Learnings from Unilever Indonesia

I recently read an article about the success of Unilever Indonesia, one of Asia’s top consumer goods companies. Please find below a summary of the key learning:

Distribution network strength – covering more than 600,000 outlets, their distribution network is a key competitive strength and a barrier for entry.

Growth in modern trade- accelerated growth in the modern trade sector provides opportunities for competitor entry.

Affordability – small pack sizes ensure the brand is affordable to all segments of the population.

With crisis comes opportunity- the 1997-98 financial crisis forced the company to reevaluate their strategy. These strategic changes are currently driving sales growth.

Low labour cost provides opportunity- the company is currently exporting products to South East Asia and Australia.

Micromarketing approach- consumers are segmented by geography and need state. Different climate and environment, result in different need state.

Quality assurance- the company does not outsource manufacturing and has better control over quality.

Distribution woes

I recently ran a number of workshops for a beverage company in Bangkok, Johannesburg and Dar es Salaam. One central theme kept popping up. Distributors.

Furthermore two questions were continuously asked:

How to manage distributors in emerging markets?

How to keep control of the outlet base?

The following key issues were highlighted:

Distributor selection criteria. Operations do not spent sufficient time drafting a distributor selection criteria. Sales professional are under constant pressure to “make the numbers” and in the process, poor distribution partners are selected.

Distribution means. Optimal vehicle configuration and poor utilization can add substantial cost and affect distribution penetration negatively.

What gets measured gets done. With a lack of capital and IT solutions it is challenging to track and monitor distributor performance in emerging markets. Some distributors question all the paper work and fail to see the value in good measurement systems.

The retail landscape and environment are evolving fast. What worked today is probability not going to work tomorrow. Some emerging operations have used push-carts in the past, and now find them banned by local authorities or unviable with increased traffic.

High staff turnover. Some organizations in fast growing markets complain of staff turnover of 50-100% in distributor networks. Distributor remuneration is unattractive and new recruits are constantly in search of better opportunities.

Successful companies spend substantial time and resources gaining a clear understanding of the distributor environment and dynamics. Adapting to changes in the market as they happens.

Within arms reach of retailers and consumers

In a competitive environment, Consumer Packaged Goods (CPG) companies are increasingly forced to get within arms’ reach of the retailer and consumer. CPG companies that have a Go-to-Market strategy that includes a direct focus on mom-and-pop stores are the most successful in reaching the “base of the pyramid”.

The buy-in-bulk mentality is unlikely to have a major impact in developing markets, as transport limitations, poor cash flow and infrastructure will restrict purchasing options. Nielsen’s research has indicated that Modern Trade is on the increase in a large number of emerging markets. However, even with the increase in Modern Trade, mom-and-pop stores will continue to command a major share of the retailing environment.

In reference to a recent Wall Street Journal article, Proctor & Gamble’s strategy of expanding its retail base in developing markets is a sound one that will reap benefits to the company. The strategy is not unique to any one region or company, and it has been implemented by a number of CPG companies across all major emerging markets..

Some of the advantages dealing with mom-and-pop retailers are:

Increased outlet penetration

This Go-to-Market strategy is designed to penetrate small, high frequency retailers, and increase availability within such outlets. The strategy allows “trial” SKUs entry and assists companies in controlling the SKU range in their identified strategic channels.

Improved merchandising

Even though merchandising space in quite limited in these outlets, companies like P&G will find it easier to negotiate merchandising space compared to Modern Trade retailers. Multi-nationals have more leverage with mom-and-pop retailers, and can negotiate better space allocation and control the message in these outlets. Innovative merchandising designs (e.g. hanging shampoo racks) will further support this strategy.

Improved Retail and Consumer Insights

By removing the supply chain layers, CPG companies gain a better understanding of retailers and ultimately the end consumer. This grassroots approach will improve communication between the various parties and provide the company with valuable insight about their consumer base.

Improved profitability

A well designed Go-to-Market strategy will yield improved margins and reduce incentive and retailer discounts being paid to Modern Trade retailers.

However it is important to highlight some of the challenges that companies will face with such a strategy.

Increased Go-to-Market complexity

Increasing the outlet base to include mom-and-pop outlets adds complexity to the Go-to-Market strategy. Drop sizes will be much smaller and the increased outlet base could put additional pressure on resources.

Information flow dilemma

Penetrating smaller retailer distribution networks is unlikely to justify investment in information technology. e.g. mobile devices to support Enterprise Resource Planning (ERP) systems. CPG companies will be forced to reevaluate sales data processing and information gathering.

Increased personnel count

Managing, controlling and monitoring an increased outlet base will require additional human resources. Employee turnover tends to be higher for employees dealing directly with mom-and-pop outlets. Market conditions are tougher and increased and specialized training will be required.

Companies can benefit immensely by expanding their retail base and penetrating smaller retail outlets. For companies to succeed, market development and training activities must be on the forefront of Go-to-Market and Supply Chain strategies. Such strategies will require a major rethink and redesign.

Changing to a Go-to-Market strategy that includes smaller mom-and-pop outlets will affect all aspects of the business, including Supply Chain, Sales, Marketing and Human Resources. A strategic shift should not be taken on lightly. However, for the winners, the rewards will be large.

 

 

 

Manual Distribution pictures

I have uploaded some pictures from my travels working in the Coca-Cola system. The set focuses on manual distribution in the system in Africa and Asia. More to follow.