Need Of A FMCG Distribution Infrastructure.
Distribution, positioning, turnover, and loyalty are all KPIs that may be used to assess if there are any irregularities in an FMCG brand’s product mix and to gauge success. The findings of these analyses might be a good place to start for FMCG executives looking to better understand their product’s performance and optimize their strategy. However, there are new technologies on the market, such as Location Intelligence, that can help to speed up this process.
Utility Of A FMCG Distribution Infrastructure.
Location Intelligence solutions can offer you a list of the best performing POS areas your brand has if a difference is found between the numeric and weighted distribution percentages. Then you can figure out whether socioeconomic or economic elements are influencing the success percentages of those point-of-sale locations. This will assist you in identifying issue regions and efficiently deploying your sales force, avoiding spending resources on ineffective POS areas.
Similarly, if product penetration rates for the point-of-sale sites where your product is put are extraordinarily strong, Location Intelligence technology can assist you in identifying additional POS areas that meet those same market characteristics (age, income, footfall traffic, etc.). As a result, your sales teams will have greater tactical direction, allowing them to determine which potential POS regions would yield the biggest returns and grow their distribution networks accordingly.
What is a Consumer Discount?
A discount is a deduction from the general price of goods or services. It means an item is sold at a price that is lower as compared to the usual price. Discounts are usually represented as percentages. However, it may also be a fixed amount off on the original price of goods or services.
Discounts are of different types. Quantity discount is where you get a discount based on the number of items you purchase. Suppliers usually offer trade discounts to their distributors. The discount may help the distributor adjust the prices of the goods so that all the items are sold. You have promotional discounts that are a popular sale promotion technique. For example, get 15% off on the purchase of a shirt or the buy one get one free offer.
You have a percentage discount on an item that is shown as an amount per hundred. A percentage discount of 10% means an item that originally costs Rs 1,000 is now available for Rs 900. You have saved Rs 100 on the purchase.
The cash discount is a popular incentive that is offered by retail stores to shoppers as a direct price-off incentive on purchases. It is offered as an immediate cash discount or even on the use of a coupon code. Retail stores use cash discounts to propagate a sense of urgency as the offers are available for a limited number of days.
There are two types of retailer schemes which run in market .
Percentage Discount Basis.
In this case when a salesman is going to take the orders in market, he will tell the retailer that you will 5% discount on buying 12 packets of a certain brand. if the MRP is 10 Rs of one pack, retailer margin is 10% mark up, then the 5% discount will be offer on the rate (PTR) at which retailer will buy it. The PTR for 12 packs in this case will be Rs 109, so 5% discount will be given on PTR. These are mark up schemes.
Quantity purchase scheme.
Buy X, get Y free. In this case when a salesman is going to market, he will tell retailer that for e.g., if you buy 12 packs, then you will get 1 pack free. The scheme calculation will be 1/(12+1) it will give mark down calculation. Mark up calculation will be 9/109 (PTR). So, the scheme communication can be done both ways. For accounting purpose it’s taken as mark down.
If you divide ₹2 on purchasing cost ₹8, you earned a 25% margin. Mark Down Calculation: If you divide ₹2 on selling cost ₹10, you earned a 20% profit margin. … In the case of FMCG products, usually, the MRP is low and the retailer is allowed a lower mark-up scheme structure, it may be between 5% and 8%.
The margin for a distributor may range from 3% to 30% of the sales price, the margin for the retailer may range from very little to 60%. This all depends on the type of product and who pays for the marketing activities
FMCG salesman’s Scheme calculator
1+1 = 50.00%
2+1 = 33.33%
3+1 = 25.00%
4+1 = 20.00%
5+1 = 16.66%
If the scheme is 11 + 1 then it will be calculated as 1÷12 % = 8.33%
What is a Discount Calculator?
A discount calculator is a utility tool that shows you the price of goods and services after a discount and also the amount you save. The discount may be a fixed amount off or a percentage discount.
The discount calculator consists of a formula box, where you enter the price before the discount, the discount as a percentage or an amount. The discount calculator shows you the price after the discount and the amount you have saved.
From Company->Dealers/Distributors/Stockiest->Whole Saler/Retailers->Customer
FMCG Salesmen need to clarify ‘Trade Schemes’
Trade Schemes are of 2 types:
1 case to 2 cases – Additional Discount of 9%.
3 Cases and above – Additional Discount of 10%
How do Discount Calculators Work?
You can calculate the discount as a percentage as follows. For example, you may want to calculate the sale price of a shirt that regularly costs Rs 1,000.
If the shirt is 20% off, you must convert 20% to a decimal (20/100 = 0.2). You have Rs 1,000 * 0.2 = Rs 200. You then subtract the discount from the original price as Rs 1,000 – Rs 200 = Rs 800. The shirt is on sale for Rs 800. You have saved Rs 200 on the purchase of the shirt.
