1、This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bains prior written consentDRAFTChina FMCG industry China FMCG industry RTM and WS development practiceRTM and WS development practiceBain presenta
2、tion (draft)November 2013Summary of key messages (1/2) FMCG companies face a series of challenges in selecting and managing RTM models when they pursue growth in China - Sheer size of opportunity (universe of outlets)- Managing pricing is particularly difficult in China, because Chinese shoppers are
3、 “repertoire” and because of complexity of markets/channels- Need to balance execution effectiveness, and cost to serve with increasing reach Most successful FMCG companies in China need to be good at managing multiple RTM models at the same time as a sustainable competitive advantage. There is no o
4、ne size fits all approach- Direct selling (controlled model): Core strength of some MNCs (including KO) for organized and even fragmented trade but Chinese FMCG players increasingly adept at this model- Indirect selling: commonly utilized by Chinese FMCG players given speed, reach and lower cost but
5、 many models with varying roles and levels of control The most successful MNC and Chinese FMCGs tailor direct and indirect selling models to different market and channel/customer priorities, with strong internal capabilities and systems to manage conflicts between models123Summary of key messages (2
6、/2) Managing hybrid models (combination of direct selling and indirect selling) is a dynamic process. Successful FMCGs continuously evolve their models along with different stages of development- Adapt to market dynamics e.g. urbanization, industry consolidation, channel mix evolution- Optimize cost
7、s with increase in scale and internal capabilities, without sacrificing control Many FMCGs invest in building dedicated internal capabilities and systems for each model. For indirect selling: wholesaler management capabilities and systems critical but so are network of scaled, capable and loyal WS-
8、Management tools and detailed playbooks to manage pricing transparency, margin pool, transshipment, optimize cost to serve etc.- WS reps dedicated to recruiting, setting targets, incentives, upgrading/training W/S, increasing loyalty and occasionally restructuring- Fully integrated with sales system
9、s For many FMCG companies, there is a large size of the prize from successfully managing the complementary indirect selling model564AgendaManaging multiple RTM models in ChinaKey success factors for managing indirect selling models in ChinaSome implications for KO FMCG companies in China face a seri
10、es of challenges in selecting and managing RTM modelsSheer size of opportunity, universe of outletsComplexity of managing different markets and channels- Different drop size and economics- Managing pricing is particularly difficult in China- Constantly evolving market and competitive dynamicsLarge a
11、nd fragmented network of distributors/ wholesalers to manage; size & capabilities vary significantlyEvolving internal capabilities and costs pressures1No “one-size-fits-all” model. Need to balance between execution effectiveness, and cost to serve in extending reachFMCG companies in China need to be
12、 good at managing multiple RTM models at the same timeDirect selling & distribution(KO: DSD)Direct selling, indirect distribution(KO: DSS)Indirect selling(KO: Semi-controlled, WS)SellDistributionOwnExternalExternalOwnPRELIMINARY2Full control over POS display and activationLarge initial investment in
13、 infrastructure and teamHigher cost to serveControl over POS display and activationDistributors with right logistic capabilities for drop size economicsRelatively high cost to serveCan have varying levels of control over distributors/WS, and POS executionQuality of distributors/WS can varyTypically
14、lower cost to serve Example: Want Want developed combination of indirect and direct sales models to sustain growthNote: Most revenue is from China MainlandSource: Company annual report; Analyst reports; Literature searchWANT WANT RTM DEVELOPMENT 290s Quickly expanded across China through indirect sa
15、les and distribution model for general trade (same RTM for snack food & beverage)- Sell mainly through W/S mkts; only manage tier1 DTs- 25 sales offices in China - Very limited sales rep. #, only responsible for collecting money from tier 1 distributors001205 Growth constrained by varying quality of
16、 wholesalers and relatively weak internal sales capabilities0610 Built up direct sales model and internal capabilities & teams for modern trade and key city GT- 300 sales offices & 4-5k own sales rep.- KA and “He Want” (direct selling/indirect distribution) grew to 60%+ of revenues Built up indirect
17、 sales model for E&D with focus on increasing penetrationPRELIMINARYExample: Want Want relied on indirect sales and distribution model to drive quick expansion in 90sSource: Company Annual Reports; Expert Interviews; Literature Searches2 Mainly sell through W/S markets 25 sales office in China Very
