Distribution Lessons for FMCG & DTC Brands

This blog is based on masterclass conducted by Winnerbrands on Distribution Lesson & Mistakes with Amit Monteiro, Head of Business Non Alcoholic @ABINBEV | Ex Hector Paperboat

Watch the original video here — and stay tuned for all the latest updates

Decoding distribution for FMCG & DTC brands

The distribution of FMCG products is all about context. When done in the proper context, you will wind up with plenty of healthy sales. A profitable sale takes place when the consumer, occasion, and distribution come together. 

Distribution:
Its All About Context

Distribution is considered a black hole. It is because numbers associated with distribution are not exactly glamorous. An outside perspective is handy in getting a better idea of how the distribution is working out. Distribution is a science involving many numbers, so there is no exact parameter to know when you have got distribution right. It would help if you continued working on distribution till you achieve healthy sales consistently. Growth for startups can be slow initially; however, tweaking the distribution can result in better growth gradually.

Measuring Distribution
There are two ways to measure distribution:
Numeric distribution: It is calculated using the formula,

Numeric distribution (%) = (No.of Stores Stocking a Brand)/(Total Category Selling Stores in the Universe)

For example, think that you are selling cheese as a product. Numeric distribution is calculated by the number of stores that sell your cheese, particularly the number of stores that sell cheese worldwide or in your target area. So if you are selling your cheese in 3 stores and 10 stores sell cheese overall,
Numeric distribution (%) = 3/10 = 30%
To move from 30% to 100%, the gap to close is 70%.

Weighted distribution:

It is an important parameter to understand more than the numeric distribution. That is because not all stores sell your products in the same quantity or in a similar way. So it is essential to determine the presence of your product irrespective of the situation. It is calculated using the below formula, Weighted distribution (%) = (Sum of Sales of Total Category in Stores Selling Brand)/(Total Category SeSum of Sales of Total Category Across All Stores)

To explain the above in detail, consider an example. There are four outlets P, Q, R and S. These shops sell A, B, and Z brands. Brand A is present in 3 outlets, B and Z in 2 outlets. The category sales of P with only Brand A being sold is 5%, the category sales of Q with brands A, B, and Z is 20%, sales of R with brands A and B is 25%, and sales of outlet S with brand Z is 50%.

When applying the formula of numeric distribution, brand A should be leading the pack. However, it is Z that is doing well by selling in 2 shops with one of them having a category sales of 50%. So by applying numeric distribution for brands A and Z, A has 50%, and Z has 70% sales.
This example shows that Z has cracked a channel and has invested all the resources, making them profitable, whereas others have spread out, resulting in lower sales.

The above formulas are used to measure distribution. At the same time, the numeric distribution comes in handy in figuring out the gap that needs to be closed. According to FMCG branding experts, the Weight Distribution parameter helps determine which products sell more in different stores. It gives you an idea of where to channel your efforts instead of simply spreading out.

Measure what matters

Lesson 1: Which is the Most Critical Marketing Investment for a Product?

Packaging is the most important marketing investment. Packaging is the first thing that your customers notice.if the packaging is subpar, even good products risk becoming a failure. Good packaging is directly proportional to an increased number of trials For startups & small businesses who cant afford premium packaging experts, best approach would be to take a similar product in the market and learn from them. A major pitfall to avoid is relying on the images of your packaging as seen on a laptop. What is seen as images on a computer may not look the same when printed on paper. So, visit the vendor and get a printed version to determine if this is as expected. Then, implement the learnings of the product packaging that you see on the market and avoid packaging pitfalls;

Lesson 2: What are Good Margins for a Particular Channel if I am Starting Up?

It would help if you did your research before starting up. For example, talking to distributors about market leaders will give you a clue of your competitor’s products, current sales, and margins. Since margins are just percentages, they can be played around with. Hence knowing the market leader’s margin becomes a starting point for your plan and negotiations with retailers.

There are two important ways to calculate margins: markup and markdown.

  • Markdown margins are derived from the MRPs and are a reduction in the original MRP to drive more sales.
  • Markup margins are calculated on landing price. The distributor adds a fee to the selling price to score a profit or cover their costs.

1% Better than the market leader
But the trick lies in showing that you guys offer a good
margin ,always calculate margins as mark up not mark down

As a business selling a product, it is essential to show the distributors that you provide good margins. According to the market experts, a good margin is always 1% above what the market leader offers. Therefore, it is essential to consider the markup margin and not the markdown margin. Margins are permanent, so assess your margins before making a deal.

