To optimize the management of consumer goods distribution, it is crucial to understand the key terms related to this field. Our Consumer Goods Distribution Glossary provides valuable definitions to navigate this complex area. At the same time, sales force automation can play a vital role in enhancing the efficiency of distribution processes. Learn about the key requirements for a sales force automation solution and see how they can transform your distribution operations.
As a company focused on FMCG distribution management, we found it could be useful to gather on a single place the definition of the main terms related to it. Terms are ranked per alphabetical order. It is quite long, so it is best to use ctrl + F to search through.
Assets
In the context of FMCG (Fast-Moving Consumer Goods) distribution, "trade assets" refer to tangible and intangible assets that manufacturers, brands, or distributors deploy in the trade channel (retail outlets, wholesalers, distributors) to enhance the visibility of their products, ensure proper storage, and facilitate sales. These assets play a critical role in ensuring that products are effectively presented, stored, and sold in the retail environment.
Here are some common trade assets in the FMCG context:
- Display Units/Shelving: These are specialized shelves or racks that brands provide to retailers to display their products prominently. They often carry the branding of the product or company.
- Refrigeration Units: For products that require cold storage, companies might provide branded refrigerators or freezers to outlets. This ensures that the products are stored under optimal conditions and also enhances brand visibility.
- Promotional Materials: This includes banners, posters, standees, wobblers, and other branded promotional materials that help increase the visibility of the product within a retail setting.
- POSM (Point of Sale Materials): These are materials placed around the point of sale to draw attention to products and promotions. It can include shelf talkers, danglers, and promotional stickers.
- Sampling Booths/Kiosks: Temporary setups within or outside retail outlets where customers can try a sample of the product.
- Digital Screens: Some brands provide digital screens to play promotional videos or ads continuously in strategic spots within the store.
- Push Carts: Branded carts that sellers use to move around in markets or streets to sell products directly to consumers.
- Uniforms: Branded uniforms for salespeople or in-store promoters to make them easily identifiable and to promote brand visibility.
- Vehicle Branding: Distributors' or delivery vehicles might be branded with the company's logos and product images to serve as moving advertisements.
- Demo Units: For products that require a demonstration, these units help customers understand the product's features and benefits.
- Data Collection Devices: Devices like tablets or smartphones equipped with sales force automation software to capture sales, inventory, and other critical data from the field.
Having trade assets is beneficial for both the brand and the retailer. For the brand, it ensures that their products are stored and displayed correctly, leading to increased sales. For the retailer, it often means additional support from brands in terms of storage solutions and promotional materials, leading to enhanced store aesthetics and customer experience.
In West Africa, you can see everywhere the roving Nescafé vendors that Nestle has been successful in deploying. This page is a great profile of a daily life of a street vendor.
The challenges that come with assets are often the following:
- Inability to measure their Return on Investment. How much sales each asset is contributing to ? This is due to the lack of reporting per asset.
- Inability to track the movement of the asset during the day. Where are my puscharts selling ? Just like for the taxi apps, you need to ensure the density of roving sellers is right for the location and based on the time of the day
- Inability to manage the repair. These assets can break, then need to be collected and repaired, which can make them idle for some time.
- The assets are not given as per a rigorous methodology, based on sales performance or potential, but randomly.
All these challenges can be fixed by:
- The tagging of each asset with a barcode
- The identification of each asset with a series of attributes including the barcode, the picture, the type of asset, who it belongs to, etc
- A daily reporting of the asset sales, with the reporting of morning and closing stock through a sales monitoring app. This can be done by the distributor where the seller picks the assets and loads stock.
- The equipment of the seller with an app on his smartphone (if possible) to track the location during the day, be able to send notifications, etc.
Availability / Out of Stock
Availability is often measured at the outlet level, meaning a customer can access and purchase it. By contrast, a product is said to be out of stock (Oos) or stocked out, when it is not on the shelves.
Oos is a key source of concern for the FMCG companies, as there is an obvious correlation between sales and Oos, and it can damage the value proposition for the consumer. The availability of a product is indeed a key reason for choosing a brand. For example, for airtime or mobile money, there is no point in using a service, if you can hardly find an agent to buy new recharges or perform a transaction. Every company we work with would convene that at any given time, they miss some revenue opportunities because of Oos, meaning their inability to satisfy the market potential. FMCG products have now more and more substitutes, and are used for basic and urgent needs. So if the soap you want is not there, you will purchase the one of the competitor when you are in the shop, you will not postpone your purchase decision, as it would be the case for a larger item, like a fridge for example.
First, measuring it in real time is not possible in Africa, as they are obviously no such thing as an inventory system in the traditional trade. By definition, the picture also change on a daily basis, so it is a constant work. The sales rep might not have time to perform detailed retail audits regularly, as their commission targets are usually more focused on selling, and they rush from one outlet to the other. Hiring a market research firm to perform store checks is too expensive, and a lengthy process, from the scoping to the delivery of the results. And there is a lack of trust in the reliability of panels methodology like the ones Nielsen or TNS would propose. Some firms employ dedicated field staff to run Out of stock checks as often as possible, such as merchandisers, whose role is to ensure top SKUs are always available.
Second, solving it is also complex. It can have different causes: irregular supply/distribution, lack of working capital from the retailers that can’t stock enough of the product, sudden consumer purchase at specific times of the week or the year (seasonality), etc.
Bottom of the Pyramid (BOP)
"Bottom of the Pyramid" (often abbreviated as BoP) is a term that refers to the largest, but poorest, socio-economic group of people in the world. The concept is particularly associated with C.K. Prahalad's groundbreaking book "The Fortune at the Bottom of the Pyramid," where he argues that businesses can achieve sustainable growth, innovate, and contribute to societal development by targeting and serving this segment of the population.
Key aspects of the Bottom of the Pyramid concept include:
- Size and Potential: BoP represents a vast majority of the world's population, often estimated at around 4 billion people. Despite their individual low purchasing power, collectively they represent a significant market opportunity.
- Untapped Market: The BoP segment has historically been underserved or overlooked by mainstream businesses due to perceived risks and low profit margins. However, with innovative business models and products designed to cater to their specific needs, there's potential for profitability and scale.
- Innovation: Serving the BoP requires innovative approaches in terms of product design, pricing, distribution, and communication to address their unique challenges and constraints.
- Social Impact: By targeting the BoP market, businesses can have a significant social impact. Providing essential goods and services to this segment can lead to improvements in health, education, and overall quality of life.
- Local Solutions: Effective strategies for the BoP often involve localized solutions, grassroots involvement, and partnerships with local entities. These strategies ensure that products and services are tailored to the local context and needs.
- Affordability and Value: Products and services designed for the BoP must be affordable while still offering value. This often requires rethinking traditional business models and finding ways to reduce costs without compromising on quality.
In essence, the Bottom of the Pyramid approach challenges businesses to look beyond traditional markets and find growth opportunities in serving the world's poorest consumers. By doing so, they not only tap into a new market but also contribute to global development and poverty alleviation.
Brand
The first asset of a FMCG company, which brings immediate recognition from the customer and intention of purchase. An interesting trend in FMCGs in Africa is the emergence of new brands challenging the established ones due to lower barriers of entry. Brands are also becoming more vulnerable in an age of multitude where social media activity can damage a brand reputation quickly. A recent example can be found in the boycott that affected Danone products in Morocco which led to a 30% drop of sales and eventually a price reduction. Originating from the social media, with no clear leading entities, it spread like wildfire, and was difficult to tame.
ATL vs BTL Marketing
ATL (Above The Line) and BTL (Below The Line) marketing are two different strategies used to reach potential customers. The primary distinction between them lies in the target audience they aim to reach and the type of communication channels they utilize. Here's a breakdown of their differences.
Nature of Communication:
- ATL (Above The Line) : It refers to promotional activities done at a broader level, targeting a mass audience. It's less segmented and is about building brand awareness and reach.
- BTL (Below The Line): It involves more direct and niche strategies, targeting specific consumer groups or individuals. It's highly targeted and is more about generating conversions or direct interactions with potential customers.
Channels Used:
- ATL: Traditional media channels such as television, radio, print (newspapers and magazines), and cinema.
- BTL: Direct marketing methods like direct mail, telemarketing, sales promotions, exhibitions, trade shows, brochures, and other point-of-sale methods. It also encompasses activities like roadshows, in-store promotions, and digital or email marketing targeted at specific audience segments.
Objective:
- ATL: The primary goal is brand building, awareness, and recall.
- BTL: The main objectives are lead generation, sales conversion, and customer engagement.
Measurement:
- ATL: Measuring the direct impact can be challenging because it aims at a broader audience. Brands often use metrics like brand recall, brand awareness, or audience reach.
- BTL: Given its targeted nature, it's easier to measure the direct impact, using metrics like response rates, conversions, and direct customer feedback.
Cost:
- ATL: Generally requires a higher budget due to the expansive nature of the channels used, like national TV campaigns.
- BTL: Can be more cost-effective as it focuses on more niche, direct methods which might not require as large a budget.
Duration:
- ATL: Often used for longer-term brand building.
- BTL: More immediate, short-term campaigns with specific objectives in mind.
Engagement:
- ATL: Passive engagement; audiences receive the message without direct interaction.
- BTL: Active engagement; often involves a direct interaction or response mechanism for the audience.
In modern marketing, there's also a term called "TTL (Through The Line)" which is a combination of both ATL and BTL strategies. This integrated approach recognizes the importance of having a consistent message across mass media, direct marketing, and in-person interactions, especially in a world with evolving media consumption habits.
Availability
This refers to making the product available for the end customer. It is linked to these terms:
- On Shelf Availability: refers to the ability of a product to be readily accessible and in stock on store shelves
- Accessibility: ensuring the product is available at the right price and format
Call / Visit
The action for a sales representative of visiting an outlet. A call here does mean a physical visit, not a phone call.
Sales representatives report their visits through a call card. It used to be a paper one, but is now digitised through a mobile app (like FieldPro), which brings several key benefits:
- avoid time wasted in data entry, captured data automatically fill the reports
- capture pictures and GPS coordinates
- make the data capture quicker, with list and buttons to press compared to writing
- enable more interactivity, such as visualising past visit information, when inputting the agent ID
If a sales representative visits two times the same outlet in a day, the number of calls is 2 but the number of outlet visited is just once.
Call rate
It is determined by the % of actual calls divided by the number of targeted calls.
Missed call
If the call does not lead to a sales, it is named a "missed call" or a blank visit. Note that the visit cost can be determined, and it is essential to reduce the number of missed calls. In Europe in the modern trade environment, it is estimated that each visit costs up to 120€, and the average duration is 15mn.
Productive Call
By contrast, a call is named “productive” if it has led to a sales. The % of productive calls is measured by the strike rate.
Lines per Productive Call (LPPC)
The Lines Per Productive Call refers to the number of SKU sold in each productive call, calculated as total productive calls / total number of SKUs sold. If the sales representative has done 10 calls and sold 50 lines, the LPPC is 50 / 10 = 5
Typically a sales representative will have a target in terms of calls, i.e visits he is supposed to do in a certain period. It depends on the types of shops serviced. For a van sales representative, it is expected that he makes up to 40 calls a day, while a modern trade / wholesale representative will visit no more than 5 because the average visit takes more time.
A good practice by FMCG brands is to ensure sales reps visit all their shops portfolio over a defined cycle, say 3 months. Frequency of visits can be defined based on the segmentation of the outlet, a top selling one would need to be visited more often than smaller ones. Different weights can feed the route planning
Check in / Check out
This helps measures when the sales representative has started the visit at the outlet and ended it.
The check in usually comes with a check between the GPS location of the sales representative and the outlet location to ensure he can only start the visit if he is present.
The time of check in and check out is measured in the application, to determine the visit duration.
Census / Mapping
It is the process of identifying all the stores selling the product categories the brand is involved in. Typically information collected would be:
- outlet characteristics (name, contact details, floor area, type of shop, and any dimension that can be used for a segmentation)
- product categories, brands, products sold, etc.
- source of purchases, satisfaction, etc
- GPS coordinates
- Pictures
- Any other relevant information
Questionnaires are often shorter than for a fully fledged retail audit, below 15 minutes, as retailers are often busy selling and not so available to answer all questions. Another thing to bear in mind is the reluctance of shop owners to accept the interviewer to take a picture. They might see this as intrusive, as they might not be fully compliant with their tax obligations...
The typical methodology to perform a census would be the following:
- Definition of the census questionnaire
- Definition of the area to cover
- Deployment of the field force and monitoring their movement to ensure all the streets have been surveyed
- Aggregation, cleaning and visualisation of the results
Data collection is now more and more digitised through a dedicated mobile app (like what we do), to enable for GPS and picture capture, and an automated data management process.
A census can be done either internally, leveraging the existing field staff, or through an independent market research. While the internal option is cheaper, it might conflict with the work routine and the commission model of the sales, which will not be so focused on the task. It will be more something they do when they have the opportunity, rather than a full day focus. The external option is to best way to make sure an area is mapped scientifically, street by street, as the interviewers are fully focused on that.
