Distribution Channel of Hul

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Institute Of Management Technology, Nagpur
PGDM 08-10
Sales and Distribution Management

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Course Facilitator: Prof Sanjeev Tripathi
Assignment 4: Distribution Network

Submitted By:

Priya Sharma (08FT051) Navdeep Gupta (08IT024) Gopal Krishna Garg (08FN043) Ananya Nandi (08HR031) Kapil Tuteja (08IT018) N. Suryaprakash (08FT039)

Executive Summary

Distribution channels make possible the routinization of purchasing decisions which results in a reduction of cost of marketing operations. In this report we are also required to study the distribution network and the multiple marketing channels of the same product. The product chosen by us for the project is LUX Soap which is one of the flagship brands of the India’s largest FMCG Company, Hindustan Unilever Limited (HUL).

During the course of study we discovered that there are many channels for the distribution of Lux. Also the company adopts different starategies for distributing products at the Rural level. We would be discussing that in details in the report. The report is completed with the telephonic interviews with the dealers at some of the stores in different parts of India. But also a part of our report is based on the Secondary Research where we could not find substantial Primary Data.

About the company

Hindustan Unilever Limited (abbreviated to HUL), formerly Hindustan Lever Limited, is India's largest consumer products company and was formed in 1933 as Lever Brothers India Limited. It is currently headquartered in Mumbai, India and its 41,000 employees are headed by Harish Manwani, the non-executive chairman of the board. HUL is the market leader in Indian products such as tea, soaps, detergents, as its products have become daily household name in India. The Anglo-Dutch company Unilever owns a majority stake in Hindustan Unilever Limited.

Hindustan Lever Limited's distribution network comprises about 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. HLL is also one of India's largest exporters.

About LUX

Lux soap was first launched in 1916 as laundry soap targeted specifically at 'delicates'. The name 'Lux' was chosen as a play on the word "luxury." Lux has been marketed in several forms, including bar and flake and liquid (hand wash, shower gel and cream bath soap). Lux toilet soap was introduced in 1925 as bathroom soap.
Lux stands for the promise of beauty and glamour as one of India's most trusted personal care brands. Since its launch in India in the year 1929, Lux has offered a range of soaps in different colours and world class fragrances. Lux is a beauty soap of film stars. Lux recognized the need for a compelling message about beauty that would resonate with women of today.

From the 1930s right through to the 1970s, Lux soap colours and packaging were altered several times to reflect fashion trends. In 1958 five colours made up the range: pink, white, blue, green and yellow. People enjoyed matching their soap with their bathroom colours. In the early 1990s, Lux responded to the growing trend away from traditional soap bars by launching its own range of shower gels, liquid soaps and moisturizing bars.
With icons of beauty endorsing the brand, the offerings made by Lux have always been superior and have always led the market, setting benchmarks for competition.
Lux has beauty offerings in two of the four market segments – popular and premium, spanning the needs of varied consumers.

Lux Toilet Soap in the popular segment has in the past years offered its consumers a range of soaps enriched with the goodness of a variety of nourishing ingredients – rose extracts, almond oil, milk cream, fruit extracts and honey which are known to harbour the secrets of incredibly perfect skin.

At the upper end of the market is the premium range which continues to offer specialised skincare to its consumers in the form of International Lux – a range of moisturising, deep cleansing and sunscreen soaps.

To establish the presence of nourishing ingredients in the new Lux, a unique concept, ‘ingredients you can see in the soap’, was born. A novel metallic substrate packaging beautifully showcased the ingredients and its globally accepted ingredient-linked perfumes heightened the sensorial experience.

Each of the soaps in the range has milk cream, with the active ingredients of rose extracts, sandal saffron, almond oil and fruit extracts. These create an experience in pampering indulgence and luxury designed to bring out the star in every woman. This is the first time in the Indian chapter of the brand that the beauty bar variant was being differentiated on the basis of its ingredients rather than its perfume and colours.
Though Lux International, a premium variant of the toilet soap, launched in 1989, is differentiated on the basis of its ingredients, the popular version, Lux Beauty Bar was always projected as a “pure and mild” solution to soft and smooth skin.

Cutting-edge Distribution Network

HUL’s distribution network is recognized as one of its key strengths -- that which helps reach out its products across the length and breadth of this vast country. The distribution network of LUX is no different. The need for a strong distribution network is imperative, since Lux has to gain the visibility and has to capture the minds of indians everywhere
It has 2000+ suppliers and associates 7,000 stockists and direct coverage in around 1 million retail outlets across India.

