Sales and Distribution

Sales and Distribution Use of research and analytics to take

business decisions in Sales and Distribution

Supply and Demand – the twin factors driving sales Sales and Distribution Strategies

- which Channels / Chains?- what Assortment- How to Get Listed- Opportunities and Costs

Research Measures to assess sales and distribution- Availability- Assortment- Sales / Store

Sales PUSH & Demand PULL

A mouse trap, irrespective of how good it is, won’t sell if consumers can’t find it. And irrespective of how widely it is distributed, it won’t sell if consumers don’t like it. It takes both push and pull to succeed in the marketplace.

SALES move due to two interdependent factors

Availability or the number of stores (width) the brand is distributed.Driven by sales force … the PUSH factorMeasured by Distribution Influenced by Brand Choice

Brand choice (Consumer Preference for brand)Driven by marketing … the PULL factorBrand equity is indicative of brand choice Influenced by Availability

Supply

Demand

At Coca-Cola and Pepsi roles are split between Bottlers / Brand Owner

Product availability impacts Brand Choice

Stores playing an increasingly important role in generating demand- More Singaporeans visit FairPrice in average week

than watch any particular television program- In-store activities

raise awareness, create perceptions, generate desire and influence brand choice

Terry O’Connor  (CEO Courts megastore) and Moon Sung‐Hyun (MD Samsung) at launch of Samsung’s 3 D TVs in Singapore

In-store activities impacts Brand Choice

- Displays- Promotions- Sampling- In-store launch- in-store media- Mobile

… all the above raise product visibility, enhance communication and could trigger the desire to purchase

… impact on brand choiceExample: A Product Launch60+% aware of brand• 80+% aware via in-store• 50% aware via advertising

In-store media – Stopper, Cart and Floor

Digital Signage, touch screen kiosks, use of mobile devices

Interactive Sampling

Demand (brand choice) impacts Product Availability

Consumer pull generates retailer support. If (turns × earns) is improving …- more retailers want to list product- more demand … more shelf space- more demand ... higher stock turnover

Declining demand. If (turns x earns) is deteriorating …- poor stock turnover- shrink shelf space- shrink range- de-list

Components of Sales … width and depth

Sales = No of stores distributing × Sales per store

DepthSales per Store

Width (Availability) = Distribution% of Stores

The two components are interdependent. As the number of stores distributing a product expands, the stores start to cannibalize one another, adversely affecting the sales per store.

Numeric Distribution- Product presence as % of stores in universe handling product

(but does not reflect on quality of distribution) Weighted Distribution (weighted on category value sales)

- Product presence as % of where money is spent on that product category(reflects quality of distribution … except in cases where new / growing category or one with few brands)

Weighted Distribution (weighted on All Commodities sales)- Shows distribution as % of where money is spent on grocery

products. Suited for small, relatively new categories. (all commodity not a good reflection of distribution of categories like beer, cigarettes, where the importance of the channels of distribution differs greatly from the norm)

Out of Stock (in Weighted and Numeric terms) Stock Cover Days

Measures for Distribution (PUSH)

Measures for Sales / Store (PULL)

Sales Per Point of Weighted Distribution

Share in handlers

Average Sales per Store

Rate of Sale (Adjusted Average Sales per Store) … in terms of volume, value (cash) and profit

Sales Priorities (Sales Management)Use of Market Research to progress sales initiatives

Targeting Channels and Chains: Which are the right channels / chains for your products

Right assortment: Use data to determineHow many items in each channel?Which items in which channel?

Securing retailer support: Use data to get listed

Distribution Opportunities and Costs

Place: Channels and ChainsUsing Research to align distribution

Right Channels, Right Chains

Channels and chains with the high sales density for the product category or family of products- FMCG, Consumer Durables, Books, Clothing, Contact Lenses, Fast

Food, Petroleum, Computers … sold in different channels- FMCG: Cigarettes, Cheese, Bread, Coca-Cola, Shampoo- Duracell (assortment), Kotex

Outlets that attract the shopper profile the brand wants to target- range, displays, promotions and in-store communication- Dove

Where store positioning is aligned with brand positioning- Premium Designer labels – Paragon,

Mid-range – Robinson’s, Popular range – John Little

- L’Oreal: Plenitude (Department Stores) and Garnier (Personal Care Stores)

Which channels to target? Which chains?