On top of the fixed project management cost, there main cost component is a variable one, in function of :
- the kilometers covered
- the number of outlets identified
Performing a census is the basis of any rigorous distribution strategy. Often an expensive exercice, it has to be done to understand what the situation in the market is. It lays out the foundation on which you can afterward perform a segmentation of the outlets, define the territories, the sales infrastructure required to cover this territory, in terms of distributors, sales rep, etc. Traditional trade in Africa is made up of small shops that operate on small capitalisation, and can therefore go bankrupt, or close because of seasonality effect (agents closing to go harvesting for example). Therefore, shops open and close, and the risk is that the census becomes outdated. A constant refresh needs to be done, through the use of a Sales Force Automation system.
Channel (Distribution channel)
In the context of FMCG (Fast-Moving Consumer Goods) distribution, a "channel" refers to the pathway or route through which a product travels from the manufacturer or producer to the end consumer. It encompasses the intermediaries and entities involved in getting the product from the point of production to the point of sale. Channels are essential for FMCG companies to ensure their products are available to consumers at the right place and the right time.There are various channels in FMCG distribution, and they typically include:
- Traditional Trade (General Trade): This includes smaller retail outlets like local grocery stores, mom-and-pop shops, kirana stores (in India), sari-sari stores (in the Philippines), etc. These are widespread in many emerging markets and play a crucial role in product distribution.
- Modern Trade: This encompasses larger retail formats such as supermarkets, hypermarkets, and chain stores. They often involve centralized buying and have a more organized setup compared to traditional trade.
- E-commerce: With the rise of digitalization, many FMCG products are now sold online through e-commerce platforms, direct-to-consumer websites, or even social media channels.
- Wholesale: Wholesalers buy products in bulk from manufacturers and sell them in smaller quantities to retailers. They act as middlemen between the manufacturer and the retailer.
- HORECA (Hotel/Restaurant/Café): Some FMCG products, especially those in the food and beverage category, are distributed through hotels, restaurants, and cafes.
- Convenience Stores: These are small retail outlets located in accessible locations, catering to the immediate needs of consumers. They often have a limited range of products but are open for extended hours.
- Specialty Stores: These are retailers that focus on specific product categories, such as beauty stores, organic food stores, or health shops.
- Direct Selling: Some FMCG companies use a direct selling model where representatives sell products directly to consumers, bypassing traditional retail outlets.
- Institutional Channels: These involve selling directly to institutions like schools, hospitals, or corporate entities.
- Open Market: Often seen in many emerging markets, these are street markets where vendors sell FMCG products directly to consumers.
Each distribution channel has its own set of dynamics, requirements, and challenges. FMCG companies often need to manage a multi-channel distribution strategy to ensure their products are available to a wide range of consumers. The choice of channels will often depend on the product type, target audience, market dynamics, and the company's business objectives.
Commission / Margin. Front / Back
The difference between the price at which the product is bought and is sold. Each actor of the distribution value chain gets a commission, that pays for the costs of stocking the product (capital consumed), the logistics and the costs associated with selling the product (a teller salary for example). The more a product “moves”, i.e. is sold, like airtime, the lower the commission. For example, airtime is something that is sold on a daily basis, and has commission of around 5% for retailers, while a product that will stay longer on the shelves, will need to give more commission as an incentive for the retailer to keep it stocked.
Commission can be also understood as a margin. It comes either as a discount, purchasing a product worth 100 for the end customer, at 90 (10% commission), or as a bonus, an additional financial flow.
In distribution, it is important to differentiate between front and back margins. Front margins are usually discounts a distributor or a retailer would get when purchasing the product, while back margins are associated to performance objective and qualitative criteria. How a brand sets the mix between front and back margin is a key aspect of a distribution strategy, as it needs to be both attractive for its distributors and aligned to everyone’s interest. We will devote a specific post on the topic, but a best practice is usually to have 40% front margin, and 60% back margin.
Credit / Finance
FMCG distribution is closely related to credit. It is essential to understand how it can make or break distribution.
Brands often provide their products to distributors on credit, with a backing from the bank. At the time of the distributor selection tender, their financial strength, i.e. the capital they can leverage to purchase and distribute, is one of the highest ranking dimension. That is why FMCG distribution can be sometimes associated with money laundering by the way, as it recycles high amount of cash..
From distributors to retailers, things get more complicated. It all depends on the level of trust and knowledge that exist. Distributors might be comfortable pushing products to relatives and collecting the payments later. That is why distribution is often done better by specific ethnic groups, that have trust mechanisms in place to strengthen this process. A good case in point is the Lebanese in West Africa, or the Indians in East Africa. But a distributor is responsible for an entire territory and has to serve everyone within it, so when he does not particularly a shop or feels he will struggle to recover his money, he will demand an upfront payment.
Finally, from retailers to the end customers, there can be credit. FIBR did a research and found 90% of them doing some sort of credit (on a small sample). It makes sense, as retailers all sell the same SKUs, that they differentiate with top service to their customers and some arrangement on the payment conditions, like buy tonight, pay tomorrow. Retailers hold messy records of debt due (as you can see on the picture below), but might end up losing money on it..
How reliable is this manual credit ledger ?
Credit to retailer/merchants is a hot space currently, with multiple initiatives in that field to make it more digitised. Micro Finance Institutions have for long provided credit to them, but under a manual, costly and expensive processes. The issue is the lack of Know your customer information and reliable historic sales data.
Days Sales Outstanding
Days Sales Outstanding (DSO) is a crucial financial metric for Fast-Moving Consumer Goods (FMCG) companies, reflecting the average number of days it takes for a company to collect payment after a sale has been made. This metric is particularly important in the FMCG sector due to the high volume of transactions and the typically thin margins on products. Efficient cash flow management is essential for sustaining operations and supporting growth. Here's how DSO impacts FMCG manufacturers and why it's important:
Understanding DSO in the FMCG Context
DSO is calculated with the following formula:
DSO=(Average Accounts ReceivableTotal Credit Sales)×Number of Days
- Average Accounts Receivable is the average amount of money owed to the company by its customers over a given period.
- Total Credit Sales refers to the total sales made on credit (not including cash sales) during the same period.
- Number of Days typically represents the period over which the DSO is calculated, usually a year or a quarter.
Example: If a company has around $10,000 sales in credit and $20,000 accounts receivables in 30 days. Then DSO = (10,000 / 20,000) * 30 = 15 days
Importance of DSO for FMCG Manufacturers
- Cash Flow Management: A lower DSO means that the company is able to collect payments faster, improving cash flow. This is critical for FMCG companies that rely on quick turnover of inventory and need to replenish stock regularly.
- Liquidity: Improved cash flow from lower DSO enhances the liquidity of FMCG companies, enabling them to meet short-term obligations such as paying suppliers, creditors, and employees without incurring additional debt.
- Investment and Growth: With better cash flow and liquidity, FMCG companies can invest in new product development, marketing campaigns, and expansion activities more readily.
- Credit Management: Monitoring DSO helps FMCG companies assess the effectiveness of their credit policies and customer payment terms. It can prompt a review of credit control processes to ensure they are not extending excessive credit to customers, which could lead to cash flow issues.
Strategies to Improve DSO in FMCG
- Efficient Invoicing: Prompt and accurate invoicing helps ensure that payments are received on time. Automated invoicing systems can reduce errors and delays.
- Clear Payment Terms: Establishing and communicating clear payment terms with customers can help prevent misunderstandings and late payments.
- Credit Control: Implementing strict credit control measures, including credit checks on new customers and regular reviews of credit limits, can reduce the risk of late payments.
- Incentives for Early Payment: Offering discounts for early payment can encourage customers to pay sooner, thus reducing DSO.
- Diligent Follow-Up: Regular follow-up on outstanding invoices can prompt customers to settle their dues on time. Automated reminder systems can help streamline this process.
Customer service / Back Office
The function to assist customers or agents in the use of their services or products. As FMCG brands operate more and more in a competitive space, they are under pressure to provide to their downstream distribution chain, and to the retailers that sell their products a better support.
Typical use cases for shopkeepers would be issues around providing training, quality of product, deploying visibility and tools of trade (repairing a fridge, having up to date marketing material), and if relevant, technical issues, for example for mobile agents (PIN reset, SIM blocked, etc).
Delivery Driver
In the pre-sales model, the individual tasked with distributing inventory to various outlets is known as a Delivery Driver. This role entails completing deliveries based on orders previously compiled by pre-sales representatives. A Delivery Driver has the flexibility to merge the delivery routes of one or two sales representatives, streamlining the process of order fulfillment. Their primary responsibility is to ensure that all pre-arranged orders reach their designated locations efficiently. This system allows for a clear division of duties, where the sales reps focus on order generation, and the Delivery Driver focuses on the physical distribution of goods. By combining routes, the Delivery Driver can optimize delivery schedules and enhance operational efficiency. This approach not only maximizes resource utilization but also ensures timely delivery to customers, playing a critical role in the supply chain of pre-sales models.
Direct / Indirect Distribution
Direct and indirect distribution are two primary methods businesses use to get their products into the hands of consumers. Each method has its own set of advantages and disadvantages, and the choice depends on various factors such as the type of product, scale of the business, market reach, and strategic business goals.
Here's a breakdown of the differences:
Direct Distribution :
Direct Distribution refers to a strategy where the manufacturer takes on the role of distributing or selling products directly to retailers or consumers, bypassing any intermediaries. This approach is categorized into two primary levels, each with distinct characteristics and sales revenue implications:
Direct to consumer (D2C):
In the D2C model, manufacturers sell their products directly to consumers without the involvement of retailers or other middlemen
Methods:
- Online Sales: Selling through the company's own e-commerce website or app.
- Retail Stores: Some manufacturers own and operate their own retail stores (e.g., Apple).
- Direct Mail: Sending product catalogs or promotional materials directly to consumers' homes.
- Telemarketing: Selling products over the phone.
- Direct Selling: Representatives sell products directly to consumers (e.g., Tupperware, Avon).
Direct to retailer (D2R):
The D2R model involves manufacturers selling their products directly to retail stores. This method facilitates a direct relationship between manufacturers and retailers, eliminating the need for additional distribution layers. In this model the product moves from the manufacturer to the retailer and subsequently to the consumer.
Advantages:
- Control: Complete control over branding, pricing, marketing, and customer experience.
- Margins: Greater profit margins since there are no intermediaries taking a cut.
- Customer Data: Direct access to customer data for insights, feedback, and targeted marketing.
Disadvantages:
- Resource Intensive: Requires significant resources, including infrastructure and personnel, to handle sales, customer service, shipping, and returns.
- Limited Reach: Potential limited market reach compared to distributing through established third-party retailers or distributors.
Indirect Distribution:
Definition: In indirect distribution, manufacturers use intermediaries such as wholesalers or distributors to distribute their products
Intermediaries:
- Wholesalers: Buy products in bulk and sell them to retailers.
- Retailers: Buy products from wholesalers or distributors and sell them to end consumers.
- Agents/Brokers: Represent the manufacturer and find buyers in exchange for a commission.
- Distributors: Similar to wholesalers but often provide additional services, such as marketing support or stocking in large quantities.
Advantages:
- Scale: Ability to reach a larger and wider audience through established distribution networks.
- Expertise: Distributors and retailers often have insights into local markets and can manage many aspects of the sales process.
- Resource Savings: Manufacturers can focus on producing goods and leave the logistics, sales, and, in some cases, marketing to the intermediaries.
Disadvantages:
- Reduced Margins: Intermediaries will take a cut of the profits.
- Limited Control: Less control over how the product is presented, marketed, or priced in the retail environment.
- Potential for Conflict: Differences in objectives between manufacturers and intermediaries can lead to conflicts.
An hybrid model is a mix of direct and indirect distribution
Distribution / Route to Market / Go to Market / Road to Market
Distribution encompasses the entire process of moving goods from the manufacturer or producer directly to the end consumer. This complex process involves a multitude of activities performed by the producer, either independently or in collaboration with partners, to ensure that products successfully reach consumers.
At its core, effective distribution focuses on precision: delivering the correct product, in the correct quantities, to the correct location, and at the correct time. Achieving this level of accuracy is fundamental to distribution excellence and customer satisfaction.
There are three primary objectives underlying an efficient distribution strategy:
- Availability. For consumers to purchase products, those products must be readily available where the consumers shop. Ensuring that the right brands are present in the appropriate outlets at the necessary times is crucial. The assortment of available brands should mirror the consumer profile specific to each area, ensuring that consumer needs are met effectively.
- Product Quality: It is imperative for companies to guarantee that consumers receive products that excel in freshness, appearance, packaging, and overall quality. High product quality enhances consumer trust and brand reputation, encouraging repeat purchases.
- Cost Minimization: Optimizing the distribution process helps in reducing unnecessary expenses associated with product overstocking, thereby increasing profitability. An efficient distribution system not only cuts costs but also enhances communication among all parties involved in the distribution process, from the manufacturer to the retailer.
For a strategic framework on how to build a route to market roadmap in Africa, we recommend this BCG report.
The article below is a case study on Unilever distribution.
PWC report on FMCG sector
Prospects in the retail and consumer goods sector in ten sub-Saharan countries
Distributor / Wholesaler / Stockist / Channel Partner / Agent
Distributor:
A distributor is an intermediary entity between the manufacturer (or producer) of a product and the retailer (or end customer). Distributors typically purchase products from manufacturers, stock them in significant quantities, and then distribute them to retailers or, in some cases, directly to the end consumers.