To meet the ever-changing needs of the consumer, LUX has set up a distribution network that ensures availability of all their products, in all outlets, at all times. This includes, maintaining favourable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. It boasts of placing a product across the country in less than 72 hrs.
The first phase of the distribution network had wholesalers placing bulk orders directly with the company. Large retailers also placed direct orders, which comprised almost 30 per cent of the total orders collected.

Today, the goods are transferred from the factory to the company warehouses and are sent to the distributor from there on a daily basis. From the distributor, the stock reaches the market through daily sales. Typically, these include the salesman registering the order of a retail outlet and delivering the goods the next day.

Recently it has changed its traditional way distribution and came out with a new strategy of distribution. It‘s because of the change in buying pattern of the consumer due to more disposable income. There are different channels of distribution like Modern Trade, which covers all chains of super markets, who get the stocks directly from the company. Wholesalers and second leg of big retail outlets called Super Value stores come under the surveillance of the distributor along with the mass retail outlets. There is also this new concept in the it’s distribution channel called Kiosk. Kiosk is a small shop that sells only sachets and low priced items (below Rs.10/-). Kiosk also does not come under the surveillance of the distributor.

In addition to the ongoing commitment to the traditional grocery trade, it is building a special relationship with the small but fast emerging modern trade. It's scale enables it to provide superior customer service including daily servicing, improving their range availability whilst reducing inventories. It is using the opportunity of interfacing more directly with consumers in this retail environment through specially designed communication and promotions. This is building traffic into the stores while yielding high growth for the business.
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The Distribution in Rural Market:

The strategy of distribution should take into account the purchasing habit of the rural people. While consumables are purchased in the village shop or Shandies or in bigger villages, the consumer durables are purchased only in Mandi centers, large towns or nearby cities. Hence the distribution centre has to take the purchasing habit of the rural people into account, so that product may be available at the appropriate location.
In villages beyond the reach of the distribution system, the shopkeepers make their own arrangement for the procurement. Most of them commute to the nearby town to get the supply. But the expenses incurred resulted in the village shopkeepers charging consumers more than the maximum retail price. Generally, the village shopkeeper invest their funds in purchases and rarely ever get credit facilities, which if available is made available for very short duration only. Since the quantum of purchase by the village shopkeeper is very small, the margins are also very meager. The ultimate consumer product reflects the lack of distribution network.

Distribution Strategies in Rural Market

1. Coverage of Villages: With improved communication facilities, it is possible to reach distribution van to the villages. The frequency of visits may be fixed, depending upon the off- takes or sales realization, so that the distribution cost can be minimized, but not at the cost of cutting down or rural population. These distribution cabs can be used for promotion works also. For villages with very less population, the distribution can be left to the initiative of the shop keepers and dealers in larger villages and to the shopkeepers of the small villages. The distribution arrangement requires serious consideration by manufacturing and marketing men, if they have to exploit the potential of the rural market

2. Use of Cooporative: Over three lakh cooporative society operate in the rural areas for or different purposes like, marketing cooperatives, dairy corporative, farmer service corporative societies, consumer corporative and other multipurpose corporative. Given the number of such societies, there is at least one corporative society of one form or another for every two or three villages. These societies are linked to higher level of society like taluk, district or state level. Thus these corporative have an arrangement for centralized procurement and distribution through their respective state level federation. Such state level federation can be motivated to procure and distribute consumables items and low level durables items to the member societies for selling to the rural consumers

3. Utilization of Public Distribution System: The Public Distribution System (PDS) in the country is fairly well organized. The revamped PDS places more emphasis on reaching remote rural areas like hills and tribal areas. Effective utilization of the PDS system should be explored by the manufacturing and marketing men, since they already have a distribution set up.

4. Distribution to Feeder Markets / Mandi Towns: The villagers visit these town at regular intervals not only for selling the agricultural produce but also for the purchase of cloth, jewellery , hardware, radios, torch cells and other durables and consumer product. Lux has established a good distribution network in the identified feeder market and mandi towns. From the feeder market and mandi town, the stockiest or wholesaler arranges for distribution to the village shop in the interior places.