18、limited Want Want own sales people-Only responsible to collect money from T1 DTs-No visibility on T2 DTs or belowWant WantT1 DistributorsT2 DT / WSIndirect selling & indirect distribution(95% of sales)Mostly GT outletsSellingDeliveryPRELIMINARYExample: Want Want built up direct sales model for MT an
19、d key cities from 2006-2010Source: Company Annual Reports; Expert Interviews; Literature Searches2Global and national KA retailersWant WantKA salesT1 Distributors“He Want” salesT2 DT / WSDirect selling & distribution(20% of sales)Direct selling & indirect distribution(40% of sales)Indirect selling &
20、 indirect distribution(40% of sales)Regional and local MT, key city GTFragmented trade Directly sells and delivers to 20 global & national KAs Managed by 200 Want Want KA sales Delivery by own delivery fleet or through 3rd party logistics providers “He Want” model covers 1M retail outlets in 2008 Es
21、tablished 300 sales offices 4-5K Want Want own sales people and 10 -15K DSRs for both “He Want” & DT mgmt. in 2008 15K DT/WS nationwide with monthly sales ranging from a few thousands to 100M RMBSellingDeliveryPRELIMINARYExample: Want Want then built up E&D indirect sales model to accelerate beverag
22、es starting in 12Source: Company Annual Reports; Expert Interviews; Literature Searches2Global/ national & selective regional KA retailersWant WantKA salesRetail T1 Distributors“He Want” salesT2 DT / WSDirect selling & distribution(20% of sales)Direct selling & indirect distribution(35% of sales)Ind
23、irect selling & indirect distribution(35% of sales)Regional and local MTGeneral trade Extend KA coverage to largest regional MT chains 200 Want Want KA sales Delivery by own delivery fleet or through 3rd party logistics providers Expanded to over 350 sales offices in China Stabilized # of own sales
24、people and increase # of DSR and in-store push-girls-Introduced “Liang Want” project to strengthen in-store execution Stream down to 8K high quality DT/WS nationwide (only a small % through T2 DT)SellingDeliveryFocus on E&D outletsE&D T1 DistributorsIndirect selling & Indirect distribution(10% of sa
25、les) Started to recruit E&D dedicated DTs with territory exclusivity Supported DTs with segmented entry toolkit for different E&D types (layout, promo plan, etc.) T2 DT / WSPRELIMINARYExample: Wrigley as an MNC company adept at managing indirect and direct selling models2 Indirect selling & distribu
26、tion, with set of scaled distributors Replicated indirect selling & distribution, enlisting new distributors Built up direct selling model for MT Indirect model: improved distributor scale, capabilities and systems Direct model: reorganized to better serve different KAs 50-100 cities 100 new cities
27、per year 1000 cities all over China Mostly traditional trade 70% TT, 30% MT 50% TT, 50% MT 1 brand: Doublemint 2 brands: Doublemint, Extra Multi-category, multi-brandsRTM model# ofcitiesProduct/ brand portfolioChannel mixPHASE I: DEVELOPING REPEATABLE MODEL(93-02)PHASE II: HORIZONTAL GROWTH (02-11)P
28、HASE III:VERTICAL GROWTH (SINCE 11)PRELIMINARY FMCGs tend to use different RTM models tailored to different market and channel priorities/dynamics3/4GeographicGeographic and channel prioritiesChannelsMetroU1U2CountyT&VMT/KAGTHigh/mid-end E&DLow-end E&DOther channels (e.g. sports venues, etc.) Differ
29、ent mix of RTM models, driven by- Nature of category- Market scale/share (thereby cost/economics)- Internal capabilities Continuously evolve RTM models along with different stages of development- Adapt to market dynamics- Optimize costs with increase in scale and internal capabilities, without sacri
30、ficing controlILLUSTRATIVEand other considerationsExample: Wrigley tailors its RTM models with differential focus on key cities and TT*Carrefour, Wal-Mart, Auchan, RT-Mart, Lotus, Metro C&C*Distribution can be done by a 3rd party logistics providerSource: Expert Interviews; Literature SearchesKey ci
31、ties(50 key and provincial cities)B cities(200 prefecture cities)C, D cities & rural(smaller prefecture cities, counties, towns)Global 6 KA*(10% sales)Other MT(40% sales)TT(50% sales)Direct selling & distribution*Mix of direct and indirect selling; Indirect distributionIndirect selling & distributio
32、n Wrigley covers 3M outlets in China and have visibility on 800K outlets where their 2,000 sales reps and 3,400 DSRs sell into Centralized sales database of these 800K outlets, and T1 distributors Focus on top 50 cities, with strong sales presence in marketOutlet reach and flexibility3/4White space(
33、no control)Developed market(greater level of control)Stage 2Stage 1Contract/conditionalityCompensation modelNo contract; purely transactionalBasic 2 party contract, subject to renewal each yearMark up + rebates on vol. targetMark up + rebates on vol. target & conditionsLevel of POS control/visitsInf