Key aspects:
- Distributors must have storage facilities (warehouses) for the products
- Distributors must have the financial resources to buy the products and offer credit to their retailers
- Distributors must have logistics ressources to distribute the products, such as vehicles and sales representatives
- Distributors might have exclusive rights to sell and market a product in a specific geographic area.
Distributors are regularly assessed by the FMCG manufacturer to review their operational involvement and performance, to ensure they invest enough in developing their territory.
Wholesaler:
A wholesaler is a trader who buys goods in bulk from manufacturers and sells them to retailers, other businesses, or professional users. The primary aim is to sell goods in large quantities to be retailed by others.
Key Features:
- Wholesalers typically don't sell to end consumers.
- They act primarily as a purchasing intermediary and might not offer the value-added services that distributors usually provide.
Channel Partner:
A channel partner is a company that partners with a manufacturer or producer to market and sell the manufacturer's products, services, or technologies. This can be a distributor, wholesaler, retailer, or even an agent. Channel partners can be classified based on their sales volume, geographic coverage, or specialization in specific market segments.
Key Features:
- Channel partners aid in the extended reach of products in various markets.
- They might receive support from the manufacturers in terms of marketing resources, training, or incentives.
Stockist:
A stockist is an intermediary who stocks and sells goods. The term is often used interchangeably with "distributor" or "wholesaler," but in some contexts, a stockist might merely hold or store the inventory without playing a significant role in its marketing or distribution.
Key Features:
- Primarily concerned with holding inventory, ensuring product availability.
- Might be specific to certain industries or regional terminologies.
In many distribution chains, especially in larger industries or markets, multiple types of intermediaries might be involved, each playing a unique role in getting products from manufacturers to the end consumers. The specific roles and responsibilities of each entity can also vary based on regional or industry-specific nuances.
Sometimes the word Agent is also used to describe any external organization that resells the products of a brand in a territory
Daily Operations Review
This refers to the daily meeting the sales representative have with their supervisors, usually at the distributor office, to review the KPIs, discuss action plans, etc.
Distributor Sales Rep (DSR) / Runner boy
Salesmen employed by the distributor to take the SKUs to the retailers. They can move around by foot, on tricycle or on motorbike.
It is expected from the distributors to invest in the means of transport of his sales rep so that they are more efficient. It should be part of the business case of the distributor when designing the commission model to make sure he has sufficient margin to make these expenditure. It is also worth to understand how they are paid by the distributors, it should be a minimum fixed salary and variable based on sales or visits.
For brands, it is useful to spend time at the distributors and discussing with the sales rep to check these two parameters to make sure the interests are aligned, and the sales rep well incentivised. Distributors can be tempted to overpromise to get a distribution mandate, and then save on costs by squeezing on their sales force later on.
District / Territory / Area / Zone / Region / Cluster
This is the geographical definition of the area. There are various terms, but it also boils down to splitting a country into multiple parts. It is usually aligned to the administrative splitting to make it easier for the sales organisation to understand.
Drop size
This refers to the quantity of product sold (in cases for example) divided by the number of productive calls during a period.
For example if a sales representative has done 20 productive calls on a day and sold 100 cases, the average drop size is 5.
Dumping
Dumping happens when a distributor sells products outside its assigned territory/area. It is usually to reach its primary sales target, and to get the corresponding bonus. Dumping means he is ready to sell even at a loss, or at lower margins, to reach this volume threshold. That is damaging for the distribution ecosystem, as it leads to revenue cannibalisation, where it destroys the value proposition for the distributor in the territory, meaning he will sell less. Of course, all distributors want to sell in the city centers, but brands need to make the delimitations respected and terminate any distributor with dumping behavior. While it can be easily monitored in real time for electronic products, such as airtime, it is much harder for physical goods. It can still be done by scanning bar codes of the products though.
Effectively Covered Outlets (ECO)
In the Fast-Moving Consumer Goods (FMCG) industry, the term ECO, or Effectively Covered Outlet, serves as a critical metric to gauge the effectiveness of market coverage. It specifically measures the count of retail outlets within a designated route, market, or territory that register at least one sales transaction (sales invoice) within a month. This metric is instrumental for sales teams in evaluating the engagement level of outlets in their operational areas. By tracking the ECO, companies can identify how many outlets are actively participating in selling their products, providing insights into market penetration and areas of potential growth or improvement within specific territories, routes, or markets.
End customer
The actual individual buying goods at a retailer. To distinguish from the customer that for an FMCG brand means the shop, buying products.
Shopping time
Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) systems for Fast-Moving Consumer Goods (FMCG) manufacturers are comprehensive software platforms designed to manage and integrate the essential parts of their business. Given the unique challenges and fast-paced environment of the FMCG sector, an ERP system is tailored to handle a wide range of functions including supply chain management, production planning, inventory management, financials, sales, and customer relationships. Here's a detailed look into what ERP entails for FMCG manufacturers:
Key Functions of ERP for FMCG Manufacturers
- Supply Chain Management: FMCG manufacturers often deal with complex supply chains. ERP systems help streamline operations from procurement of raw materials to delivery of finished goods. This includes managing relationships with suppliers, optimizing logistics and distribution channels, and ensuring timely delivery to retailers or direct consumers.
- Production Planning and Control: ERP systems enable FMCG manufacturers to optimize their production schedules, machinery, and labor to meet demand forecasts. This includes batch tracking, quality control, and compliance management to ensure products meet industry standards.
- Inventory Management: Given the high turnover rates of FMCG products, efficient inventory management is crucial. ERP systems provide real-time data on stock levels, facilitate demand forecasting, and help prevent stockouts or overstock situations.
- Financial Management: ERP for FMCG manufacturers includes comprehensive financial management tools for budgeting, forecasting, accounting, and financial reporting. This enables manufacturers to maintain financial health and make informed strategic decisions.
- Sales and Customer Relationship Management (CRM): By integrating sales data and customer interactions, ERP systems help FMCG manufacturers understand customer behavior, manage orders more efficiently, and improve customer service. This can include management of promotions, discounts, and other sales incentives.
- Compliance and Reporting: FMCG manufacturers must adhere to numerous regulations and standards. ERP systems can help ensure compliance with health, safety, and environmental regulations, and facilitate reporting for internal and external stakeholders.
- Data Analytics and Reporting: By consolidating data across various business functions, ERP systems provide valuable insights through analytics and reporting. This helps FMCG manufacturers to identify trends, optimize operations, and strategize for growth.
Benefits of ERP for FMCG Manufacturers
- Enhanced Operational Efficiency: Automating and integrating core business processes reduces manual effort and errors, leading to improved operational efficiency.
- Improved Decision Making: Real-time data and analytics provide the basis for informed decision-making, allowing FMCG manufacturers to respond swiftly to market changes.
- Cost Reduction: By optimizing production and supply chain operations, ERP systems can help reduce operational and overhead costs.
- Increased Customer Satisfaction: Improved inventory management and order processing lead to better product availability and customer service, enhancing customer satisfaction and loyalty.
- Scalability: As FMCG manufacturers grow, ERP systems can scale to accommodate new business processes, products, or geographies, supporting expansion and innovation.
Main ERPs
Sage, Cegid XRP Flex, Odoo, Microsoft Dynamics, SAP, Syspro, QuickBooks
Fast Moving Consumer Goods (FMCG) / Consumer Packaged Goods (CPG)
By that denomination, we refer to consumer products that are purchased frequently, quickly moving in and out the shelves (“a short shelf life”). They are at low cost, are sold at a low margin, but on high volumes. Examples of FMCG are products such as cold drinks, soap, processed food, toiletries, cosmetics, telecommunication, airtime tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. It can be extended to pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars.
Such products have low shelf lives, and are supposed to move quickly to generate profit for the value chain. A retailer is concerned about only ordering goods that will consume some of its limited resources, shelves space and capital, for as little time as possible.
A list of top 50 FMCGs in Africa: The top 50 African FMCG companies can be found in this 2017 Deloitte report
Field Force Productivity KPIs
Deploying field force for a manufacturer is often a key contributor in the Operational Expenditure but essential to drive the relationship with the distributors and customers (retailers). The first step in measuring their return on investment / their productivity is to calculate the following KPIs:
Time worked
- Start time. First visit logged on the app
- End time. Last visit logged on the app
- Working time. End time - Start time
- % of staff who did their visit before 9am.
- Visit duration. Check out - Check in time. To measure the time spent at the outlet
- Visit time. Sum of the visit duration during the day
- Transport time. Total working time -Total visit time. This can be expressed as a visit or transport ratio. What is the % of time the field staff spends actually engaging with the retailer/agent ? You want to ensure the transport time is minimum with good route planning.
Outlet coverage
- Number of visits per day
- Number of unique shops visited. As ascertained with the geo check-in/check-out feature that we have in our solution for example, whereby the start and end of the visit can only be reported if the GPS shows that you are at the shop location.
- % of the shops / agents in the portfolio visited (outlet coverage). This is a fundamental KPI to ensure the sales rep / TDR visits everyone in his portfolio and not always the same / easy agents / shops. This KPI is relevant if you look at a longer period, like 30 days. A fair assumption is that the sales rep / TDR should be able to visit at least 50% of his portfolio in a month.
Sales efficiency
- Man days. Number of unique days worked
- Active sales reps. Sales rep with at least 1 sales during the day
- Calls = Number of sales done
- Strike rate = Number of sales / Number of visits
- Sales value
- Drop size = Sales value / Number of calls
- Sales quantity
- Average quantity sold
Other KPIs can be added as per the specifics of the activity. What matters is that targets are defined for each KPI and a variable commission scheme to ensure there is a motivation from the field user in reaching these objectives. It might sound obvious but we see many situations where the field force is not incentivised, usually because the FMCG company lacks the ability the measure their activity precisely because of a lack of field force automation system.
Fraud
As the FMCG business moves significant amounts of cash, it is greatly exposed to fraud cases. Sales team are in the front line, with the risk of colluding with the distributors. A good way to address that is to do regular rotation of staff between territories, say every six months, to have fresh eyes on the business and avoid complacency.
Most frequent fraud cases are the following:
- Incorrect commissions calculation by an insider in the brand to increase the commissions sales rep or distributors get. That is why commissions are usually calculated twice, first by the sales team, then by Finance / Revenue Assurance.
- Biased distributor appointment tenders. Assessment of distributor can favour one distributor with the help of insiders. That is why it needs to be done collegially with representatives from various departments, precisely documented and based on factual evidence
- Dumping. Distributors selling outside their territories, sometimes even at a loss, to reach their targets.
- Fake / counterfeit products. Distributors or shop might sell products that are not genuine. Lubricants is for example very exposed, empty bottles are sold and then filled with fake oil, making it difficult for consumer to know what is genuine.
As an example, Guinness Cameroon had to fire a large part of his executive committee after a fraud linked to sales was discovered.
According to one liquor company, over 30% of spirits sold in Cameroon are counterfeit or smuggled into the country.
Freelancer / Field Sales / Mobile Agent / Roving agent / Foot soldier
An individual that sell products in the street, without being attached to a particular physical location, like a store. Typically students, they would have a basic branding, like a jacket, and walk through the streets in crowded areas to find customers. The best example of such a powerful field force is FanMilk, which sell mainly through their field force of thousands of field agents. They are usually not contractually related to the brands, and gets paid on front margin. Below is a good recap of the best practices in terms of compensation and recognition to reduce the churn of these field sales force.
Marchands ambulants et numériquemarchands-ambulants-et-numerique.com
Frequency of visit
The "frequency of visit" refers to how often a sales representative visits a particular outlet within a month. This metric is crucial for understanding the intensity and regularity of the sales team's engagement with individual retail outlets. It helps in assessing the strategic importance placed on certain outlets, tailoring customer service, and ensuring optimal product availability and promotion. Monitoring visit frequency allows companies to optimize their sales approach, maintain strong retailer relationships, and adapt strategies to meet the dynamic needs of the market.
GPS Tracking
In the context of consumer goods distribution, GPS (Global Positioning System) tracking refers to the use of GPS technology to monitor and manage the movement and location of delivery vehicles, goods, and sometimes even sales representatives in real-time or near-real-time. This technology can be implemented through dedicated GPS tracking devices installed in vehicles or through mobile applications used by drivers or sales reps. It is important for several reasons:
- Route Optimization: With real-time tracking, distributors can find the most efficient routes for deliveries, saving time and reducing fuel costs. This becomes especially crucial in dense urban environments where traffic conditions can change rapidly.
- Improved Customer Service: Knowing the exact location of a delivery vehicle allows distributors to provide retailers or end-customers with accurate delivery time estimates, thereby enhancing service quality.
- Safety and Security: GPS tracking can deter theft and unauthorized use of vehicles. If a vehicle is stolen, the GPS system can aid in its quick recovery. Additionally, monitoring can ensure drivers adhere to safety guidelines and avoid potentially dangerous areas.
- Operational Efficiency: Managers can identify bottlenecks, delays, or inefficiencies in the delivery process by analyzing GPS data. This information can lead to process improvements and better resource allocation.
- Monitoring and Accountability: By tracking sales representatives, managers can ensure that scheduled retail visits are being made. It adds a layer of accountability and ensures that the reps spend adequate time at each location.
- Inventory Management: In combination with other systems, GPS tracking can provide insights into how quickly goods are moving through the distribution chain, aiding in inventory management and forecasting.