You can calculate the discount as a fixed amount as follows. For example, you have a discount of Rs 300 on a shirt that costs Rs 1,500. The price after the discount is Rs 1,200.
The discount percentage is: = 300/1500 = 20% (amount of discount/Cost of the shirt).
The Clear Tax Discount Calculator shows the price of an item after a discount.
You have to enter the price of an item before the discount.
Enter the discount by choosing a percentage or a fixed amount.
If you select the discount as a percentage, the ClearTax Discount Calculator shows the price after the discount and the amount you have saved.
If you select a fixed amount, the Clear Tax Discount Calculator shows you the price after the discount and the discount percentage.
How do we run discount schemes for retailers in FMCG?
Of course it all depends on the retailer and how he perceives your company.
In a nutshell :
Can Calculate discounts on invoices
Calculate volumes discounts based on monthly sales
Analyze promotions discounts
Plan year end discounts on total business value
FMCG Salesman’s Questions Answered
What is Reconciliation?
Company auditor at the month end and was taking stock data for all SKUs. Why was he doing this and what it is? Also, more on the term is ‘Distributor Holding’.
The tallying between system stock and ground stock. Ideally, this should always tally but due to certain factors such as leakage, sometimes it doesn’t.
Some schemes are approved through Head Office and some scheme is through salesman’s budget.
How is HO budget different from ASM scheme budget? Does ASM gets some separate money, or he takes from distributor?
Difference in budgets:
FMCG companies have pan-India budgets that are given out to boost sales of a certain franchise – these are budgeted through HO.
However, sometimes ASM’s might get budgets depending on various factors – increased investment of competitors, certain brand activations in their territory etc. These are given out locally.
These are schemes that are given out in the market to boost sales from time to time. Trade Schemes are designed for the trade i.e. Retailers/Wholesalers and the distributor is supposed to comply with them and extend it to the trade and the company’s sales force are expected to utilize it in the right spirit and ensure market hygiene.
These can be in terms of discounts on the bill (hence translating to higher margins) or in terms of goods that may be enticing for the retailer/distributor. An example of this would be a free air conditioner on purchase of a particular value of goods, or a free holiday package on achieving the target that is given.
Trade schemes are of two types:
Quantity Purchase Schemes (QPS):
These typically look like this:
144 pieces – 8% discount
72 pieces – 6% discount
48 pieces – 4% discount
24 pieces – 2% discount
Basically these are discounts offered on purchasing a particular quantity of products
Value Purchase Schemes
(VPS): These would look like this:
Purchase of 10,000 – 8% discount
Purchase of 8,000 – 6% discount
Purchase of 6,000– 4% discount
Purchase of 4,000 – 2% discount
These are discounts offered on purchasing products of a predefined value
Trade schemes are further divided into two types depending on who they are offered to:
Primary Schemes: These are those that are deducted while the invoicing is done to the distributor from the company’s end. This may be done to give the distributor an additional margin.
Secondary Schemes: These are those which the distributor is supposed to first extend to the market and then claims it back from the company.
Formula’s for FMCG Salesman
Gross Margin (%) = (Sales – Cost) ÷ Sales x 100
Markdown (%) = (Original Price – Sale Price) ÷ Original Price x 100
Markup (%) = (Sale Price – Cost Price) ÷ Cost Price x 100
Opening Stocks + Intakes (Purchases) – Sales = Closing Stocks
GMROI = Gross Profit ($) ÷ Average Inventory Cost($)
GMROI stands for Gross Margin Return on Investment
Sell Thru (%) = No. of units sold ÷ No. of units received x 100
Sell-Through Rate measures the number of pieces sold out of the number of pieces received.
Shrinkage % = (Value of Lost Stock ÷ Total Sales for the period ) x 100
Shrinkage or Stock Loss can be calculated either at cost value or at retail value (Cost to Cost, Retail to Retail or Cost to Retail)
Aging (%) = Aging Inventory at Cost ÷ Total Stock at Cost x 100
Aging Inventory measures the % of inventory that has aged (depending on when you consider aging, e.g above 1 year) out of total inventory at hand(SOH).
More than half of all consumer expenditure is spent on FMCG (fast-moving consumer products). It’s critical for individuals who wish to sell FMCG effectively to focus on the correct key performance indicators and track their progress.
What is numeric distribution in FMCG and put together a handy list of the most critical KPIs to consider when evaluating your brand’s performance.
Numeric and Weighted Distribution
What is the numeric and weighted distribution of brands X, Y and Z? (Universe is shops A, B, C and D).
Distribution, the metric commonly used for tracking product availability, is usually measured in numeric and weighted terms. It may be weighted in either volume or value.
Numeric Distribution is the percentage of stores handling product.
