HUL Distribution Model
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HUL has expanded its rural distribution network through 4 phases: 1) Direct coverage of large villages through van-based routes. 2) Indirect coverage of smaller nearby villages through local distributors. 3) Operation Streamline established sub-distributors called "Star Sellers" to reach more remote areas. 4) Project Shakti engaged women's self-help groups as direct sales agents in small villages (<2,000 people). This network now covers over 500,000 outlets. HUL continues improving its rural distribution through technology, data collection, and targeted initiatives.
HUL Distribution Model
- 2. HUL Distribution Model Overview HUL’s (previously known as HLL) products are distributed through a network of 4,000 redistribution stockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers. There are 35 C&FAs in the country who feed these redistribution stockists regularly. The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores. HUL provides tailor made services to each of its channel partners. It has developed customer management and supply chain capabilities for partnering emerging self - service stores and supermarkets. Around 2,000 suppliers and associates serve HUL’s 40 manufacturing plants which are decentralized across2 million square miles of territory. Phase-Wise Evolution of HUL Distribution Model Phase 1B: Indirect Phase 1A: Van coverage model; Phase 2: Phase 3: Project based direct (fixed distributor based in Operation Shakti for smaller route) coverage for large village to supply Streamline villages (<2000 large villages (pop. to smaller nearby (Star Sellers) pop.) 50,000) villages
- 3. Rural Distribution Model Phase 1A: Direct Coverage HUL appointed a common stockist to service all outlets within a town and sell a limited selection of the brand portfolio. Towns consisted of populations of under 50,000 people. Phase 1B: Indirect Coverage HUL targeted retailers in accessible villages close to larger urban markets. Retail stockists were assigned a permanent route to ensure that all accessible villages in the vicinity were served at least once a fortnight.
- 4. Phase 2: Operation Streamline Goods are distributed from C&F agents to rural distributors, each one having 15-20 sub-stockists (Star Sellers). Operation Streamline leveraged the rural wholesale channel to reach markets inaccessible by road. Star Sellers were appointed among wholesalers in a particular village. Star Sellers would purchase stock from a local distributor and then distribute stock to retailers in smaller villages using local means of transport (e.g. motorcycles, rickshaws). Phase 3: Project Shakti Project Shakti targeted the very small villages (<2,000) and tapped into pre-existing women’s Self Help Groups (SHGs). Underprivileged rural women were invited to become direct-to-consumer sales distributors for HUL products. Termed Shakti Ammas, these women represent HUL and sell its home- care, health, and hygiene products in their villages on a “cash and carry” basis. Each Shakti entrepreneur usually covers 6-10 villages in the population strata 1000-2000. Initiatives under Project Shakti: Shakti Entrepreneur, Shakti Vani Program and iShakti Portal. Redistribution Shakti Shakti C & F Agents Stockist Distributor Entrepreneur During 2010-11, HUL significantly increased its direct retail coverage by adding over 600,000 outlets. In rural, HUL tripled its direct coverage in rural India from 2.5 lakh stores to 7.5 lakh stores by adding 5 lakh rural retail stores in its direct coverage. In 2010, Project Shaktimaan, second phase of Project Shakti was launched. Over 23000 Shaktimaans are operating in villages across India. Project Shakti has been expanded to 5,00,000 outlets.