- Reduced Costs: Efficient routes mean reduced fuel consumption and vehicle wear-and-tear. Furthermore, timely deliveries can reduce the need for expensive rush orders or emergency shipments.
- Enhanced Data Collection and Analysis: The data collected from GPS systems can be analyzed to draw insights on optimal delivery times, preferred routes, and other logistics-related metrics. This data-driven approach can lead to more informed decision-making.
- Compliance and Reporting: In some regions or as part of certain contractual agreements, there might be a need to provide evidence of delivery times, routes taken, or other related metrics. GPS tracking offers an objective way to provide this data.
- Environmental Benefits: Optimized routes and reduced idling times lead to lower emissions, contributing to environmental sustainability efforts
In summary, GPS tracking in the consumer goods distribution context provides enhanced visibility into the distribution process. This increased transparency can lead to more efficient operations, cost savings, better customer service, and overall improved distribution management.
Hanger
A "hanger" typically refers to a promotional display tool used in retail stores. These hangers are designed to prominently display products, usually off the shelf, to attract the attention of shoppers and encourage impulse buying.
Characteristics and Uses of Hangers in FMCG Merchandising:
- Prominence: Hangers are often placed in high-visibility areas within a store, such as at the end of aisles (endcaps), near the checkout counter, or in other strategic spots where they can effectively grab shoppers' attention.
- Design: Hangers are designed to be eye-catching, often featuring vibrant colors, bold graphics, and promotional messages. They may showcase new products, special offers, or limited-time discounts.
- Versatility: Hangers can be used to display a variety of products, from snack packets and beverages to personal care items. Their design can vary from simple hooks for hanging products to more elaborate structures that can hold multiple items.
- Temporary Displays: Hangers are often used for short-term promotions. Once the promotion ends or the product is sold out, the hanger can be easily removed or replaced with another promotional item.
- Space-Efficient: Since hangers utilize vertical space and areas outside the regular shelves, they offer retailers an additional display space without occupying the main shelving areas.
- Enhanced Sales: By placing products in unexpected locations and presenting them in an appealing manner, hangers can drive impulse purchases and increase sales of the displayed products.
In the competitive world of FMCG, capturing the shopper's attention is crucial. Hangers, along with other Point of Purchase (POP) materials like shelf talkers, wobblers, and floor stickers, are essential tools in a merchandiser's arsenal to enhance product visibility and drive sales.
Image Recognition
The ability to detect automatically products present in a shelf or branding is becoming a key technological component that many FMCGs are trying to include in their operations to increase the merchandising check efficiency. The value addition is clear: instead of requesting the sales rep to input data for 30 SKUs and count them one by one, taking a 1 or 2 pictures is enough.
While this had traditionally been used for the modern trade environment, with well structured shelves, the algorithms are now sufficiently robust to be used in the traditional trade universe.
What is required to implement it is :
- A trained algorithm
- A cloud hosted storage and computation engine
- A phase of picture labelling where the algorithm is trained with a large number of pictures where each SKU to detect is tagged,
We believe this technology is now mature and well tested and should be part of each sales operations monitoring.
Kiosk
A kiosk is a convenient unit of distribution in Africa, as it can be deployed everywhere. It is usually a small structure with one teller inside. As the shelf space, it is more relevant to sell electronic or small products like airtime credit, tickets, candies, etc.
It is either in wooden structure, plastic fiber or metal. It is either provided by the brand that build them in series or done by the agent himself.
When it is funded and deployed by the brand, the key aspect to monitor is that competitors would not benefit from it and sell their products, at least not in an obvious manner. This is something the sales reps must fight against when visiting the outlets. In the picture below, you can see an example with the mobile operator MTN being visible on an Airtel kiosk.
Last Mile Distribution
"Last mile distribution" refers to the final step in the distribution process where goods are transported from a distribution hub or facility to the end user, which might be a consumer's home, a retail outlet, or another final destination. The "last mile" is not necessarily one mile in distance but denotes the last leg or phase of the delivery process.
In the context of many industries, especially e-commerce, logistics, and FMCG (Fast-Moving Consumer Goods), the last mile is often considered the most critical and challenging part of the distribution chain for several reasons:
- Complexity: Last mile delivery often involves navigating through urban areas, dealing with traffic, finding specific addresses, and coordinating with recipients. This can be logistically challenging.
- Cost: A significant portion of the total shipping cost is often attributed to last mile distribution. This is due to the fragmented nature of deliveries, especially when delivering individual orders to homes or businesses.
- Customer Satisfaction: The last mile directly impacts the customer's experience. Delays, missed deliveries, or damaged goods during this phase can severely tarnish a company's reputation.
- Time Sensitivity: Especially for perishable goods, food deliveries, or time-bound items, the last mile needs to be swift and efficient.
- Environmental Concerns: Urban areas are becoming increasingly conscious of the environmental impact of delivery vehicles, leading to a push for more sustainable last mile delivery solutions.
- Volume of Deliveries: With the rise of e-commerce, the number of individual deliveries has skyrocketed, adding further complexity to last mile logistics.
To address these challenges, businesses and logistics providers are continuously innovating and exploring various solutions:
- Technology: Advanced routing software, real-time tracking, and predictive analytics to optimize routes and improve delivery accuracy.
- Alternative Delivery Methods: Deploying drones, autonomous vehicles, or electric vehicles for more efficient and sustainable deliveries.
- Micro-Hubs: Establishing smaller distribution centers closer to urban areas to reduce the distance of the last mile.
- Crowdsourced Delivery: Engaging local individuals or third-party services to deliver packages, similar to ride-sharing models.
- Lockers & Collection Points: Instead of home delivery, customers can collect their orders from centralized lockers or collection points at their convenience.
In summary, while the last mile is a complex and challenging aspect of distribution, it's also a focal point for innovation and optimization in the world of logistics and retail.
An interesting initiative in that field is the Global Distributor Collective, which aims at gathering last mile distributors of such products around knowledge sharing and experiments.
Line Per Productive Call
In the FMCG (Fast-Moving Consumer Goods) context, the term "Line per Productive Call" refers to a performance metric used by sales and distribution teams. Here's a breakdown:
- Line: This typically refers to an SKU (Stock Keeping Unit) or an individual product variant within a broader product range. In an FMCG context, a line could be a specific flavor of a soda or a particular size of shampoo.
- Productive Call: A "call" in this context means a visit by a salesperson or distributor to a retail outlet. It becomes "productive" when an order is actually placed during the visit. If a salesperson visits a store but does not receive any order, that visit may not be considered productive.
So, "Line per Productive Call" is essentially a measure of how many different products (or SKUs) are ordered during a successful sales visit. For example, if a salesperson visits a grocery store and they place orders for three different products from a range, then the Line per Productive Call for that visit would be three.
This metric helps FMCG companies to gauge the effectiveness of their sales and distribution strategies. If the Line per Productive Call is high, it might indicate that retailers are stocking a diverse range of the company's products. Conversely, a lower number could suggest that sales efforts are too focused on a few products, or that there's a need to enhance the attractiveness of other products in the portfolio.
Loyalty Program
Retailers are not exclusive to brands and distributors. Therefore, if they feel mistreated or dissatisfied with the commission level, they can stop purchasing brands or do not give the products the right level of consideration.
To keep the best spots and ensure shopkeepers are loyal, brands come up with a series of incentives such as:
- Convention / Agent Forums where you share best practices / give goodies / provide recognition , reward the best sellers. It can be difficult to organize logistically, but it is well appreciated as it gives the sense of belonging to the same “family”
- Run sales challenges with prizes to win, such as motorbikes, generators, cash, etc
- Discount based on volume purchased
- Additional visibility /equipment given (like banner li
A loyalty program is an efficient way to create a strong and lasting relationship with the stores. To be implemented, it requires:
- An up to date and reliable database of their customers with their contact details, mobile money information, etc
- A SFA tool that tracks the sales and performance of each store
- An appealing and transparent incentive structure
Ideally payments should be regularly shared, at least monthly, through mobile money, and the payout easy to understand. Through FieldPro, we enable weekly sharing of SMS or in app updates to have everyone aligned on the performance
Manufacturers / Brands
The companies producing the consumer goods. It can be multinationals, like Nestlé, Danone, Coca Cola, or local entities.
This BCG report draws lessons from the top succeeding companies on the African continent.
Here is a list of the top 500 companies operating in Africa.
And a report on Coca Cola success factors in Africa.
As well as one on an emerging FMCG brand based in Senegal, Patisen
https://youtu.be/0fFZUSMuQIg
Manufacturing vs Importing
Manufacturing locally versus importing products, especially in the context of FMCG (Fast-Moving Consumer Goods) in emerging markets, is a strategic decision influenced by multiple factors. Here are reasons a FMCG brand might choose local manufacturing and the criteria to consider for each option:
Advantages of Local Manufacturing:
- Cost Savings: Manufacturing locally can lead to reduced production costs, especially if raw materials are readily available in the region.
- Reduced Lead Times: Local manufacturing can drastically reduce lead times, making the supply chain more responsive to market fluctuations and consumer demands.
- Customization and Adaptation: Producing goods locally allows companies to tailor products to local tastes, preferences, and cultural nuances more effectively.
- Avoidance of Import Duties and Tariffs: Importing finished goods can attract higher duties and tariffs, whereas manufacturing locally, in some cases using local resources, might benefit from tax breaks or incentives.
- Strengthening Brand Image: Local manufacturing can be seen as an investment in the local economy, leading to job creation and economic growth, which can bolster the brand's image in the market.
- Supply Chain Resilience: Local production can protect companies from global supply chain disruptions, such as those caused by geopolitical tensions, global pandemics, or transportation challenges.
- Regulatory Compliance: Some countries have regulations or incentives that encourage local production. By manufacturing locally, FMCG brands can ensure better adherence to these regulations.
Criteria to Consider:
- Cost Analysis: Comprehensive cost analysis should account not just for production, but for total logistics, including potential import duties, transportation, warehousing, and distribution.
- Market Size and Growth Potential: If the market size is substantial and expected to grow, it may justify the investment in local manufacturing facilities.
- Availability of Raw Materials: Are the necessary raw materials and ingredients readily available locally, or would they need to be imported?
- Labor Costs and Skills: The availability of skilled labor and comparative labor costs should be assessed.
- Infrastructure: Consider the existing infrastructure, including roads, ports, electricity, and water supply, which could impact the feasibility and cost of local manufacturing.
- Regulatory Environment: Analyze the local regulations related to manufacturing, quality standards, labor laws, and environmental considerations.
- Political and Economic Stability: The political and economic environment can influence long-term investment decisions. A stable environment is generally more conducive to setting up manufacturing units.
- Currency Stability: If the local currency is volatile, it can affect costs, especially if raw materials are imported.
- Competitive Landscape: If competitors are producing locally and gaining cost advantages or better market responsiveness, it could make a strong case for local manufacturing.
- Logistical Complexities: Analyze the challenges and costs associated with importing finished goods, including lead times, customs procedures, and potential bottlenecks.
For FMCG brands considering entering or expanding in emerging markets, the decision to manufacture locally or import will be contingent on a combination of these factors. Typically, a thorough market research and feasibility study, often involving local experts or partners, is conducted to inform this strategic decision.
Market Share (Volume/Revenue)
The dream metric every FMCG brand wants to know but notoriously difficult to measure in Africa, due to the high predominance of unreported sales in the traditional trade.
Established players such as Nielsen or TNS put together a supposedly representative panel (max 1,000) of shops in which they will try to report as much as they can all sales by SKUs. This method is not said to be very working well and FMCG brands are desperate about finding alternative sources of data to know how they are doing compared to the market.
Volume means considering the products, how many units of product A were sold among its product category. Revenue or value market share takes into account the actual product price: out of the total value spent on this product category, how much went to product A?
Market size / potential in Africa
How big is the opportunity for FMCG players? Is the market growing? It is of course very difficult to assess precisely. For McKinsey as detailed in the report below, private household consumption amounts to 1,4 trillion$ and will be growing at 3% per year until 2025.
Merchandising / Branding / Visibility
It refers to all the physical material / signs that would show to a customer that a brand or a product is sold at this outlet, or communicate on a promotion, on how to use a specific product/service (such as the price chart or customer care line for mobile money).
Examples of merchandising efforts include:
- Planograms: Detailed diagrams that specify how and where products should be displayed on shelves to maximize customer appeal and sales.
- Shelf Talkers: Small signs attached to shelves in front of the product, providing information or highlighting key selling points to entice customers.
- POS (Point of Sale) Materials: Marketing materials placed around checkout areas or other strategic locations within the store to catch the customer's eye at the point of purchase. This can include displays, signs, and promotional leaflets.
- Free Samples: Offering customers a sample of the product at no cost to introduce them to the brand and encourage purchases.
- Wobblers: Flexible, often brightly colored tags that attach to shelves and 'wobble' to grab customer attention towards specific products.
Merchandising can vary widely in format, ranging from sticky posters to road signs, light boxes, and more. In the context of traditional trade shops in Africa, the immediate visual impact is often a vibrant display of colorful posters and brand signs adorning the storefronts. This visual marketing not only serves as creative expression by store owners, who may paint and decorate their shops to announce their offerings, but it also reflects the competitive nature of brands vying for customer attention. The competition for space can result in brands overlapping each other's displays, creating a dynamic and sometimes cluttered visual landscape that both challenges and benefits marketers in capturing consumer interest.