Here’s an example of how to calculate markup and markdown margins:

If the MRP of a product is Rs 100 and a markdown of 20% is provided, the value of that product is 80 Rs with a margin of Rs 20. Now, if you put the same margin to a markup, it becomes the landing price for the distributor. With a 20% markdown, the landing price is Rs 80. When the distributor sells the same, it becomes a 25% margin which is more lucrative. Similarly, if you calculate for a Rs 30 margin on MRP of 100, the returns are 43% on applying markup. So if a distributor invests Rs 70, the returns earned are Rs 100, which is a staggering 43%.

Looking at the above example, it becomes apparent that you assess the margins before closing out a deal.

How to manage distribution challenges for a startup brand in FMCG or DTC

There are two parameters in play regarding distribution challenges for a startup in FMCG or DTC space, namely Focus and Reach.

How to Build Focus

  • Work on Percentage of Effective coverage covered: It should be the distribution that is planned and not what Nielsen offers. The effective billing that happens every month is more important – it is the effective coverage you can have rather than having a massive number of outlets, as suggested by Nielsen. Working with effective coverage gives the sales executive a realistic target and a vision that can be achieved.
  • Getting Weighted Distribution Right: For a bigger brand, say, for example, Coke with many products and outlets, the numeric distribution and the weighted distribution may be close. But if you are a new brand, the weighted distribution is more critical. You should go to a store where your brand sells and become successful.
  • Focus on the Quality of Execution in Weighted Distribution: Once there is a store where your product sells well, the next is to focus on the quality of execution. It is better than the other brands that were launched previously.
  • Celebrating Early Wins: This is important to boost the morale of your sales team. Though early wins have very little impact on the overall target, it helps get people to be more focused. It also helps to spread the right message that the company appreciates good work no matter the stage at which the sales are.

Ways to Build Reach

  • Have a lighthouse brand to follow: When the reach is limited for a brand, it is recommended that a lighthouse brand is followed. It helps in effective brand distribution. Look for a lighthouse brand similar to yours and try to make your presence where it is. This helps bring clarity of thought to the sales team, and with their expertise on the ground, they can execute it effectively. For example, you can set a target to sell in an outlet with sales of beverages more than Rs 10,000. Only two things can happen in this scenario – the sales can be greater than 10,000 or lesser than 10,000. On the other hand, giving too many parameters like the store should have x chillers, y shelves, etc., can be pretty complicated and lead to loss of focus. Having a lighthouse brand makes it simple to follow and execute.
  • Occasion-based distribution: By doing occasion-based distribution, the ROIs increase, and the team learns where to distribute when. Determining the occasion the customer is coming to the outlet to buy helps in increasing sales. Find similar outlets and sell on those occasions for a better outcome.
  • Measure Rate of Sales/ Volume per Outlet meticulously: It is essential to know this parameter as it helps you move out or do course corrections. It also gives you the momentum of the brand, especially if it is a new one. If the sales rate is reducing, a course correction can be done or moved to a better outlet.

Lesson 3: What's the One Parameter I Can Track on the First 100 Days of Launch?

Sell In is the one parameter you need to track during the first 100 days of launching a new product. If Sell In is tough, you need to tweak your product. It may either be by the packaging, pricing, marketing style, and so on. If Sell In is tough, Sell Out will be tough.

Marketing for Startups: 1000-Day Guide to Launching a New Product

Set up a dashboard with the key parameters mentioned below and monitor them carefully during the first 1000 days of the product’s launch. Among the key parameters to track are –

Sell in: It is what you sell to the retailer and is a critical parameter to track in the initial months of launch. If you find that the sell-in is tough, there is something wrong with the product. The retailer with a lot of brand expertise has recognized something that you have not or the brand is not attractive enough. It can be the packaging, price or the product itself is wrong. If the sales team finds it challenging, find the reason and fix it to increase the sell-in.

Sell out: It is what the retailers sell to the customers. Experts believe that if the sell-in is smooth, the sellout will be healthy. But on the contrary, if the sell-in is challenging, the sellout is tougher.

The distribution of FMCG is not an exact science. With so many parameters coming into play, you need to be cautious while launching a new brand or product. The key is to take some time and study the competitor products in the market to improve your distribution channels.

 

Masterclass Speakers

Amit Monteiro

Head of Business – Non Alchoholic portfolio

@ABINBEV | Ex Hector (PaperBoat) Ex Rektit

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