- 5. How HUL expanded its distribution network Previously Network of 2,700 redistribution stockists and sub-stockists to supply products to stores in large villages. For smaller villages with a population of less than 5,000, its products were sold through wholesalers. Shopkeepers from these villages would travel to these wholesalers and to pick up their supplies as and when it suited them. At best, the distribution in these villages was patchy and the company had no strategy on whom to cover and whom to leave out. Late 1990s - Project Streamline Created a hub and spoke system and appointed sub-dealers who had the opportunity to serve villages in their vicinity. HUL had little or no control over the distribution chain. Smaller regional brands would offer better mark-ups and sell goods on credit and take away a significant portion of business in a short span. Shopkeeper who stocked HUL products felt no loyalty to the company and could switch sides overnight. 2001 Expanding its reach through Project Shakti, where it used women entrepreneurs in distant villages to stock and sell its brands. 2010 onwards Later, while formulating a formal new plan for HUL’s distribution in rural areas, the company realised that the buying habits of rural consumers were changing. Many of these consumers actually aspired to buy the same products they saw the city people using. Based on this insight, the company set about getting its redistribution stockists to start offering as many as 250 SKUs to stores in villages with a population of over 5,000. Handling the complexity at the distributor’s end, due to increased scale was a challenge. The company now uses ‘geo-tagging’ to understand how far villages are from the nearest highway and how long it would take the nearest distributor to reach them. Also, expectations from rural distributors are different. Rural areas are still in the growth mode and distributors are expected to actively push shopkeepers to stock HUL soaps, shampoos and detergents. Pushing products and grabbing store space is still very much the name of the game. Promotion through merchandising and display will play a key role. Add to that the higher cost of raising capital for smaller outfits and the company still offers them healthy markups of 5 percent. Most distributors make about 2-2.5 percent on the goods sold.
- 6. Rural distributors usually have two weeks’ worth of stock with shopkeepers and one week’s worth of inventory, which allows them to turn them over 17 times a year leading to a return of at least 34 percent. This takes care of their cost of capital as well as allowing them to invest in technology. Distributors on their part are expected to replenish supplies in stores as and when the shopkeeper asks them to do so. Stock levels for urban distributors are kept at one or two days only. In addition to improved maps, HUL is also making use of wireless technology to get real time information on demand patterns and trends. Distributor sales teams have been given handheld devices. In other places, mobile phone applications are used to key in this data, which is then automatically uploaded. HUL can now get almost real-time information on consumer behaviour and demand patterns, instead of having to rely on its distributors for such data. One way to use this would be to craft marketing campaigns for products that are popular in certain regions and districts of the country. Direct Distribution Crucial advantage: With the company — and not the wholesaler — controlling what the shopkeeper buys, it is possible to manage the product mix and push more higher-margin products into the market. The added profitability can then be used to get distributors to push deeper into distributing products and also invest in technology. Lastly, the company hopes to improve its product mix and increase sales of higher margin soaps and detergents. With smaller pack sizes, the company has seen that consumers who can afford more expensive brands tend to shift over. Availability of Credit Shopkeepers offered low-priced brands (other than HUL), if they knew they had to sell on credit to, say, a low income farmer. It is crucial for a company to offer credit to shopkeepers. And this can be done only by direct distribution. Sales through the wholesale channel are seldom done on the basis of credit. Moved from selling to servicing their customers, the shopkeepers. HUL often partners with its distributors to help them raise capital and maintain their business. Other Initiatives Last Mile Challenge In villages with a population of below 2,000, use of the men folk called Shaktimaan, who is given products to sell as well as a sturdy bicycle to take to villages within a 5-kilometre radius.
- 7. Perfect Stores Aimed at improving availability by maintaining and building assortment in outlets and ensuring better visibility of HUL products at the point of purchase. Project Express Partnering with businesses like mobile telecommunications, which have a similar wide reach. We have partnered with Tata Teleservices Limited to increase our rural foot print and give a fillip to rural distribution as well as the earnings potential of Shakti entrepreneurs. Working to extend this partnership to 15 states. Project iQ, which uses sophisticated analytics reaches out to these stores. Mother Depot and Just in Time System (MD-JIT) Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or bi-weekly basis and supply to stockists in that area, who, in turn, supply to retailers. References: 1. HUL Website (www.hul.co.in) 2. HUL Annual Reports 3. HUL Investor Presentations 4. Harvard Business Review Case: “Unilever in India: Hindustan Lever's Project Shakti--Marketing FMCG to the Rural Consumer” 5. http://forbesindia.com/printcontent/17462 6. http://www.mydigitalfc.com/news/perfect-stores-add-zing-hul%E2%80%99s-sales-growth-901