Again, having the right field force on the ground to engage with the retailers is the only way to ensure the branding gets deployed correctly.
The common challenges associated with the branding are:
- outdated ones still being displayed. It is not uncommon to see 2 years old promotions still being advertised..
- they easily wear out. With pollution, dust and harsh climatic condition, well looking branding can quickly becomes deteriorated and colors fade away..When planning for such an investment, ensure it is robust
- stolen or resold. That is the issue with umbrella or street tables for examples, which can be used for a different purpose..
The guidelines around merchandising can be called:
- Perfect Store
- Picture of Success
- In Store Execution
- Best Standard Outlet, etc
Middle Class (Africa’s)
A thorny question is about the size of the Middle Class. This article is interesting on that question.
How big is the opportunity?
Mobile Phone
Much has been said and written about the dramatic growth of mobile connections on the African continent. Mobile connectivity and mobile money have become vital infrastructures that FMCG actors need to tap into in their business strategies. For a comprehensive report on the state of the mobile industry in Sub Saharan Africa, reference numbers on the number of subscribers, and an overview of the landscape in terms of innovations and outlook, this report from the GSM Association is what you need.
Mystery visit / shopper
Usually done by market research agencies, it refers to the process of pretending to be a customer to assess the quality of the user experience.
While close to the concept of an external Retail Audit, a mystery visit will help measure more subtle things, like a customer journey in a service center. Was the customer well informed? Was he told about promotion X or Y?
National Sales Manager
This is the job title that is often used for the person in charge of leading the distribution and coordinating the actions of the different regional managers below him. Refer to our article about consumer goods distribution structure to know more about the different roles.
Numerical distribution
Numerical distribution, often referred to within the FMCG (Fast-Moving Consumer Goods) industry, is a metric used to gauge the availability and presence of a product or brand across retail outlets. It provides an understanding of how widely a product is stocked.
Specifically, numerical distribution is defined as:
Numerical Distribution(%)=(Number of outlets stocking the product/ Total number of surveyed outlets in the category)×100
Here are some key points about numerical distribution:
- Indication of Reach: The metric provides an indication of how widely a product or brand is distributed in comparison to the total number of outlets it could potentially be present in.
- Not Volume-Based: Numerical distribution does not account for the volume of sales or the depth of stock at each outlet. It simply calculates the presence or absence of a product.
- Influence on Purchase Decision: A higher numerical distribution means that consumers have more opportunities to purchase the product, potentially leading to higher sales.
- Comparison with Competitors: By comparing numerical distribution figures, brands can determine how their distribution reach stacks up against competitors.
- Strategy Formation: Brands can use numerical distribution data to adjust their distribution strategies. For example, if a product has a high market demand but a low numerical distribution, there's a clear opportunity to increase distribution to more outlets.
- Combined with Other Metrics: While numerical distribution provides insight into the reach of a product, it's often used in conjunction with other metrics, like weighted distribution (which takes into account the sales volume or potential of the outlets), to get a comprehensive picture of a product's market presence.
In essence, numerical distribution helps brands and manufacturers understand their market penetration in terms of the sheer number of outlets where their products are available.
Open Market
In the context of FMCG (Fast-Moving Consumer Goods) distribution, the "open market" channel refers to traditional, unorganized retail outlets and vendors. These can range from street vendors and small corner shops to local grocers and medium-sized standalone stores. Unlike modern trade channels, which consist of organized retail chains, hypermarkets, and supermarkets, the open market channel operates outside the realm of large retail organizations.
Here are some key characteristics and aspects of the open market as a channel in FMCG distribution:
- Scale and Reach: Open markets often represent a significant portion of the retail landscape, especially in emerging markets or developing countries. They can provide extensive reach, particularly in areas where large retail chains haven't penetrated.
- Flexibility: These markets tend to have a more flexible approach in terms of stocking, pricing, and promotional activities. Decisions are often made by the individual store owner rather than being dictated by corporate strategies.
- Relationship-based: Transactions in the open market are often driven by longstanding relationships between retailers and their customers, as well as between retailers and FMCG distributors or sales representatives.
- Varied Product Assortment: Open market stores may not always stock a wide variety of each product, but they might have a broad range of products to cater to the diverse needs of their local customer base.
- Credit Terms: Business in the open market can sometimes operate on credit terms, where the retailer might pay the distributor after a certain period rather than on delivery.
- Frequency of Orders: Given their limited storage capacity, open market retailers might place orders more frequently but in smaller quantities.
- Promotional Activities: In the open market, promotional activities are often more localized, and the effectiveness of promotions can vary significantly from one outlet to another.
For FMCG companies, understanding the dynamics of the open market is crucial, especially when launching products or devising sales and distribution strategies for regions where the open market dominates the retail landscape.
Outlet / Store / Retailer / Duka / Kiosk / Table / Point Of Sales / Point of Consumption / Merchant
An outlet refers to a point of purchase, whatever the channel.
They are considered by the FMCG brands as their consumers, while the shoppers are the end consumers. They are the final intermediaries between the brand and the end consumers, in charge of purchasing, stocking and selling the product. As they are the interface, they are a key link in the distribution value chain. Brands engage significant investments to own the relationships with them, building loyalty programs, visiting them, etc.
Brands have a hard time standardising the definition of the outlets, especially from countries to countries, as there can be country specific denominations. In East Africa, dukas is a common word for example, but in Angola, it will be cantina, etc.
From a mobile money angle, retailers can be both agents, offering cash in and cash out services, and merchants, accepting payments for the goods in mobile money.
To have a first hand experience of what a duka looks like, I recommend this great VR experience by the FIBR project.
To read further on shopkeeper, this post is interesting
A Day in the Life of a ShopkeeperRunning a Small Shop is a Tough Jobmedium.com
Outlet Universe
The "outlet universe" refers to the comprehensive list of retail outlets within a specific territory that fall into the product categories a company operates in. This term encapsulates the entirety of potential retail points where a company's products could be distributed and sold, encompassing all relevant market segments and retail formats that align with the company's offerings. By defining the outlet universe, a company gains a clear understanding of the scope and scale of its market presence potential, enabling targeted distribution strategies and focused sales efforts to maximize market penetration and coverage.
Outlet Registered
"Outlet registered" refers to the count of retail outlets that have been officially registered or onboarded onto an the FMCG Sales Force Automation (SFA) tool. This figure represents the database of outlets, serving as a key metric for understanding the breadth of the tool's adoption and usage. By tracking the number of outlets registered in their SFA tool, a company can gauge the extent of its digital integration in sales and distribution processes, reflecting the reach and operational efficiency of its sales force across different markets.
Outlet Visited
"Outlet visited" quantifies the total number of retail outlets that a sales representative has physically visited within a specified timeframe. This metric is vital for assessing the direct engagement level of sales personnel with the market and understanding the coverage efficiency within their assigned territories or routes. Tracking the number of outlet visits helps in evaluating the effectiveness of sales strategies, the dedication of the sales team, and identifying opportunities for improving market penetration and customer relationships.
Out of Stock
An "Out of Stock" (OOS) situation occurs when a specific product is unavailable at a particular outlet at any given time, whether during a day or across a week. This condition can negatively impact sales, customer satisfaction, and the outlet's relationship with both the consumers and the supplying company.
The reasons behind OOS incidents often include irregular visits by sales representatives or delivery personnel to the outlets, which leads to gaps in understanding the outlet's inventory needs. Additionally, ineffective shelf replenishment practices, where products are not restocked in alignment with sales velocity or consumer demand, contribute to this problem.
Packaging
Packaging plays a vital role in different industries, and its importance extends beyond just containment. Here's a breakdown of the various functions of packaging:
- Protection: Packaging protects the product from physical damage, contamination, tampering, and environmental factors such as moisture, light, or air, which can degrade certain products.
- Information: Packaging provides necessary information about the product, including its contents, usage instructions, ingredients, nutritional facts, expiry date, manufacturer details, and more.
- Attraction: The design and aesthetics of packaging can attract consumers and influence their purchasing decisions.
- Convenience: Packaging can make it easier to transport, handle, display, and use the product. For instance, a resealable package adds convenience for consumers.
- Differentiation: Packaging helps differentiate a product from its competitors, establishing brand identity and recognition.
There are various types of packaging based on materials used, design, and purpose. Some of the common types include:
- Primary Packaging: This is the immediate packaging that holds the product. Examples include a toothpaste tube, a soda can, or a medicine bottle.
- Secondary Packaging: This contains the primary packaging and is used to group products together for distribution or sale. An example would be the cardboard box holding multiple tubes of toothpaste.
- Tertiary Packaging: Used for bulk handling, warehouse storage, and transportation. It ensures the safe transportation of batches of products. Examples include pallets loaded with boxes or cartons.
- Rigid Packaging: Made of strong materials that retain their shape, such as glass bottles, metal cans, and hard plastic containers.
- Flexible Packaging: Made of easily flexible materials like plastic bags, foil pouches, and shrink wrap.
- Sustainable or Green Packaging: Made of environmentally-friendly materials and designed to have a minimal environmental impact. This can include recyclable, biodegradable, or compostable packaging.
- Smart or Intelligent Packaging: Incorporates technology to provide added functionality, like tracking freshness, improving safety, or enhancing user experience. Examples include QR codes on packages for more product information or time-temperature indicators for perishable goods.
- Child-resistant Packaging: Designed to be difficult for children to open, thereby preventing them from accessing potentially harmful products.
- Tamper-evident Packaging: Shows visible signs if tampering occurs, giving consumers confidence in the product's integrity.
- Aseptic Packaging: Sterile packaging used for perishable goods like milk or juice, allowing them to be stored without refrigeration.
The choice of packaging type depends on various factors, including the nature of the product, the target market, distribution channels, environmental considerations, and cost constraints.
Payment / Merchant Payment / Mobile Money / Finance
Shops capture significant financial flows as part of their daily activities, receiving cash from clients and paying their suppliers, making a tiny margin in the middle.
Here is an overview of the payment methods:
- Credit Cards. Not so present.
- Cash. Used predominantly, 90% of cases. It is instant, is not tracable for the ownership which enables to under report sales to tax authorities. A drawback that is often found in West Africa is the lack of small change (notes or coins), just because of a shortage of currency. This leads to being given change in the form of sweet or vouchers.
- Mobile Money. An African success, each mobile number gives access to a wallet which holds “digital money” that can be exchanged in cash, or the other way around at agents. Other main operations are Peer to Peer transfers, bill payments. Merchant payment in that sense refers to the ability to pay by his mobile at a shop. There are 2 main types of payments: Near Field Communication, where you type an NFC reader and a manual process through USSD / STK Menu, sending money to the agent till number. In here, Kenya leads the way, with the the Lipa Mpesa service from Safaricom. Most shops would now accept tp be paid by MPesa, either as a P2P or on their merchant line.
Of course, many players, such as cards operators and mobile operators have been pushing hard for the adoption of their modern, digitised means of payment. Card payment have remained at a low level, because credit cards are not a mass market product and because it requires the deployment of expensive and clumsy card processing terminals at shops. In other countries, merchant payment has been slower to take off, for several reasons: poor user experience (long and error prone) compared to cash, additional fee (either to the customer or the merchant), need for the merchant to be able to liquidate, i.e. convert, quickly the mobile money in cash, lack of critical mass of subscribers leading to merchants non bothering with this additional process, poor operational set up for the merchant (who keeps the phone that accepts payments? what can the shop assistant do with it? etc), cultural resistance to not having cash available for traditional shopkeepers (despite the security benefits), etc.
Being able to capture digitally the payments of all shops has a lot of value in an area where reliable data is scarce. Three applications are:
- digitizing value chains, being able for a shopkeeper to pay his suppliers through mobile money
- credit scoring by having real data on actual sales dones
- retail analysis to see categories of products sold, market share among brands, etc
For a great ad on merchant payment, and how it is promoted, watch this one from MTN Uganda.
Penetration
n the context of FMCG (Fast-Moving Consumer Goods) distribution, "penetration" often refers to the percentage of households in a specific market or segment that purchase a particular product or brand over a defined period of time. It is a measure of product popularity and can give insights into the potential growth or saturation of a market.
Penetration can be calculated using the formula:
Penetration(%)=(Number of households buying the productTotal number of households in the market or segment)×100Penetration(%)=(Total number of households in the market or segmentNumber of households buying the product)×100
Here are some key aspects to consider regarding market penetration:
- Market Reach: Penetration indicates how widespread a product is in its target market. A high penetration suggests that the product is widely purchased, while a low penetration indicates opportunity for growth or a niche market.
- Market Potential: Monitoring changes in penetration over time can provide insights into the market's maturity. A steadily increasing penetration might indicate a growing market, while a plateau might suggest saturation.
- Strategy Indicator: If a brand has low penetration but high market share among those who do buy the product, it suggests a niche strategy. Conversely, high penetration but low share among those customers could indicate a more mainstream approach.
- Benchmarking Against Competitors: Penetration can be used to benchmark a brand's performance against competitors. If one brand has significantly higher penetration than another, it might indicate better distribution, more effective marketing, or other competitive advantages.
