 "Emami undertakes distribution structure overhaul")
Aiming to increase sales volume as well as push its slow moving brands, Kolkata-based Emami Ltd has opted for a major overhaul of its distribution architecture, where instead of relying on the traditional wholesale channels, the company will up its direct retail reach.
While wholesale contributes to 50-55 per cent of its annual sales revenue, the company is now aiming to lessen it to around 40 per cent while push up its direct reach across the outlets.
Madan Pandey, president-sales, CCD, Emami Ltd, said the initiative has been undertaken primarily to cater to three objectives; first, this move will provide the company with better business possibilities, second, it would help in cost curtailment as wholesale channel is driven by sales target schemes which can be lessened and thirdly, the company will be in a better position to push its slow moving brands through a direct reach.
Pandey reasoned that the wholesale trade channel normally stocks those products which are demand driven while the slow moving brands and products are left out. Thus, the retailer, who eventually buys the products from the wholesale channel, has access to limited products. This, however, will not be the case if the company undertakes direct sales.
Emami has pegged a 2X multiplier effect on sales volume as the shift from wholesale to direct sales takes place.
Although the company's own salespeople will play the initial role of converting sales leads, eventually, the product supply will take place via its base of 1,200 distributors. However, this is not the case with the wholesale channel where the involvement of the company's own salespeople is nearly absent.
It has also put in AC Nielsen to conduct a study on the top 30 towns in India to understand how best it can take this agenda forward. The consultant, apart from modern trade, will be identifying the exact outlets or kirana shops which the company can target as well as the products and brands which can be pushed via those outlets.
The exercise would mean an additional 15-20 per cent increase in the salespeople under the distributor's payroll.
Currently, out of a reach across 40 lakh outlets, Emami is able to directly reach to 6.4 lakh outlets which will go up to around 7 lakh or 17.5 per cent of the total outlet base by the end of the current financial year. Next year, the company aims to increase its direct reach to 8 lakh outlets.
Last year, Emami increased its direct outlet reach by nearly 90,000 and will add around 1 lakh another in the coming financial year.
The decision to modify its distribution architecture comes in the wake of Emami's focus to penetrate deeper into the rural market. While the company will add around 30,000-40,000 outlets in the urban market, it has targeted to have atleast another 50,000 outlets in rural India within its fold - all of which will be serviced via direct sales.
The move to convert from a wholesale channel driven business into a direct sales one will result in Emami's incremental costs of servicing the outlets surging by four to five per cent in rural areas and two to three per cent in urban areas.
"However, it will result in increasing our sales which will pull up revenue", Pandey added. He could not give a specific number on how much the company's topline and bottomline will surge.
Last month, Business Standard reported that Emami has projected a 12-14 per cent growth in the 2017-18 financial year.
In the rural market, Emami follows a three-tier distribution pattern where the company sells its product to a distributor who thereafter sells it to the stockist. In turn, the stockist supplies the product to the retailer. Besides, the stockist is also entrusted with increasing the retailer base and point of sales. In the urban markets, however, Emami relies on a simple two-tier distribution structure where the distributor buys the product from the company and sells it to the retailer directly.