Mass Market …

Almost every household shops at FairPrice and with regular frequency

On an average day 500,000 people visit FairPrice

Generates high viewership and extensive exposure

Ideal site for family and household products.

Low Price …

Lowest cost structure- Low overheads- Limited staff … Low

wages- Low where rentals

Low price products Shopper profile skew

- Malays- Blue collar shoppers - from middle income

households- with larger household

size

% of All HH’sGender

Male

Female

Age

15-24

25-34

35 - 39

40 - 49

50 - 65

Household Income

Low (Up to S$2000)

Middle (S$2001-S$6000)

High (Above S$6000)

Not disclosed

Personal Income

Low (Up to S$1000)

Middle (S$1001-S$4000)

High (Above S$4000)

No Income/Others

Race

Chinese

Malay

Others

Occupation

PMEB

Other white collar

Blue Collar

Housewife

Others

Marital Status

Single

Married/others

Household Size

'1-3

'4-5

6+

Personal and Feminine …

21

13

52

Female 15-29 Female 30-39 Female 40-49 Female 50+

% of primary toiletry shoppers Young women (15 to 30 yrs) tend to shop intensely at Watson’s

Most are not household decision makers … buy for self

They are drawn by promotions, reasonable prices and wide range

Destination categories include facial care, and other feminine and personal care categories

Personal and exclusive...

Draws young women like Watsons … but their profile is skewed towards higher income homes

They are drawn by wide, exclusive range and variety and not price

Right AssortmentRight AssortmentUsing Research to prioritize assortmentUsing Research to prioritize assortment

Right assortment

Brand range is determined by marketing strategy … not sales strategy

How much of the brand’s range is stocked by a retailer is a function of several size factors

Size of the store Size and importance of the category Size of the brand, importance of each item in its range Size of margins ….

Supermarkets stock over 30 items (i.e. SKUs) of Campbell’s soup … provision stores on average stock less than 5

Ensure that the right items are stocked. Adding items … Consumers have more choice within brand … could lead to share gain Brand tends to get more facings … greater visibility… But don’t push a loser. It’ll erode margins, reputation, equity. Too

much choice is not necessarily a good thing Suppliers compete for space … battle for shelf space

How many products can a retailer cope with?

Retailers have a finite amount of space on shelf They are faced with a wide selection of brands and

products to stock Consumers demand that their key brands and products

remain in-stock But they also demand choice

Need compromises!

The Battle for Shelf Space

Battle for Shelf Space: Example from Pet FoodsB expands range at A’s expense

28 28 28 28 27 26 25 24 23 23 23 23 23 24 24 23 22 23 23 23 22 23 23 23

15 15 15 15 15 16 16 16 15 15 14 1416 17

19 19 20 20 20 19 20 20 20 20Brand ABrand B

# of items (SKUs) of Cat Food, Supermarkets

Brand B’s share of SKUs is up from 35% to 47%

41.638.1

30.136.6

Y1 Y2

Brands PerformanceVolume Share (%)

Brand A

Brand B

-2.4

29.5

Brands PerformanceVolume Growth (%) - MAT 00

Brand A Brand B

Example from Pet Foods… Brand B grows 30% by expanding range

How many items to stock? Which ones?Relevant analysis

How many Items?Average Number of Lines Stocked

Average # of brands of a category in a store Average # of items of a category in a store Average # of items of a brand in a store Brand’s share of total category items Efficiency rate

Which Items?Prioritise selection of item based on

Sales Per Point of Weighted Distribution Share in handlers Average Sales per Store Rate of Sale (Adjusted Average Sales per Store) Cash Rate of Sale Rate of gross profits

Important to remember marketing’s role in determining brand range, target consumer and target chains

Average Number of Brands Stocked

Flat Screen TVs are available in 90% of stores (Numeric Distribution) carrying Consumer Durables- Panasonic is in 60%- Philips is in 40%- Sharp is in 80%- Assume no other brands are stocked

What is the average number of brands stocked?- Sum of Brands Distribution 60 + 40 + 80 = 180

Product Category Distribution = 90 Average number of brands is 2

Average Number of Brands/Items Stocked

The average number of brands (in category) stocked in a store

Sum of Brands DistributionProduct Category Distribution

Average number of Items stocked in a store?Sum of Items DistributionProduct Category Distribution

Brand’s average range stockedaverage number of Items stocked by brand

Average number of a brand’s items stocked in a store carrying brand

Sum of the Brand’s Item DistributionBrand Distribution

Brand Distribution = 80% …. WidthItem Distribution (3 of) = 80%, 50%, 70%Average # of Items stocked = 2.5 … Depth

(1) Average number of flat screen TVs stocked per store ?(2) Average number of Sharp TVs stocked where Sharp is listed?(3) Average number of Panasonic TVs stocked where Panasonic is listed?