- Product Life Cycle: New products might initially have low penetration as they're introduced to the market. As they move through the product life cycle from introduction to growth and maturity, penetration typically increases.
- Marketing and Promotion: Brands can use penetration data to refine marketing and promotional strategies. For instance, if a product has high awareness but low penetration, it might indicate a barrier in converting awareness to purchase, which could be addressed through promotions or product improvements.
In essence, penetration in the FMCG context provides valuable insights into product adoption and market potential, helping brands make informed strategic decisions.
Perfect Store
The concept of a Perfect Store is a strategic initiative aimed at maximizing product Availability, Visibility, and Accessibility (AVA) at the retail level. This approach is designed to ensure that products are consistently available to consumers, prominently displayed, and easily accessible within stores.
Activities central to achieving the Perfect Store status include meticulous merchandising according to specific planograms, which dictate the optimal placement and arrangement of products on shelves. It also involves engaging shelf display activities, along with the strategic placement of both in-store and outdoor dispensers or stands for enhanced product visibility. Additionally, the use of marketing materials such as dealer boards, umbrellas, and other branded paraphernalia contributes to a store's overall appeal and brand presence.
The essence of the Perfect Store strategy lies in ensuring the right product mix is presented in the most suitable outlets, precisely when consumers are most likely to purchase, and at the right price points. This holistic approach not only elevates the consumer shopping experience but also drives sales growth and strengthens brand loyalty by making products more appealing and accessible to the target audience.
Planogram
A planogram, also known as a "POG" or "shelf space plan", is a visual representation or diagram that shows how and where specific retail products should be placed on retail shelves or displays with the aim to maximize sales. Planograms are used by retailers to help increase sales and improve the shopping experience for customers.
Here are some key aspects and benefits of planograms:
- Product Placement: A planogram will specify the placement of products on the shelves, including which products should be placed at eye level, which ones go below, and which go above. Typically, best-selling products or high-margin products are placed at eye level to catch consumers' attention.
- Space Allocation: It ensures that each product is allocated the right amount of shelf space based on its sales performance or strategic importance.
- Category Management: Planograms help in organizing products in a way that reflects buying patterns, groups related products together, and separates competing brands.
- Inventory Management: By adhering to a planogram, retailers can maintain appropriate inventory levels, reduce stockouts, and avoid overstocking.
- Consistency: For chains with multiple store locations, planograms help ensure that the product layout is consistent across all stores, providing a familiar shopping experience for customers.
- Promotions and Seasonal Changes: Planograms can be updated for promotional events or seasonal changes to highlight specific products.
- Visual Appeal: A well-organized shelf, guided by a planogram, is more visually appealing to customers and can enhance the shopping experience.
- Performance Tracking: Retailers can compare sales data against the planogram to see if the placement of products is influencing sales as intended.
In order to create and manage planograms, many retailers use specialized planogram software. This software allows for the creation of detailed, to-scale diagrams of store sections, and can factor in sales data, space constraints, and other variables to optimize product placement.
While planograms are widely used in the FMCG industry, they are applicable to any retail context where product placement on shelves or displays can influence purchase decisions.
Point of Sales
It either refers to the device deployed at a shop to perform a transaction, like a credit card terminal or an airtime sales, or a shop itself.
For the device, usually banks would deploy them at stores that have sufficient volume in card payments like supermarket. As each device is linked to a bank, you can find crowded counters with multiple credit card POS, which is inefficient.
The Selcom machines that are widely spread in Tanzania
A key pain point for shopkeepers to hold multiple wallets for airtime or float, for each mobile operator, bank, etc. So actors have emerged that propose to have everything on one device. A good case in point is Selkom in Tanzania, whose POS is shown below. They are distributors providing to some shops affiliated to them their devices. With a simple menu, the shopkeeper can sell airtime from all the MNOs, perform mobile money transactions (cash in, cash out, pay utility bills, etc), etc. A benefit of the POS device is that it can print a device which gives trusts to the customer that the transaction has been successful.
Another actor in East Africa is PayWay, which deploys booths where a user can perform those transactions by himself, rather than having to go to an agent.
Pre sales
In the pre-sales model, the sales representative's role involves visiting outlets to gather orders that will be fulfilled the following day, without carrying any stock during these visits. The process is characterized by its separation of order collection and product delivery, allowing for a streamlined approach to sales and distribution. The sales rep's main task is to secure orders, which are then handed off to a delivery driver for subsequent delivery. The responsibility for cash collection can vary based on the specific practices of each country; it may fall to either the sales rep at the time of order placement or the delivery driver upon completing the delivery. This flexibility in the pre-sales model allows for adaptation to local business practices and customer preferences, ensuring efficient operation and customer satisfaction across different regions.
Price
There can be several pricing defined
Landing Price
Landing Price refers to the cost at which distributors or retailers acquire goods for resale. It serves as a foundational figure in the pricing structure of products in the supply chain, influencing the final selling price after markups or discounts are applied. There are two distinct types of landing prices:
- Distributor Landing Price (DLP): This is the price at which a distributor purchases goods directly from the company or manufacturer. The distributor factors in a markup on this cost price when setting the selling price to retailers or other buyers. The markup is calculated to cover operating expenses and ensure a profit margin while remaining competitive in the market.
- Retailer Landing Price (RLP): This price point is what a retailer pays to acquire goods from a distributor. After purchasing at the RLP, the retailer then determines the final selling price to the consumer, which may be at the Manufacturer's Suggested Retail Price (MRP) or could include a discount on the MRP. The strategy behind setting the final price takes into account the need to attract customers while achieving a desirable profit margin.
Recommended Retail Price
The Recommended Retail Price (RRP) is the price suggested by manufacturers for retailers to sell their products to the final consumers. This figure, also known as the List Price or Manufacturer's Suggested Retail Price (MSRP), serves as a guideline to standardize the selling price across different retail outlets, ensuring consistency for consumers.
When manufacturers do not set an RRP, market forces and retailer discretion often dictate the product's final selling price. This can lead to variability in prices, with retailers potentially marking up prices significantly to meet their desired profit margins. Such variability can affect the product's market competitiveness and accessibility to consumers.
To mitigate this issue and maintain price consistency, manufacturers in some countries opt to print the RRP directly on the product's packaging (SKU). This practice helps prevent retailers from applying arbitrary markups that could inflate the price beyond what is deemed fair or reasonable, ensuring that the product remains competitively priced and accessible to a broader consumer base.
Primary / Secondary / Tertiary Sales / Billing
In the context of FMCG (Fast-Moving Consumer Goods) distribution, the terms "primary," "secondary," and "tertiary" often refer to different stages in the supply chain or sales process. Accordingly, "primary," "secondary," and "tertiary" billing pertain to sales transactions at these respective stages:
Primary Billing / Sales:
- Stage: Manufacturer to Distributor
- Description/ This billing takes place when the manufacturer sells goods to its distributors or stockists. The invoice generated for this transaction, which covers the quantity of goods and the total amount to be paid by the distributor to the manufacturer, is known as the primary bill.
- Focus/ Manufacturers monitor primary billing to gauge distributor demand, forecast production, and plan logistics.
It can be referred to as “Offtake”
Secondary Billing / Sales:
- Stage/ Distributor to Retailer
- Description: This is the transaction between the distributor and the retailer. The distributor sells the goods procured from the manufacturer to various retailers. The bill generated for this transaction is referred to as the secondary bills
- Focus: This stage is crucial for manufacturers and the main sales teams because it gives a direct indication of market demand. Secondary sales data can help identify which products are doing well, which areas need more marketing efforts, and how effective promotions are at the retail level.
Tertiary Billing (or Tertiary Sales):
- Stage: Retailer to Consumer
- Description: This pertains to the final transaction where the end consumer purchases the product from the retailer. While it's typically challenging for manufacturers to get exact sales data at this stage (as they don't usually have direct visibility into individual retailer's point-of-sale data), estimations, market research, and other tools can help gather insights.
- Focus: Understanding tertiary sales helps in gaining insights about the final consumption and actual market demand. It helps companies to strategize better promotional activities, product placements, and customer preferences.
By tracking billing across these three stages, companies can obtain a comprehensive view of their product's journey from the factory to the consumer. It allows for better stock management, sales strategies, and understanding of market dynamics.
Push carts
A push cart, in the context of sales and distribution, is a mobile cart that vendors use to display and sell products. It's a sales asset that is particularly beneficial for direct selling in high-footfall areas such as markets, busy streets, parks, beaches, and events.
Here are some key features and benefits of using push carts as a sales asset:
- Mobility: Push carts can easily be moved from one location to another, allowing vendors to position themselves in high-traffic areas or relocate based on the time of day or specific events.
- Flexibility: Vendors can change the products they sell based on seasonality, local demand, or events. For example, a vendor might sell cold beverages in the summer and switch to hot beverages or snacks in the winter.
- Low Overhead: Compared to brick-and-mortar stores, push carts have relatively low overhead costs. There's no need to rent a permanent space, and maintenance expenses are typically minimal.
- Visibility: Push carts, when placed in strategic locations, can provide excellent visibility for products, drawing the attention of passersby.
- Direct Interaction: Vendors can have direct face-to-face interactions with customers, enabling them to explain products, offer samples, and build rapport.
- Branding: The push cart itself can be branded with company logos, colors, and product information, serving as a mobile advertisement.
- Easy Setup and Dismantling: Push carts can be set up and dismantled quickly, making operations efficient.
In the FMCG (Fast-Moving Consumer Goods) sector, push carts might be used for selling packaged snacks, beverages, and other products. Brands might partner with vendors, providing them with branded push carts and promotional materials, to increase product visibility and sales in specific areas.
It's important to note that using push carts as a sales asset usually requires permissions or licenses from local authorities, especially when selling in public areas.
Route
A Route represents a meticulously crafted itinerary for field sales or marketing personnel, aimed at organizing daily visits to a variety of stores. This schedule is not arbitrary; it is carefully planned to ensure that visits are made at specific frequencies, optimizing the time and resources of the sales team. The criteria for creating a route plan include:
- Customer Prioritization: Deciding which stores to visit is influenced by the company's strategic priorities, which could be based on store categories, segments, or other criteria that align with the company's sales objectives.
- Visit Timing: The plan also stipulates the optimal time for these visits, allowing sales personnel to maximize their effectiveness and ensure they are meeting the right customers at the right time.
Retail Audit / Store Check / External / Internal
The process of measuring what is in a store.
If done internally, there is a high potential of collusion, where the sales rep will be judge and party, reporting only the good news and filtering the bad ones like out of stocks, poor satisfaction levels from the retailers, irregular distributor service, lack of branding, etc…
So it is usually done externally, to have independent data, by a market research firm.
Main dimensions of a retail audit are:
- Availability / Stock reporting, at the level of product categories / brands / SKUs
- Prices compliance
- Presence of branding / visibility / merchandising
- Tools of trade présence / compliance (is the fridge working ? Are there competition products in the brand hanger?)
- Quality of distribution service (how often does the sales rep / the distributor visit you?)
- Satisfaction / Recommendation of the shopkeeper
- Awareness / Skills of the shopkeeper on promotions, product characteristics (back office number, specific features to explain to client, etc)
- Picture
- GPS coordinates
- Open feedback
Retail Audits are best done through a specific form in a mobile app to ensure data reliability, with results displayed in a web analytical interface to be able to play with the variables.
The price of a Retail Audit survey is mostly driven by the number of stores to visit. The sample of shops visited should be as representative as possible, using random selection mechanisms.
Retail Audits are the most data driven way to get unbiased feedback from the trade, hearing what your shopkeepers have to say about the brand. As such, they are a very precious and important exercice, not to be neglected.
According to our experience, here are some best practices:
- Conduct them regularly, every month or every quarter, as the situation can change quickly in the FMCG space, to detect early any emerging trend that needs to be addressed
- Define a scoring matrix for each dimension of the sales execution, like availability, pricing compliance, visibility presence, etc.
- Interview a random sample, like 10%, of the territory portofolio the sales rep is in charge of.
- Incorporate the results / score into the commission scheme of the sales teams.
Returns / Bad Goods
"Returns" refer to products that are sent back by customers or retailers to the distributor or manufacturer. Returns can occur for various reasons and are a critical aspect of the sales, distribution, and after-sales process. Managing returns efficiently is essential for maintaining customer trust, managing inventory, and controlling costs.
Here are some common reasons for returns:
- Defective Products: The product is faulty, damaged, or doesn't function as intended.
- Wrong Product Delivered: The product delivered is not what the customer ordered.
- Customer Dissatisfaction: The customer might not be satisfied with the product's performance, quality, or appearance.
- Products Expired or Close to Expiry: Especially relevant in the FMCG sector where many products have a limited shelf life.
- Order Cancellation: The customer might cancel an order after it's been shipped but before it's delivered.
- Excess Inventory: Retailers might return products that they have over-ordered or that haven't sold within a specific timeframe.
- Package Damage: The product's packaging might be damaged during transit, making it unsellable, especially if the packaging plays a role in the product's integrity or appeal.
- Seasonal Returns: Some products are tied to specific seasons or events. Retailers might return unsold items post-season.
For businesses, managing returns involves several challenges and considerations:
- Return Policy: Companies need to have a clear return policy outlining the conditions under which returns are accepted, the process, and any costs involved.
