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An Irate Distributor: The Question of Profitability

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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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