Average number of items Stocked

Total Panasonic = 60

Panasonic model 1 = 55Panasonic model 2 = 55Panasonic model 3 = 45Panasonic model 4 = 45Panasonic model 5 = 50Panasonic model 6 = 50

Total Sharp = 80

Sharp model 1 = 30Sharp model 2 = 35Sharp model 3 = 45Sharp model 4 = 45Sharp model 5 = 55Sharp model 6 = 28Sharp model 7 = 45Sharp model 8 = 37

300320

Numeric Distribution

Total flat screen TV = 90Two brands: Panasonic, Sharp

Average Number of items Stocked

Average Number of items Stocked = (300 + 320) / 90 = 6.9.

Panasonic : 300 / 60 = 5- Efficiency Rate. : 5 / 6 = 80.3%- Share of items : 300 / 620 = 48.4%

Sharp : 320 / 8 = 4 - Efficiency Rate : 4 / 8 = 50%- Share of items : 320 / 620 = 51.6%

So which 7 should the retailer stock and why?

SharpPanasonic60% BrandDistribution 80.3%: 5 out of

6 items Stocked

80% BrandDistribution

50%: 4 out of8 items Stocked

Sharp has greater width of distribution whereas Panasonic has greater depth. It appears that Sharp has greater success in getting listed, whereas Panasonic is better at securing depth where listed

Average # of items Stocked

Width DepthWidth Depth

Portfolio Analysis: What range? Which items to stock?

Outrageous Orange, 18

Cheeky Cherryade, 14

Ice Cream Soda, 13Original Sarsi, 14

Fruitade, 11

Groovy Grape, 11

Zesty Zappel, 8

50

55

60

65

70

75

80

85

90

95

100

100 120 140 160 180 200 220 240 260

SPPD (Litres per point weighted distribution)

Wei

ghte

d D

istri

butio

n %

Which items should the retailer stock and why?

What range? Which items to stock?Measures for Sales / Store

Sales Per Point of Weighted Distribution Share in handlers Average Sales per Store Rate of Sale (Adjusted Average Sales per Store) Cash Rate of Sale Rate of gross profits

Prioritise selection of item based on:

Sales Per Point of Weighted Distribution (SPPD)

Volume SalesWtd Distribution

Sales = 10,000 kgWtd Distribution = 80%

SPPD = 10,000 / 80 = 125 kg

Sales

Example: Distribution & Rate of Sales of variants of a Soft DrinkWhich flavours should be better distributed?

Outrageous Orange, 19

Cheeky Cherryade, 14

Ice Cream Soda, 13

Original Sarsi, 14

Fruitade

Groovy Grape, 9

Zesty Zappel

50

55

60

65

70

75

80

85

90

95

100

100 120 140 160 180 200 220 240 260

Sales / Store (Litres per point weighted distribution)

Dis

trib

utio

n %

Expand distribution of Orange and Grape

F&N Rainbow: Singapore – Provision Stores

Weighted Distribution and Share in handlersHandler = Store distributing product

$ in M Television sales $100Panasonic sells $ 20Panasonic’s value market share is 20%

Television sales in stores selling Panasonic $ 80Panasonic’s handler’s share of Television sales 80%(By definition, this is Panasonic’s weighted distribution)

Panasonic’s share in handlers (% value)= Panasonic’s share in shops selling Panasonic= $20/$80 = 25%= (Panasonic’s value share)/(its weighted Distribution)

Share in handlersMarket Share (%value) in shops where product is present

Weighted Distribution (PC) … reflects handlers share (in value terms) of the PC

Market share (in value) … brand share of PC Share in handlers =

Market Share (in value)Weighted Distribution (PC)

PC = Product Category

Average Sales per Store

Volume Sales# of stores distributing the product

(=Num. Distribution * No. of Stores in Universe)

Sales = 10,000 kgNumeric Dist = 50 %

# of outlets = 800 in Country

Average Sales = 10,000 / (0.5 x 800)= 10,000 / 400= 25 kg per store

Average Sales per Store

Nescafe- Sold in 2000 outlets- Average sales per store is 200 kg per month

Maxwell House- Sold in 100 outlets- Average sales per store is 300 kg per month

Does this mean that Consumers prefer Maxwell House to Nescafe?