Weighted Distribution is the percentage of stores handling product weighted by product category store sales. This is equal to share of category sales by handlers.
Let’s take the example presented to understand the concepts of numeric distribution and weighted distribution.
In this example, Brand X is carried by three shops (handlers): A, B and C. The numeric distribution of Brand X is calculated by dividing the number of shops carrying the brand (which is 3) by the total number of available shops (which is 4), resulting in a numeric distribution of 75% (3 out of 4).
The weighted distribution of Brand X is determined by considering the total weight of the handlers (A, B and C) in terms of category sales. In the given example, the weighted distribution of Brand X is equal to 50%. This value is derived from adding up the category sales weights of each handler (5 + 20 + 25).
A brand’s weighted distribution can be defined as the brand’s handlers’ trade share of category sales. It corresponds to the handlers’ contribution to total category sales.
Unless otherwise specified, distribution is weighted in terms of category value sales. Defined as a percentage of where money is spent on the product category, it reflects the quality of distribution.
When comparing brand X and brand Z, it can be observed that brand X has a lower weighted distribution (50%) than its numeric distribution (75%). This suggests that the quality of brand X’s distribution is relatively weak. On the other hand, brand Z has a numeric distribution of 50% and a weighted distribution of 70%, indicating that it is handled by stores that make a more significant contribution to category sales.
By analyzing these metrics, marketers and researchers can gain insights into the market presence and performance of a brand, considering both the number of shops carrying the brand and the sales weight associated with those shops.
Whereas weighting of stores on category sales is the norm, for certain categories, it is advisable to assign weights based on ACV (i.e., the sales value of all categories) or based on a collection of related categories. This practice is particularly beneficial for small, new, or growing categories that have a limited number of brands. For such categories, ACV weighted distribution is a better indicator of the quality of distribution.
What is Numeric Distribution in FMCG?
There are two ways to express the percentage of distribution: numeric and weighted distribution. When we analyze these two variables together, they provide insight into the state of product distribution within a network. Furthermore, it offers insight into a product’s distribution channel placement in comparison to its competitors.
Numeric distribution percentage
Retailers that sell FMCG products in a specific area are represented by this percentage. To determine the value, divide the number of retailers distributing the product by the total store counts in the zone. The result is a percentage, which is multiplied by 100.
The higher the numeric distribution %, the more likely a product is to be found in retailers. Nonetheless, for a more in-depth analysis, we should compare this information to the competition. Brands that selectively distribute their products will have lower numeric distribution percentages, but this does not necessarily imply that their sales would be lower—it depends on the approach used.
Weighted distribution percentage
To compute this percentage, compare the sales turnover of a product category to that of the stores that sell that product. You can calculate it globally or locally based on a particular area. After multiplying the number by 100, the percentage is calculated.
It is wise for brands to place their products in stores that generate a higher percentage of their sales turnover from the categories in which their products fall. It’s all about smart product placement in the FMCG industry to sell more.
It’s crucial to compare the percentages for both the numeric and weighted distributions once they’ve been determined. To achieve optimal distribution, the weighted distribution percentage must be higher than the numeric distribution percentage. For instance, if you have a weighted distribution of 90% and a numerical distribution of 10%, your product is only available in 10% of the stores in a certain region that carry this specific category of products. Even though your product is currently only available in 10% of the overall product universe, your brand currently has a 90% market penetration rate, making you the market leader in your region. This is the ideal environment for effective FMCG sales.
Investigate whatever market variables are causing certain POS areas to be so successful—are consumer age and type crucial factors? Is it possible that the amount of foot traffic that point-of-sale site receives has something to do with it? With Location Intelligence technology, you can discover all of this and more, then reproduce those precise conditions and locate new POS areas that meet your success criteria in different locations.
Something is wrong if your numeric distribution rate is higher than your rated distribution rate. Consider the following scenario: your product is numerically distributed across 80% of all POS businesses that offer your brand’s type of goods. Your weighted distribution, on the other hand, is 20%. This signifies that your brand distributes to a variety of stores that offer your product category, but your brand’s sales turnover accounts for only 20% of total product category sales in a given location. One of the following factors could be to blame for the distribution plan’s failure:
Low bargaining power with retailers
Point-of-sale locations that aren’t profitable
Sales promotion that is ineffective
Brands may better assess the performance of their distribution strategy by comparing these two KPIs and assigning precise objectives to their sales staff as a way to use resources efficiently and improve revenue by comparing these two KPIs.
FMCG Product penetration rate
This figure represents the percentage of households, individuals, or customers who purchase a specific item. The number of persons who buy the product divided by the total number of people in a specific location equals this figure. The percentage is calculated by multiplying this number by 100.
The product penetration rate is frequently used to assess the success of a marketing campaign or promotion. It’s also looked at to see how much of a prospective market is still up for grabs.
