensive distribution strategy, but we forfeit the “personal touch” advantage we have with DSD methods. Such model is prevalent in Organized Trade.
In a slight variation to the first DC model, this centrally managed process where products are bulk-shipped to a retailer’s DC, and local retail employees stock the shelves. Like the Broker-Warehouse approach, this approach works best for products that are less fragile, slower turning, and less likely to be impulse purchases.
3)Vending Service Model
A group of centralized Customer Development Reps take orders directly from Foodservice and Vending 3rd party distributors and large vending operators. All the Beverage related products are shipped directly to these customers on dedicated loads from the appropriate units. Final delivery to the end-user (schools, stadiums, etc.) is handled by the 3rd party foodservice or vending distributor.
ALTERNATE SALES AND DISTRIBUTION MODEL
The Beverage companies make every effort to adapt the model to fit the needs of a particular marketplace. The primary difference between AS&D and traditional DSD lies in ownership of the resources required to perform the work, namely assets and people.
Typically, AS&D systems are put into place where there is insufficient scale to justify a DSD operation, or where the market is emerging and cannot support the fixed cost commitments needed to operate DSD. It is most common in markets with numerous retail outlets and relatively low drop-sizes. AS&D systems help variablize cost structures while at the same time maintaining all the functionality of DSD. In other instances the accessibility of a particular geography or territory can be greatly improved by using entities long-established in these areas.
Finally, AS&D is sometimes used to enter new territories or geographies where there the business case of setting up DSD structures is not sufficiently compelling. Finally, it is important to note that every year consumers are increasing their purchases of beverages in the “away from home” markets. The PepsiCo Foodservice & Vending sales organization has combined the strengths of Frito-lay, Quaker, and Tropicana to create one of the largest and “best-in class” direct sales organizations in North America. We are now well positioned to take advantage of the growth in these important and profitable channels.
PRIORITES IN SELECTING A DISTRIBUTION MODEL
As noted above, retailers constitute the customer base; and, from a retailer’s perspective, there are two priority areas that are most valued in a relationship with a supplier (like PepsiCo and Coca Cola). In order of priority these include:
1)Financial Priorities:
Retailers are, first and foremost, concerned with sales and profits. And, for the reasons noted below, PepsiCo is in a terrific position to deliver against these financial priorities.
In the DSD format, we handle the products and do the merchandising; thus retailers benefit from best-in-class store-level execution, and they save on labor.
Our products typically have fast velocities and are sold and restocked every few days, while retailers pay for them on a 30-day cycle…adding a lot to a retailer’s cash flow.
Business synergies! Power of One (PO1) refers to our strategy of using a single, senior, customer specific general manager (speaking with one voice for PEP) to work with major retailer accounts. The end-goal of PO1 is to find incremental synergies among the beverage and snack food brands (e.g., joint promotions and merchandising) to accelerate growth and provide additional lift to the business (PepsiCo’s and the retailer’s).
We have a wide range of products in the impulse category with tremendous brand recognition; consequently, consumers know the brand, and buy on impulse, thus creating incrementally high margin sales for retailers.
In sum, our scale and impact to the retailer’s P&L is unquestionable. PepsiCo is the No. 2 supplier to supermarkets in the United States (behind Kraft) but the No. 1. provider in terms of dollar sales growth, and, more importantly, the most important supplier of cash flow (as both salty snacks and beverages are high-velocity, DSD-delivered products).
2)Consumer Priorities:
Increasing foot traffic and consumer loyalty is also a priority for our customers. For the reasons noted below, PepsiCo is well positioned to deliver products and programs that improve traffic and loyalty.
Our products are of the highest quality, and the combination of terrific overall product/brand marketing and flexible and exciting in-store consumer promotions pulls consumers into the stores and increases foot traffic.
As noted above, in the DSD format, we handle the products and do the merchandising; thus retailers benefit from best-in-class store-level execution, and they have our knowledgeable, responsive personnel in their stores interacting with their customers.
With our sales reps in retailer’s stores on a consistent and frequent basis, we are also in a position (through our RSRs) to help our retailer customers in all aspects of category management, including layouts, category insights, sales performance, and consumer trends. We also provide similar support at the customer level through our Foodservice and Vending Territory Managers.
Our exciting marketing and promotion efforts create high-turn product velocities, which in turn can increase in-store morale; the retailer’s own store clerks know they are not going to have to mess with overstocks and product that doesn’t move!
With time-starved consumers hungry for convenience, our brand lineup provides boundless opportunities, from fun and indulgence to health and nutrition, around the clock!
SALES TEAM HEIRARCHY
The above flow diagram represents the Sales team Hierarchy in a Traditional Beverage Industry. The entire zone of operation is headed by a MUGM. For eg:- The country is divided into 3-4 zones of operations I.e North, East, West and South . Each of the zones is further divided into units of operations which are controlled by the Unit Manager. For eg:-Units basically represent a state under the concerned zone. Karnataka falls under the South Marketing Unit.
Territory Development Managers are assigned to look after various regions within a unit. For eg:- South, East, west or North Karnataka. Each TDM generally manages 3-4 Customer executives. Each of the CEs are in-charge of pre-defined set of routes where they have to manage the sales. Finally each set of Merchandisers, Sales Agents and Pre-Sales Representatives take care of 1-2 routes within the territory.
BUILDING BLOCKS IN A BEVERAGE INDUSTRY
Over the last decade, the Business model of Beverage Industry has witnessed a dramatic change. There are certain key elements that played a pivotal role in its deliverance.
- GTM
- No. of Distributors
- Rural Penetration
- Visi-coolers
- Channels
- Selling Programs
Taking the example of PepsiCo, the numbers shown below can act as a n evident.
CHANNEL SEGMENTATION
The Channels of the Beverage Industry may be broadly divided into three categories:-
- Modern Trade
- Traditional Trade
- On-Premise
These channel segments can be either in-home or out-of home depending upon the customers purchase reasons. All sorts of retail outlets belong to the in-home category whereas a place where the consumption occurs at the point of purchase represents the out-of -home category.
Each of the segments contains a class of customers whose role and functionality can be categorically explained through their demands and locations.
In-home modern trade outlets can be further sub-divided into following categories depending upon the space availability
- Hyper-store eg:- Hyper city, Big Bazaar
- Super-store eg:- Food Bazaar,
- Daily Store e.g:- Spencer’s Daily
- Express Store
MT can either be stand-alone or a part of chain depending upon the local or national presence.