- Logistics: Handling returns involves reverse logistics, where products move from the customer or retailer back up the supply chain. This can be logistically challenging and costly.
- Restocking: Deciding whether returned products can be resold, refurbished, or if they need to be discarded.
- Financial Impact: Returns can impact revenue and profitability. It's crucial to track return rates and understand the underlying reasons to minimize financial setbacks.
- Customer Relationship: How a company handles returns can significantly influence customer satisfaction and loyalty. A hassle-free return process can boost trust, while a complicated process can deter future purchases.
- Inventory Management: Efficiently managing returned inventory, especially if it's to be reintroduced into the supply chain, is crucial to avoid overstock or stock-outs.
- Feedback Loop: Understanding the reasons for returns and using that information to improve product quality, descriptions, or other aspects of the sales process.
In many industries, returns are a natural part of doing business. Still, by managing them efficiently and learning from them, companies can reduce their frequency and impact.
Route / Circuit / Journey Plan
In the FMCG wording is the specific path the sales rep need to follow during his day. Rather than a specific list of streets to take, it takes the form of a list of customers/outlets that he has to visit. Best practices are to define routes for each day of the week, or even on a monthly planning.
Defining a route helps the sales rep get organised and ensure he visits the top customers to generate sales. Without a route, he might move around his territory in an inefficient way, or in function of received calls from customers, in a passive, rather than a proactive mode.
The route planning needs to rely on the analytics of CRM data, allocating stronger visits frequency to the top customer in sales, checking which stores have not been ordering for a period of time, etc.
Monitoring route compliance is tricky, and requires the use of digital Field Force Management systems (such as our solution). Essentially it means providing the sales rep with an app, with a constant GPS tracking, where he needs to log in each visit at a store. The sales manager can afterwards allocate a specific bonus based on route compliance achievement.
Sales Force Automation System, Distribution Management System / Customer Relationship Management
In the context of FMCG (Fast-Moving Consumer Goods) distribution, an SFA system refers to a "Sales Force Automation" system. It's a software solution designed to automate various tasks and activities related to the sales process, and it's especially useful for companies with a large number of sales representatives or a wide geographical distribution coverage.
Here are the main components and functionalities of an SFA system in the FMCG context:
- Order Taking: Enables sales representatives to take orders from retailers directly using the system, often on mobile devices. This facilitates quicker and more accurate order processing.
- Route Planning: Helps in optimizing the routes for sales representatives, ensuring they visit all assigned outlets efficiently and cover their territories effectively.
- Inventory Management: Provides real-time visibility into stock levels, helping sales representatives to understand what products are available for immediate delivery.
- Customer Relationship Management (CRM): Helps sales teams manage their relationships with retailers, keeping track of previous interactions, orders, credit history, and any other relevant information.
- Sales Performance Tracking: Allows managers to monitor the performance of individual sales representatives, tracking metrics such as orders taken, outlets visited, new accounts opened, and more.
- Reporting and Analytics: Facilitates the generation of various reports, providing insights into sales trends, product performance, region-wise sales, and other critical metrics.
- Promotions and Discounts Management: Helps in managing promotional offers, discounts, and other schemes, ensuring that they are correctly applied during the order-taking process.
- Feedback Collection: Enables sales representatives to gather feedback from retailers about products, promotions, or any other concerns, and relay that feedback to the company.
- Integration with ERP and Distribution Management Systems: Many SFA systems can be integrated with a company's existing ERP (Enterprise Resource Planning) or Distribution Management Systems, ensuring a seamless flow of information across different parts of the business.
Implementing an SFA system in FMCG distribution offers several benefits, such as increased sales productivity, improved accuracy in order processing, better visibility into sales activities, and enhanced relationships with retailers. As technology advances, SFA systems are also incorporating more advanced features, like AI-driven analytics, to further enhance the sales process.
Sales Representatives / Trade Development Representative / District / Territory / Regional / Area / Zonal Manager
Field staff managed by the brands directly are called either sales representatives (sales rep) or Field Sales Reps (FSR) or Secondary Sales Force (SSF) or Trade Development Representative (TDRs). Climbing up the hierarchy, and depending on the terminology used, you can find Territory / Regional, etc..managers. It has to be aligned with the territory delimitation.
Managing a large field force can be a tedious job, which involve some admin work, from payroll to contract and recruiting. That is why an emerging trend is to outsource this to third parties.
Best practices to manage the field sales force are:
- Ensure they go through a consistent training
- Salary should be ⅓ fixed and ⅔ variable, depending on the KPIs that matter for the business, either outlet recruitment/opening, sales, visits, branding deployment, BTL activities overseen, etc
- Use a mobile app to record their movements and activities during the day. Ensure all KPIs can be tracked through the app and will serve as the basic for the commission payment
- Provide the right means of transport, bike, motorbikes or cars
- Give recognition and enable to grow on the career path
A Sales Representative is said as active when you can measure he has used the SFA tool during a certain period.
A Sales Representative can be managed by the distributor directly in which case it is called a Distributor Sales Representative.
Sell in / Sell out (Offtakes or Tertiary sales)
Sell in refers to the sales that are made from the manufacturer to the distributor, whereas sell out means the sales made from the distributor to the retailers or from the retailers to the end customers, depending on how it is measured.
In the context of sales, distribution, and retail, "sell-in" and "sell-out" are two critical concepts that refer to the movement of goods between manufacturers, distributors, retailers, and customers. Here's a breakdown of each:
Sell-In:
- Definition: This refers to the sale of goods from a manufacturer (or a principal brand) to a distributor, or from a distributor to a retailer. Essentially, it's the amount of product that a manufacturer has "sold into" the distribution channel or to the retailer.
- Purpose: By monitoring sell-in data, manufacturers can gauge distributor or retailer demand, plan production, and assess the effectiveness of trade promotions or incentives provided to the distribution chain or retailers
- Example: A smartphone manufacturer sells 10,000 units of a new model to a national electronics chain. This transaction represents the sell-in quantity.
Sell-Out:
It's worth noting that there can sometimes be a discrepancy between sell-in and sell-out figures, especially if products are being pushed into the retail channel (high sell-in) but aren't being purchased by consumers at the same rate (lower sell-out). This situation can lead to inventory buildup or stockouts, both of which are undesirable. As a result, effective inventory and sales management often involves balancing these two metrics and adjusting strategies accordingly.
Shelf / Shelf Layout / Share of Shelves
A shelf is obviously the supporting structure where products are displayed. In traditional trade environment, where 90% of sales are done in the traditional trade, ie in a large number of small shops where space is very limited and products displayed in not a so structured environment, it is critical for brands to have top display locations. As per the phrase “What you see, is what there is”, a consumer would think of purchasing a product if he can see it on front display, not if it is hidden in a dim spot. That is why brands maintain expensive field force to regularly visit shops, build a strong relationship with the owners/tellers and eventually ensure their products are well displayed, as well as having an up to date and clean branding to influence the consumer when makes his purchasing decision.
"Share of Shelf" is a retail and marketing metric that measures the amount of shelf space a brand or product occupies in comparison to other competing brands or products. It's often used in the FMCG (Fast-Moving Consumer Goods) industry, among others, to gauge the visibility and presence of products in retail outlets.
The concept behind it is simple: the more shelf space a product occupies, the more likely it is to catch a consumer's attention and, therefore, the higher the potential for sales.
To calculate the Share of Shelf for a particular product or brand:
Share of Shelf(%)=Shelf space occupied by the product or brandTotal available shelf space for that category)×100
Share of Shelf(%)=(Total available shelf space for that categoryShelf space occupied by the product or brand)×100
For example, if Brand A occupies 15 meters of a 100-meter shelf space dedicated to a particular category, its Share of Shelf would be 15%.
Share of Shelf can be used for various purposes, such as:
- Competitive Analysis: By comparing the share of shelf across different brands, companies can determine their market presence in comparison to competitors.
- Negotiating with Retailers: Brands might use their Share of Shelf as a negotiation tool with retailers for better placement or more shelf space, especially if they can demonstrate high sales turnover for the space they occupy.
- Marketing and Sales Strategy: A lower than desired Share of Shelf could prompt brands to devise specific marketing or trade promotions to boost their in-store presence.
- Assessing Product Performance: A decreasing Share of Shelf over time might indicate declining popularity or sales and could serve as an early signal for brands to investigate and address potential issues.
While Share of Shelf is an essential metric, it's also important to note that mere presence doesn't guarantee sales. The location of the shelf space (eye-level, end-cap, etc.), the appeal of packaging, pricing, and other factors also play a crucial role in influencing consumer purchase decisions.
Servicing / supplying
In the context of sales and distribution, especially within industries like FMCG (Fast-Moving Consumer Goods), "servicing" or "supplying" an outlet means delivering products to that outlet and ensuring that its needs are met concerning inventory, display, promotions, and other related aspects.
Here's a more detailed breakdown:
- Product Delivery: At its most basic, servicing an outlet involves ensuring that the outlet has the necessary stock levels of products that it requires. This means timely deliveries to replenish stock, especially for fast-moving items.
- Display Management: Servicing can also involve setting up promotional displays, ensuring that products are displayed prominently and attractively, and in some cases, setting up and maintaining planograms (visual representations of the store's layout).
- Promotional Activities: Launching new promotions, providing promotional materials, or communicating special offers can be part of servicing an outlet.
- Feedback Collection: The distributor or sales representative might collect feedback from the outlet on product performance, customer preferences, and other issues or suggestions.
- Order Taking: In some distribution models, servicing the outlet involves taking orders for the next delivery, understanding the sales trends of various products, and advising the retailer on what to stock.
- Relationship Management: Building and maintaining a good working relationship with the retailer is crucial. This involves understanding their needs, addressing any concerns, and ensuring they are satisfied with the products and services offered.
- Training: Sometimes, servicing an outlet may include training the outlet's staff about the features and benefits of new products, how to use certain products, or sharing best practices for displaying and selling the products.
- Credit Management: For outlets that purchase on credit, servicing might involve managing credit terms, collecting payments, or addressing any disputes related to billing.
In essence, "servicing" or "supplying" an outlet is about ensuring that the outlet has everything it needs to effectively sell the products to the end consumer. It's a comprehensive process that goes beyond just delivering products; it's about managing the entire relationship and ensuring smooth operations between the distributor or brand and the retail outlet.
Statistics
On the macro data to assess Africa’s market size, and economic dynamics, books from Morten Jerven are worth reading.
Stock / Stock Level
The key thing to monitor for a consumer goods manufacturer, and how it goes from the factory to the distributor, then to the sales man, then to the retailer.
The benefit of a SFA tool integrated to an ERP is to know in real time the net stock position of the distributor. The ERP tracks the sell in, the sales from the manufacturer to the distributor, which creates an invoice, and the SFA tracks the sell out, the dispatch of the goods to the trade through the sales men. So by knowing the net stock, the manufacturer can have a good view of whether the sell in is sufficient to avoid out of stock situation at the distributor, which will cascade to the stores.
Stock Cover
"Stock cover" denotes the period (measured in days, weeks, or months) during which the existing inventory of products is expected to meet demand, based on the current sales velocity. This metric is pivotal for inventory management, ensuring that the balance between supply and demand is maintained efficiently.
- Low Stock Cover:Businesses experiencing low stock cover are at a heightened risk of encountering stockouts, leading to potential sales losses. This situation arises when the inventory depletes faster than it's replenished, highlighting a need for closer inventory monitoring and more frequent restocking to meet customer demand.
- High Stock Cover:On the other end, a high stock cover indicates that the inventory levels are excessively high relative to the sales rate. While this might suggest preparedness for demand spikes, it also implies higher carrying costs, including storage and handling, and a lower return on investment. Capital gets unnecessarily tied up in inventory, which could have been allocated more productively elsewhere.
Maintaining an optimal stock cover is crucial for operational efficiency. It requires a delicate balance: sufficient stock to meet demand without overburdening resources or incurring additional costs. The ideal stock cover level varies, influenced by factors such as product type, market demand, and the frequency of stock replenishment from the company to distributors and wholesalers. Effective inventory management practices and tools can help businesses achieve and maintain this balance, ensuring sustainability and profitability.
Stock Keeping Unit (SKU)
A SKU, which stands for "Stock Keeping Unit," is a unique identifier typically used by retailers, wholesalers, and manufacturers to track inventory, manage sales, and streamline their operations. It's a code (often alphanumeric) assigned to individual items, allowing for specific tracking of products based on variables like size, color, type, and other relevant attributes.
Here's a breakdown of the significance and uses of SKUs:
- Inventory Management: SKUs allow businesses to track inventory levels efficiently. This ensures they know when to reorder products or when there's an overstock.
- Sales Analysis: SKUs enable companies to analyze which specific products are selling well and which are not. For example, a clothing retailer can identify which sizes or colors of a particular shirt are most popular.
- Order Fulfillment: SKUs streamline the order fulfillment process. When a customer places an order, the SKU ensures that the correct product variant is selected and shipped.
- Product Identification: While many products might have the same name or description, SKUs provide a unique identifier that differentiates products based on specific attributes or variants.
- Pricing and Promotions: SKUs allow retailers to set specific prices or promotions for certain product variants.
- Returns and Exchanges: When customers return products, SKUs make it easy to identify the exact product and ensure correct processing of returns.