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Comparative analysis
Rural:
For rural India, HUL has established a single distribution channel by consolidating categories. In a significant move, with long-term benefits, HUL has mounted an initiative, Project Streamline, to further increase its rural reach with the help of rural sub-stockists. As a result, the distribution network directly covers about 50,000 villages, reaching about 250 million consumers.
Consolidation has to be done in the rural setup as the road and transport facilities are not very good hence one channel is used.

Urban
An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. The objective is to catalyse HUL’s growth by ensuring that the right product is available at the right place in right quantities, in the most cost-effective manner. For this, stockists have been connected with the company through an Internet-based network, called RSNet, for online interaction on orders, dispatches, information sharing and monitoring. RS Net covers about 80% of the company's turnover.
In the urban setup there is no consolidation as there is fast communication and available transport and road facilities.

Evolution of the Distribution Model

To meet the ever-changing needs of the consumer, LUX (HUL) has set up a distribution network that ensures availability of all their products, in all outlets, at all items. This includes, maintaining favorable trade relations, providing, innovative incentives to retailers and organizing demand generation activities among host of other things.
It has followed a strategy of building its distribution channels in a transitional manner; and in different successive phases of the evolution of its distribution system, has penetrated well into the rural market.

Phase I
The first phase of its distribution network had wholesalers placing bulk orders directly with the company. Large retailers also place direct orders, which comprised almost 30 percent of the total orders collected.
The company salesman grouped all these orders and placed an indent with the Head Office. Goods were sent to these markets, with the company salesman as the consignee. The salesman then collected and distributed the products to the respective wholesalers, against cash payment, and the money was remitted to the company.

Phase II
The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the company’s customers. In order to achieve this, one wholesaler in each market was appointed as a “Registered Wholesaler,” a stock point for the company’s products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He would then distribute stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesaler was given a margin of 1 per cent to cover the cost of warehousing and financing the stocks held by him. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers.

Phase III
The highlight of the third phase was the concept of “Redistribution Stockist” (RS) who replaced the Registered Wholesalers. The Redistribution Stockist was required to provide the distribution units to the company salesman. The Redistribution Stockist financed his stocks and provided warehousing facilities to store them. The Redistribution Stockist also undertook demand stimulation activities on behalf of the company.
The second characteristic of this period was the changes brought in as the company realised that the Redistribution Stockist would be able to provide customer service only if he was serviced well. This knowledge led to the establishment of the “Company Depots” system. This system helped in transshipment, bulk breaking, and acted as a stock point to minimise stock-outs at the Redistribution Stockist level.
In the recent past, .significant change has been the replacement of the Company Depot by a system of third party; the Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock-points to ensure that stock-outs did not take place. The C&FA system has also resulted in cost savings in terms of direct transportation and reduced time lag in delivery. The most important benefit has been improved customer service to the Redistribution Stockist.

RSNet

An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. The objective is to catalyse HUL’s growth by ensuring that the right product is available at the right place in right quantities, in the most cost-effective manner. For this, stockists have been connected with the company through an Internet-based network, called RSNet, for online interaction on orders, dispatches, information sharing and monitoring. RS Net covers about 80% of the company's turnover. Today, the sales system gets to know every day what HUL stockists have sold to almost a million outlets across the country. RS Net is part of Project Leap, HUL's end-to-end supply chain, which also includes a back-end system connecting suppliers, all company sites and stretching right up to stockists. Powered by the IT tools it has improved customer service, while ensuring superior availability and impactful visibility at retail points.

Rural Areas and Tier 2 Cities

Lux has high penetration in the urban and semi urban areas. However, it has only 19.8% penetration in the rural areas. The rural market has great untapped potential, which is not concentrated on till now. Consumers are becoming more and more aware and undergoing a surge in disposable income. This huge opportunity can be explored by Lux. It already has a strong distribution channel in almost all regions. What is needed here is a change in the communication strategy to reach out to the rural customers. The various channels of communication should be made more appealing to this rural segment of customers.

Over the past two decades, the company has built a remarkable distribution system that moves its soaps to every corner of India. Now it has started to leverage that valuable infrastructure to expand its reach to a huge and overlooked group of consumers: the rural poor.

For rural India, HUL has established a single distribution channel by consolidating categories. In a significant move, with long-term benefits, HUL has mounted an initiative, Project Streamline, to further increase its rural reach with the help of rural sub-stockists. As a result, the distribution network directly covers about 50,000 villages, reaching about 250 million consumers.