Average Sales per Store

Average Sales per Store does not factor in the size of the stores- Usually first stores to list a

product are biggest- As brand distribution expands

Average Sales per Store tends to drop, because of the effect of store size

BUT Nescafe may be selling as much as 1500kg per month in those stores where Maxwell House is distributed

Nescafe: 2000 outletsSales 200 kg / Store

Maxwell House

100

Sales 300 kg / Store

Nescafe Sales = 1500 kg / Storein these 100 stores

Rate of sales – Maxwell House (MH)(Adjusted Average Sales per Store)

Sales Volume = 30,000 kg/month

Numerical Distribution = 5%Weighted Distribution (PC) = 50%# Supermarkets = 2000

Rate of Sales = Sales Volume / (# of Stores x Wtd Dist)= 30,000 / (2000 x 0.50) = 30 kg/store

# of Stores x Numeric Distribution = 100 = # of stores distributing MH# of Stores x Weighted Distribution = 1000 = Equivalent # of stores distributing MH

Volume Sales Equivalent # of stores distributing the product

Volume Sales Equivalent # of stores distributing the product

Rate of Sales =

Maxwell House sells 30 kg per month per averaged sized storeselling coffee in Supermarkets

NescafeAverage sales = 200 / StoreRate of sales = 200 / Store

2,000 Store

Maxwell House

100Average sales = 300 / StoreRate of sales = 30 / Store

Nescafe Sales in these 100 stores is 1500 / Store

Rate of Sales per Store: Nescafe / Maxwell House

Average Sales / Store = 200 unitsNumerical Distribution = 100%Weighted Distribution = 100%Adjusted Average Sales / Store

= 200 kg/month

Average Sales / Store = 300 unitsNumerical Distribution = 5% (100/2000)Weighted Distribution = 50%Adjusted Average Sales / Store

= 30 kg/month

Ranking of competing Brands

Rate of Sale – Laptops in Computer Stores

30

32

33

39

41

46

49

56

64

76

82

123

153

Acer Aspire

HP Omnibook

Dell Studio

Acer Extensa

HP Compaq Notebooks

Dell Precision

MacBook

Fujutsu LifeBook

Dell Latitude

Toshiba Dynabook

Acer TravelMate

Dell Inspiron

HP Pavilion

Cash Rate of Sale

Production Factories, Purchasing, Logistics, Forecasting, Marketing ... focus on Volumes (and specifically unit volume, i.e. # of jars of coffee?

Retailers and Business Managers are more concerned with MONEY AND PROFIT(you can bank $5,000 you cannot bank 250 washes of shampoo, or a 63%share)

Product Sales - Who gets how muchManufacturers and Retailers negotiate on profits / margins not sales values

Manufacturer’s Costs @ 50%. $50

Manufacturer’s Profit @ 35%. $35

Retailer’s Gross Margin @ 10%. $10Sales Tax @ 5%. $5

Selling Price 100 $

$5

Manufacturer’sSuppliers, Wages, other Costs

Manufacturer

RetailerGovernment

Retailer margins lie between 5 and 30% (fmcg). They vary across categories, brands and retailer. Because of the sensitivities involved, margins are rarely disclosed

Rate of Gross ProfitGross Profit generated per store for an item

Sales Volume = 9,000 packs Price = $3 per pack Sales Value = 27,000 $/month Numerical Distribution = 50% PC Weighted Distribution = 75% # Supermarkets = 600 Sales per store = 9,000/300 = 30 units/store Rate of sales = 9,000/450 = 20 units/store Sales per store ($) = $27,000/300 = $90/store Cash Rate of sales = $27,000/450 = $60/store Margin = 35% Rate of Gross Profit = 0.35 x 60 = $ 21 / Store

Rate of Gross Profit = Margin × Cash Rate of Sales

Rate of Gross Profit for Dove is comparable to that for Sunsilk, despite much lower Rate of Sales

45

180

70

90

450

1200

250

325

Cash Rate Of Sale

thousands of $

Rate Of Sale

Feather

Sunsilk

Dove

Pantene

thousands of litres

Rate of sales – Volume vs Cash vs ProfitShampoos

9

36 (20%)

35 (50%)

18

Rate Of Gross Profit

thousands of $

Securing retailer supportUsing Research to gain retailer support

Retailers seek return on inventory. To gain their support suppliers must demonstrate the potential of their product to outperform competition, or work with retailers to improve performance (earns × turns).