34、requent visit by DSRsNot knownILLUSTRATIVE Category exclusive Contract with sales target & high level execution KPIFloor price mark upVisibility/ trackingOnly sales to wholesaler POS visibility through route coverage Audits on wholesaler Visited by DSRs and some by sales Markup + Rebates based on vo
35、l. target & product availabilityAnnual contract, subject to basic conditions.Tracking of 2nd tier WS utilized by wholesalerTracking of 2nd tier WS and POS coveredMore frequent visit by DSRsFragmented trade: Indirect selling model evolution with increasing local scaleExample: Wrigley continuously evo
36、lves its RTM model with local scale to assert greater control3/4Example: Beverage Co. evolves from indirect selling model to direct model as its local market share increasesMarket entry: Indirect selling with little controlDeveloping stage: Evolves towards direct sellingStronghold: Direct selling, s
37、trong control, moderate costOntrade & TTFMCG co.Master WST2 WSFMCG co.Master WSNew ChannelOntrade 1Ontrade 2TTTerritory 1Ontrade 1Ontrade 2TTTerritory 2FMCG co.Territory 1T1 WST2 WSSales planningSales target planningSales tactic planningSales rep managementDistribution & warehousingOrdering & Invoic
38、ingPost-sales servicesChannel developmentChannel maintenance*Sales target planningSales tactic planningSales rep managementDistribution & warehousingOrdering & InvoicingPost-sales servicesChannel developmentChannel maintenance*Sales target planningSales tactic planningSales rep managementDistributio
39、n & warehousingOrdering & InvoicingPost-sales servicesChannel developmentChannel maintenance*Channel mgmt.LogisticsSource: Bain experienceWS in chargeFMCG co. in charge# of sales rep5 per city in early stage (key role is to develop WS)30-50 per city in mature stage (# of outlets vs. # of sales rep =
40、 200:1, key role is to manage and supervise T1 WS)# of WS1-210-2010-30 per city (# of outlets vs. # of sales rep = 40-50:1, key role is to visit outlets, manage activation and W/S management)OntradeTTTerritory 3T1 WST2 WSOntradeTTT1 WST2 WST1 WS2-5T2 WSOntrade & TTOntrade & TTT1 WST2 WSOntradeTTTerr
41、itory 2T2 WS3/4W/S focused only on new channelAgendaManaging multiple RTM models in ChinaKey success factors for managing indirect selling models in ChinaSome implications for KO Some key considerations for roles and type of indirect selling and distribution model5 Do we have resources, capabilities
42、, and relationship network to attract exclusive & financially capable distributors?- Attractive returns: gross and net margins, sales turnover, trade terms, logistics cost as % of total cost, etc.- Brand strength- Knowledge transfer: business and infrastructure setup, systems, etc. Are there large,
43、loyal and scalable distributors within companys existing distributor network? If yes, how many and where are they located? Alternatively, are there non-FMCG company distributors which are large enough and non-bounded by exclusive arrangements available to work with company? Do we have the capabiliti
44、es to manage the complexity of having large number of distributors? Do we have the resources, capabilities, and relationship/trust to grow our distributor network and manage their daily operations?- Sales force training, daily/weekly planning meetings, performance tracking, etc. What are the roles o
45、f different RTM models by geography/channel and stage of development? How to manage indirect and direct selling models at the same time?Ability to get the economics right to attract distributorsAvailability of scaled/scalable distributorsCapabilitiesCapability to manage multiple models5 Flywheel of
46、W/S mgmt. capabilities & system that overtime result in network of scaled, capable and loyal WSOptimization/restructuringFully integratedCost-to-serve &optimizationWHOLESALE MANAGEMENT CAPABILITIES & SYSTEMWHOLESALER DEVELOPMENTPerformancetargetsRecruitmentPerformancemgt.Scale and loyaltymgtKPIs/sco
47、recardPricemgtMarginpoolmgtProductportfolioTerritorydefinitionand rolesPRELIMINARY Example 1: Wrigley has developed a leading W/S mgmt. system5PRICING TRANSPARENCY & CONTROLADVANCED DISTRIBUTOR DATABASESALES INFORMATION MGMT SYSTEMPRELIMINARY Systematic tracking mechanism to ensure transparency and
48、control over trade pricing “DNA program” since 2004 to minimize impact from transshipment and counterfeit goods (through bar code tracking) Severe punishments if distributors break the rules Tier 1 DTs automatically linked into national distributor database from order to cash- Sales, inventory, whol
49、esaler capability- Customer hotline for all wholesalers- Order placement and fulfillment- Inventory management and replenishment history- Freight & delivery status Sales system that links distributor information with sales/route plans- Track sell-in on daily basis, by key SKU- Track distributor KPIs
50、 and performance- Track transshipment, counterfeit and other complaints/issues with plans to intervene Plans to link into SAP systems over timeLogistics capabilities:- Small vans & electric-powered bicycles to enhance productivity- 6-sided stand to store and display products8Easier to transport8Earn
