An Irate Distributor: The Question of Profitability
Essay by SB Subhaprakash • July 26, 2018 • Research Paper • 725 Words (3 Pages) • 2,055 Views
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An irate distributor: the question of profitability
Submitted by –
Section – C | Group – 10
Brajen Malakar (PGP08214)
Jaideep Hajong (PGP08222)
Kanishk Shinde (PGP08223)
Manoranjan Sahoo (PGP08227)
Sathish Babu D (PGP08250)
SB Subhaprakash (PGP08251)
Retail Trade in India
One of the fastest growing market
Market estimated to be US$470 billion in 2011 with an expected growth of US$675 billion by 2016 at 7.5% CAGR
Lot of challenges for FMCG products in the Indian market
Multitude of retail formats due to diversity in geography and culture
Key challenge of an FMCG was to reach its deep customers in remote areas
Well established distribution system of around 6 million retail outlets
The distribution channel composed of C & FA, distributor, wholesaler and retailer
Distributor redistribute to retailer directly or a via wholesaler in their designated area
Margins were disbursed to each intermediaries involved in a distribution for the functions they performed
FMCG and Nutritional Food Category
FMCG was the 4th largest sector in India with US$13 billion market size in 2011 and expected to grow to US$33 billion by 2015
Processed and nutritional food industry was US$135 billion in market size in 2012 and expected to grow at 10% to over US$200 billion by 2015
HFD category was growing at a CAGR of 25% and was estimated to be around US$50 million and has a market penetration of 45%
NutriPack has a global annual turnover of US$10.5 billion with an operating margin of 14.86%
Net Income of NutriPack was US$1 billion
Competitive Situation
NutriPack has a CAGR of 18% with a turnover of INR 7.5 billion
NutriPower has a 12% market share and CAGR of 25% in HFD category of INR 27 billion market size
Jams category has a market size of INR 10 billion of which NutriJams has 10% market share
Please comment on the choice of Jalgaon district for the expansion plan in his territory by a proper analysis of Exhibits 4, 5 and 6.
Jalgaon district is the 2nd most populous district in central Maharashtra
It ranks 3rd when it comes to density of population per square kilometer
Jalgaon district has more per capita income than all other districts except Nashik and Aurangabad
Jalgaon is 4th largest market in central Maharashtra when it comes to market size and growth rate
Moreover, Jalgaon acts as a feeder market for a number of surrounding villages
With the above facts, Jalgaon has only distributor “Sachin Agency” to cater the massive population. So Jalgaon district should be the target territory.
Based on the information available in the case, what should Kumar’s recommendations be for strengthening Sachin Agency and for tapping the potential of Jalgaon district? This will involve working out the ROI for the distributor at present and then giving recommendations for increased investments with rework on the ROI (Exhibit 11)
Net revenue per month = INR 54,000,000/12 = INR 4,500,000
Expenses/month = Annual expense/12 = INR 100,950
Investment/month = 15 days of credit +4% of a month’s sale = INR 2,399,178.08
Net profit after tax (30%) = (4,500,000 – 100,950)*0.07 = INR 30,79,335
ROI/Month = Net profit/Investment = 1.28
ROI/Year = 1.28*12 = 15.40%
Revised ROI
From exhibit 9(d), it is clear that despite being the market leader in Maharashtra with value share of 42%, NutriJams is the 2nd most preferred Jam brand in Jalgaon
NutriJams have far less reach compared to Mazaa, which is market leader in Jam
As per revision, we have considered the increase in retailers proportional to the value share in Jalgaon
For Jam, total no of retailers estimated = (937/36.6)*30.5 = 780
For health drinks, We have considered 80% of the total no of retailers in Jalgaon =
0.8 * 1588 = 1270
Total no of retailers = 1270+780 = 2050
For ROI calculation we have revised the expenses proportional to 2050 retailers
The ROI is estimated to be 20.27%
Calculation is attached in the excel workbook
Recommendations
Expansion is recommended for Sachin Agency
Further, it is advised that Sachin Agency should decrease it’s credit time to 14 days
NutriPack should reduce the secondary scheme claims to 2% of month’s sales from 4%, so that it will encourage Sachin to go for expansion
Thank you
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