Example: Using research to list a new brand...

A product distributed in few supermarkets, excluding FairPrice … seeking distribution at FairPrice- Current value share in supermarkets ……. 2.5%- Weighted distribution in supermarkets …... 20%- So why should FairPrice be interested??

- Share in handlers … 12.5%- FairPrice should consider stocking as its selling well in

competing stores

How to get listedHow to convince a retailer that your product deserves listing

Compare your product’sShare in handlersSales per point of distributionrate of salesrate of gross profits

with that of competing brands

If your product fares better, you have a case

What about new products or less established brands that have yet to achieve their potential?

Distribution Opportunities & Costs

Distribution opportunities / costs

What’s the potential extra sales should we expand distribution?

What’s the cost of out of stocks?

How much stock to maintain in trade? What’s optimum?

What share of shelf space (forward stock) to target?

What share of shelf space to target?Stock to sales ratio

Forward Stock % Sales % Ratio

Item 1 5.0 7.5 67Item 2 5.0 5.0 100Item 3 5.0 3.5 143

What share of shelf space to target?Stock to sales ratio

0

5

10

15

20

25

0 5 10 15 20 25

Share of MARKET

What’s the potential gain from expansion in distribution?

Current Value Sales = $2,000,000 Current Weighted Distribution = 40%

What’s the potential for gain in sales if brand achieves perfect distribution?

Weighted Distribution

Potential Additional Sales from Distribution Gains

What’s the relationship between sales and distribution?• Linear?• Logistic?• Exponential decay?

Declining marginal utility (economics)

Need to assess whether it is COST EFFECTIVE to expand distribution

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

0 10 20 30 40 50 60 70 80 90 100

Linear

Logistic

Exponential

10% OOS ... What’s the cost?

Universe of stores = 500Num. Distribution = 80Number of stores handling = 400 Period sales = 100,000Average sales per store = 250

OOS. Distribution = 10 Number of stores OOS. = 50 Average sales per store = 250Total lost sales = 12,500

Assumes: 1. Probability of OOS at any store, at any point in time (during the period

under investigation) is 10%.2. OOS = lost sales ?? (Sounds conservative …assumes shopper

will not switch stores)

When a consumer cannot find the item she wants, what she does will depend on her...

Pack or variant loyalty Brand loyalty Product loyalty Store loyalty Urgency to use

Her response is determined by which of the above is of greatest importance at the time of purchase

Consumer alternatives

Buy an alternative size / variant of the same brand Buy a different brand

- supplier loses Buy from a different store

- Retailer loses Delay purchase

- Both supplier and retailer could lose Buy a different category

- supplier loses

Response to Out-of-Stock Situations

9

39 5356

67 6918

13

8 5

5 3

3

5

8 11

6 8

9

7

66

6 4

61

3724 22

16 16

Infant Milk Liquid Milk BreakfastCereal

InstantNoodles

Chocolates CarbonatedDrink

Go to another store

Delay buying

Buy other variant

Buy other packsize

Buy other brand

Brand Loyalist

91%Brand

Switcher

%

Brand LoyaltyHigh Low

Source: Nielsen. Based on a survey in Singapore in the late 1990s.

Store Switcher

Cost of Out-of-Stock to Retailers

61

37

24 22 16 16

9

7

66

6 4

Infant Milk Liquid Milk BreakfastCereal

InstantNoodles

Chocolates CarbonatedDrink

Delay buyingSwitch store

%

High Low

The true cost of poor distribution: retailer

The top 10% of shoppers can account for 30 to 50% of a store’s sales- These are the people most affected by out of

stocks

If a shopper permanently switches to another store the cost may be their total spend … from that time onwards

The true cost of poor distribution: supplier

If a consumer is compelled to try a competitive brand her brand loyalty may change

An out of stock may lead to the loss of all future sales to that consumer...