Market share to sell in FMCG
The market share value of a brand and its products on the market is an important key performance indicator that assesses its overall success. This proportion is calculated by dividing the company’s sales turnover by the sector’s entire turnover. The right percentage is then calculated by multiplying this figure by 100.
Distribution of FMCG Goods market share
While overall market share is significant, the distribution of market share is more important. This statistic tells you how much of a company’s market share it has at the distribution level. To compute the percentage, convert the market share and weighted distribution percentages to decimals first. Then multiply by 100 to get the percentage by dividing the market share decimal value by the weighted distribution decimal value.
For example, if a brand has a 5% market share but only sells in 10% of the stores that sell the product category, the equation would be:
According to this equation, the product’s distributed market share would be 50%. This signifies that market penetration for those points-of-sale places where my product is available is 50%. Distributed market share is a contextual KPI that may be used to provide an in-depth analysis of a product’s market potential—and drive sales teams to find new POS locations comparable to those in the future to earn more market share.
Share of Consumer wallet
Share of wallet (SOW) is a metric that allows managers to see how much business they get from specific clients. It’s used to determine how loyal and committed they are to the brand. To obtain this metric, divide the total amount spent by customers on your product by the total amount spent on the product category, then multiply by 100 to obtain the percentage.
When a brand’s wallet share is at 80%, it signifies that customers are four out of five times loyal to the brand’s specific product when the quantities purchased are consistent. This is how many experts in the FMCG business can gauge brand loyalty for their products and sell more consistently.
It is always
Cost + Expenses + Profit = Selling Price.
Where as the profit is derived based on market competition / demand vs supply / customer segment / etc as per the market research
The return on investment calculation is simple as explained below.
ROI = ( Revenue – Expenses)/Investment
Net Income = Revenue – Expenses.
Revenue : Its a fix margin which is given on the total purchase for the month. For e.g. is the distributor margin is 5% then on purchase of 1 CR it will be 5 lacs for the month.
Expenses : It includes the expenses occurred for the business on monthly basis.
Salary of sales man, vehicle driver, vehicle helper, loaders, computer operator, go down staff.
Vehicle operating cost monthly (if its owned vehicle then fuel cost will be part of of expenses, cost of the depreciated cost of vehicle will be part of investment, if its market hired vehicle then fuel & hiring cost will be part of expenses).
Godown rent, electricity bill, stationery expenses, telephone bill, internet charges, any other administration expenses.
Any interest on borrowed capital will be part of expenses but such capital will not be part of investment, any cash discount being given to wholesalers.
Investment : This typically includes the stock maintained in number of days( for e.g. stock holding is equal to 7 days of sales), credit given in market in number of days ( for e.g. 15 days credit, it means that credit is equal to 15 days worth of sales in the month), investment in claims which has to be reimbursed by the company ( it will be typically 5% of the monthly revenue).
Now for e.g. if the net income is 2 lacs on a monthly business of 100 lacs (1 cr) then the monthly ROI is 2%, which will translate into annual ROI if 24%. ( Annual ROI is 12* monthly net income/Investment). The investment will remain fix each month so its a fix cost which will not change. Generally a good distributor who is hardworking, fully involved in business will make 2% monthly.
Anything above 20% is very healthy ROI keeping in mind the kind of returns you get from bank on FD will not be more than 8%.
“𝐅𝐫𝐨𝐦 𝐒𝐡𝐫𝐢𝐧𝐤𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐭𝐨 𝐕𝐚𝐥𝐮𝐞: 𝐅𝐌𝐂𝐆 𝐂𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐢𝐧 𝐈𝐧𝐝𝐢𝐚 𝐎𝐩𝐭 𝐟𝐨𝐫 𝐋𝐚𝐫𝐠𝐞𝐫 𝐏𝐚𝐜𝐤𝐬”
Easing input costs: FMCG companies in India are leveraging the easing of input costs as an opportunity to offer larger pack sizes to consumers.
Boosting affordability: By providing larger pack sizes without increasing prices, companies aim to offer consumers more value for their money, making the products more affordable and attractive.
Encouraging consumption: The strategy of larger pack sizes aims to stimulate consumption by offering consumers a greater quantity of the product, potentially leading to increased purchase frequency and volume.
Market-wide adoption: The trend of larger pack sizes can be observed across various FMCG product categories, catering to the diverse needs and preferences of consumers.
Balancing cost management and consumer satisfaction: FMCG companies strive to strike a balance between managing their operational costs and ensuring consumer satisfaction by delivering larger packs that align with their expectations.
Quality assurance: Maintaining consistent product quality remains a key priority for companies, as they aim to instill confidence and trust in consumers while offering larger pack sizes.
Communication and transparency: Clear communication regarding the introduction of larger pack sizes is essential to avoid any confusion and provide transparency about the value proposition offered to consumers.