- Communication: SKUs offer a standardized language between different departments of a business or even between different businesses. For example, a retailer and supplier can communicate more precisely using SKUs instead of lengthy product descriptions.
Must Sell SKU (Products)
"Must Sell Products" (MSPs) refer to a carefully selected assortment of products that a company identifies as crucial to sell through specific outlets, based on a strategic evaluation of various factors. These factors include the sales channel through which the products are sold, the geographic location of the outlet, and the type of customers that the outlet serves. Identifying MSPs allows companies to tailor their product offerings to match the unique demands and preferences of different outlet types, thereby optimizing sales performance and product movement from the outlets.
For instance, sachets and pouches might be identified as MSPs for outlets in the retail channel, where small, affordable, and convenient packaging is highly valued by customers. Conversely, larger retail packaging sizes (LRPS) could be prioritized for modern trade outlets, which cater to a different customer base looking for bulk purchases or value packs.
Furthermore, companies might adopt a tactical approach to determining their MSPs, selecting focused products for a particular month based on the prevailing sales strategy. This approach allows businesses to respond dynamically to market trends, seasonal demands, or specific promotional campaigns, ensuring that the product mix remains relevant and appealing to customers. By prioritizing MSPs in this manner, companies can enhance the efficiency of their distribution efforts, improve outlet satisfaction, and drive sales growth.
Strike rate
Strike rate in consumer goods distribution refers to the success rate of sales visits made by distributors or sales representatives to retail outlets. Specifically, it denotes the ratio or percentage of visits that result in a successful sale or order placement compared to the total number of visits made.
For instance, if a sales representative visits 100 stores in a day and secures orders from 60 of them, the strike rate for that day is 60%.
Mathematically, the strike rate can be calculated as:
Strike Rate(%)=(Number of Successful Sales Visits/Total Number of Visits)×100
Strike Rate(%)=(Total Number of Visits/Number of Successful Sales Visits)×100
A higher strike rate indicates a more effective sales effort, suggesting that the sales representative or distributor is converting a larger proportion of their visits into actual sales or orders. In consumer goods distribution, understanding and improving the strike rate can lead to optimized sales strategies and more efficient distribution routes.
Targets
As a commercial activity, distribution is easily tracked with targets. Targets can be defined on multiple measurable KPIs on various timeframes:
- Daily, weekly, monthly
- current, last month, quarter
- vs last period, period to date, etc
Teller / Cashier / Agent / Shopkeeper
A teller is the individual who “mans” the store, i.e. in charge of serving the customer and receiving the payments. Note that in most instances, it is not the same person as the owner of the shop. Many small stores are indeed side businesses funded by people with a bit more money, like formal employees, and putting a relative to run the business. That is why when running an outlet census, it is key to ask for both the teller and the owner contacts. Being a teller or an agent is a poorly paid job, leading to fraud cases and high turn over, which is a challenge for brands that invest in training them, like mobile money agents. The agent line might be the same, but it is a different person managing it. In the case of mobile money, we rather talk of agents.
Territory
A distributor territory refers to the specific geographic area allocated to a distributor, encompassing numerous routes and markets for the distributor's sales team to cover. Distributor territories are strategically assigned to different distributors to achieve comprehensive market coverage. This arrangement ensures that each distributor has a clear area of operation, within which they are responsible for distributing the manufacturer's products, engaging with retailers, and directly influencing sales performance. The goal of delineating territories is to optimize market penetration, enhance customer service, and ensure that all potential sales avenues within each area are effectively explored and serviced.
Trade Marketing (or B2B Marketing)
Trade marketing, indeed, plays a crucial role in the B2B landscape, serving as the strategic linchpin that bridges manufacturers and their distribution channels. This form of marketing is aimed at increasing demand with partners such as distributors, wholesalers, and retailers, rather than directly targeting the end consumer. Here are some insights and strategies to effectively implement trade marketing:
1. Understanding Trade Marketing
Trade marketing focuses on creating demand for a product among supply chain partners, ensuring that products are well-represented, stocked, and promoted by retailers and distributors. It's about making your product more appealing to these partners than the competitors', ensuring it gets more visibility, shelf space, and promotional effort.
2. Strategies for Effective Trade Marketing
- Trade Promotions: These are short-term incentives designed to stimulate higher demand for a product among retailers and wholesalers. This can include buy-in discounts, limited-time offers, and exclusive access to new products.
- Price/Quantity Discounts: Offering discounts based on the quantity purchased can encourage bulk orders, benefiting both the manufacturer and the distributor by increasing volume sales and reducing per-unit costs.
- Offers and Displays: Customized in-store displays or special packaging can make a product stand out. Offers, such as buy-one-get-one-free, can also increase product turnover rates.
- Incentives: Providing incentives for reaching sales targets or exclusive rights to sell certain products in a particular area can motivate distributors and retailers to prioritize your products.
3. Trade vs. Consumer Marketing
It's important to distinguish between trade and consumer marketing. While consumer marketing focuses on driving awareness and demand among the end-users, trade marketing targets the channels that will distribute the product to these end-users. Effective trade marketing can ensure that products are available and visible when and where consumers decide to make a purchase, thus indirectly influencing consumer choice.
4. Leveraging Technology in Trade Marketing
In the digital age, leveraging technology to enhance trade marketing efforts is crucial. This can include data analytics to understand distributor and retailer needs better, CRM systems to manage relationships and communications, and digital platforms for more efficient order processing and inventory management.
5. Personalization and Customization
Understanding the unique needs and challenges of each distributor or retailer allows for more personalized marketing efforts. Customizing promotions, discounts, and incentives based on the specific dynamics of each partner can significantly increase their effectiveness.
Traditional and Modern Trade (Retail)
This is fundamental differenciation in the retail universe. Let’s try to highlight the main characteristics of each type.
Traditional Trade:
- Description: Traditional trade, often referred to as "general trade," encompasses sales through outlets that are often independently owned and operated. These outlets are typically small in scale and might be serviced in a manner that is less structured compared to modern trade outlets.
- Type of Outlets: Includes small grocers (often known as "mom and pop" stores), street vendors, kiosks, and other small-scale retail entities.
- Reach: Predominant in rural areas and smaller towns, but also present in urban areas, particularly in emerging markets.
- Buying Experience: Customers may have more personal interactions with store owners, often leading to relationship-based selling and buying.
- Inventory Management: Stocking and replenishment may be based more on the store owner's discretion and understanding of local demand rather than sophisticated demand-forecasting tools.
- Payment Terms: Sales might often be made on credit, based on the personal relationship between the store owner and the customer.
Modern Trade:
- Description: Modern trade, sometimes referred to as "organized retail," represents a more structured and organized channel for retail sales. These outlets are typically larger in scale, owned or franchised out by larger corporate entities, and employ standardized operating procedures.
- Type of Outlets: Supermarkets, hypermarkets, chain stores, department stores, and organized retail malls.
- Reach: Predominantly found in urban areas and metropolitan cities.
- Buying Experience: Offers a wide variety of products under one roof, often in a self-service environment. There's less personal interaction compared to traditional trade.
- Inventory Management: Uses sophisticated systems for inventory management, demand forecasting, and replenishment. Benefits from economies of scale.
- Payment Terms: Standardized pricing and billing, with multiple payment options including cash, credit/debit cards, digital wallets, etc.
Other type of Trade:
This category includes the rest such as Hotels, Restaurants and Cafe (HORECA), institutions, hospitals, gas stations, etc
USSD / Sim Tool Kit (STK)USSD stands for Unstructured Supplementary Service Data. It is an old protocol which enables some basic menu navigation on feature phone. It does not rely on Internet/data, and is used daily by millions of users to check their airtime account, purchase bundles, send money, etc. For a longer description of it, read this articleHow a 20-year old mobile technology protocol is revolutionizing AfricaEvery time you dial *XYZ# to check the airtime balance on your phone, you are using a decades old technology standard…qz.com
It would typically come in shortcodes like *100#, #123#, etc. The other term is Sim Tool Kit (STK) where the menu is actually embedded in the SIM card, it is more secure than USSD and faster to navigate. The drawback is that it is much more complicated to change the menu compared to a USSD menu. M-Pesa in Kenya uses STK but it is an exception. As a reminder, in Sub Saharan Africa, all mobile phone is prepaidWorking capitalWorking capital is calculated as the difference between a company's current assets and its current liabilities. It represents the net amount of a company's liquid assets available for day-to-day operations.Working Capital=Current Assets−Current LiabilitiesWorking Capital=Current Assets−Current LiabilitiesIn the context of a traditional trade retailer (e.g., a "mom and pop" store or a small grocer), let's break down the components:
Current Assets:
- Cash on Hand/ Money readily available in the cash register or in the form of daily sales collections.
- Accounts Receivable: Money owed by customers if the retailer offers products on credit or if there are any pending payments.
- Inventory: Value of goods available for sale. This is a significant component for retailers as they need to stock up goods to ensure availability for customers.
- Short-term Investments: Any investments that can be easily converted into cash within a year, though this might be less common for small retailers.
- Prepaid Expenses: Payments made in advance, such as rent or utility deposits.
Current Liabilities:
- Accounts Payable: Money the retailer owes to suppliers or vendors for goods procured on credit.
- Short-term Loans: Any loans or credit lines that need to be repaid within a year.
- Other Current Liabilities: This can include utility bills, salaries to employees (if any), rent, and other operational expenses due within a year.
Warehouse / Depot
This refers to the stocking facility operated by the FMCG brand for the storage of finished products, which are then distributed to customers for sale. This facility plays a crucial role in the company's supply chain, ensuring that products are securely stored and readily available for delivery to meet customer demand efficiently.
Working time / Days
It refers to the number of hours worked by a sales representative during a day. It is usually determined as the time difference between the check at the first outlet and the check out at the last outlet.
The working time is split between:
- Visit time, at outlets
- Transport time
Total number of working days in a month depend on the country to take into account the public holidays and number of working days per week (5 or 6)
These parameters can be configured in FieldPro.
Working Capital:
Refers to that for Traditional Trade retailer
- Liquidity: Positive working capital indicates that the retailer can cover its short-term liabilities with its short-term assets. It suggests good financial health and ensures that the retailer can continue its operations without financial disruptions.
- Supplier Relationships: Adequate working capital allows the retailer to make timely payments to suppliers, fostering trust and potentially better credit terms in the future.
- Inventory Management: It ensures that there's enough capital to replenish stock and cater to customer demand, thereby avoiding stockouts.
- Risk Buffer: A retailer with good working capital has a cushion against unforeseen financial challenges or slower sales periods.
Traditional trade retailers need to monitor and manage their working capital closely, as any misalignment (like overstocking inventory or having too many unpaid bills) can lead to cash flow issues and potentially jeopardize the business's sustainability.
Why do retailers often struggle with working capital ?
Traditional trade retailers, often referred to as "mom and pop" stores or small grocers, frequently face challenges related to working capital. There are several reasons for their frequent shortages in working capital:
- Limited Access to Formal Credit: Unlike larger retailers or corporations, traditional trade retailers might find it harder to access formal credit facilities from banks and financial institutions due to a lack of credit history, insufficient collateral, or other bureaucratic hurdles.
- Inventory Management: These retailers might not always have sophisticated systems in place for inventory management. Over-purchasing or stockpiling can tie up funds in unsold inventory, leading to a lack of liquid assets.
- Credit Sales: In many communities, traditional retailers extend credit to trusted customers, allowing them to buy now and pay later. However, this can lead to funds being tied up in accounts receivable, especially if some customers delay payments.
- Smaller Scale and Buffer: Due to their small scale, traditional retailers might not have a significant financial buffer. Even small financial setbacks or unforeseen expenses can disrupt their working capital balance.
- Seasonal Demand: The demand for certain products can be seasonal. Retailers might stock up in anticipation of high demand, but if sales don't meet expectations, they can be left with excess inventory and reduced liquidity.
- Irregular Cash Flow: Daily sales can be unpredictable, leading to irregular cash inflows. This can make it challenging to meet consistent outflows, such as rent, salaries, or payments to suppliers.
- High Operating Costs: In relative terms, small retailers might face higher per-unit operating costs compared to larger retail entities, which benefit from economies of scale.
- Delayed Payments from Suppliers: If the retailer sells products on behalf of suppliers and waits for them to collect payments, delays in these collections can strain the retailer's working capital.
- Lack of Financial Management Skills: Not all traditional trade retailers might have formal training in finance or business management. This can sometimes lead to suboptimal financial decisions that affect working capital.
- Rapid Changes in Consumer Preferences: Traditional retailers might not always be quick to adapt to rapid shifts in consumer preferences, leading to dead stock or slow-moving items that tie up funds.
- Competitive Pressures: With the rise of modern trade, e-commerce, and direct-to-consumer models, traditional retailers face stiff competition. This can lead to challenges in maintaining sales volume and, consequently, working capital.
To address these challenges, many traditional trade retailers often rely on informal lending sources, supplier credit, or community-based financial support. However, the resilience and adaptability of these retailers also mean they continue to play a crucial role in many markets worldwide, especially in emerging economies.
On the challenge of accessing to credit and leveraging the capital when it is perceived as informal, the book from Hernando de Soto is a very insightful read.
If you arrived until the end, well done ! Feedbacks are welcome to improve it!
_____
Sig up to our newsletter for more insights! ⬇️
