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Sales and Distribution
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Table of Contents ACKNOWLEDGEMENT
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ABSTRACT
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INTRODUCTION
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Sales and Distribution: L’Oréal
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Project Objective
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Executive Summary
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Methodology
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About L'Oréal
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L’Oreal India
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Sales & Distribution Management
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Product portfolio
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Distribution channel of L’oreal in Ranchi
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Sources of Conflict in Distribution Channel:
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SalesForce Management
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SalesForce Organization
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Organizational Structure of L’Oréal
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Selection of Salesforce
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Training & Motivation of the SalesForce
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Performance evaluation of sales personnel
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Designing Sales Territories
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Summary of Primary Research
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ANALYSIS OF INDIAN MARKET
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Visit from Area Sales Manager:
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L’Oréal Invoice
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Sales Target of L’Oréal
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Sales Target & Inventory decisions
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Investment & Profit Analysis
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Recommendations
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Conclusion
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Appendix
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ACKNOWLEDGEMENT With a deep sense of gratitude, we expressed our sincere thanks to our esteemed faculty, Professor Shibashish Chakraborty, for this valuable opportunity undertake this project under his effective supervision, encouragement, enlightenment, and cooperation. We are also grateful to Mr. Rahul Kedia (dealer, Kamal, and Company) for his valuable inputs into this project and their constant encouragement that was of great performance in completion of this project work. We highly appreciate the time they could spare for us from their hectic schedule. We are also thankful to all the faculty and staff members of IIM Ranchi for their full cooperation and help during the project. Our greatest thanks are to all who wished us success especially our parents and friends whose support and care make us stay on the ground.
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ABSTRACT Sales and Distribution form the core component for a company to earn revenue by means of selling through various distribution channel before it finally reaches the customer. The main purpose of this project is to understand the practical aspects of Sales and Distribution of one of the renowned cosmetic brand, L’Oreal, in the city of Ranchi. We have analyzed the global and national presence of L’Oreal to trace its expected market 3
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coverage in the city of Ranchi. The Salesforce Management of L’Oreal has been studied to understand the Selection, Training and Performance Evaluation process of the company along with the Distribution channel to find out how L’Oreal has established an uninterrupted and a stable delivery channel of its products to the consumers in the city of Ranchi. To understand better about the distributor channel of L’Oréal, we have met and analyzed the distributor as well as the redistributor stockiest of L’Oréal who acts as a bridge between the company and the market in making the products available to the customers and how they stand to benefit from this distribution channel and their operational routes and also their profit percentages.
INTRODUCTION Project Objective To study the sales and distribution network of L’Oréal India in Ranchi
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Executive Summary Background: In this project, the sales and distribution network of L’Oreal products has been examined in Ranchi. The flow of distribution network begins from the C & F Agent to distributors/wholesalers and finally to the retailers. The distributors vary in a business where some serve to other wholesalers (semi-wholesalers) particularly and some deal directly with the retailers. Taking an example of a particular dealer Mr. Rahul Kedia of kamal & Company running a business in Upper Bazaar Ranchi deals with around 40 active wholesalers in Ranchi area and Yash enterprises which serves 15 retailers directly in Ranchi area. In this report, we have studied the structure of the sales force organization, territorial layouts and the distributor business overall.
Methodology In order to understand the product portfolio of L’Oréal, we visited modern trade stores like Reliance Smart, Big Bazaar and also small retail stores in Main Road. L’Oréal has its own professional salon in Ranchi called L’Oréal - The Shahi Empire. With the help of Salon owner, we could contact Miss Nidhi who is responsible for the distribution of L’Oréal products in Ranchi area. We interviewed Ms. Nidhi about the distribution network of Loreal products. Our primary data was based on the information from Ms. Nidhi and secondary data was from L’Oréal, India website, reports, and articles
About L'Oréal L’Oréal established in 1994 is now in its 25th year of operations in India. It has 4 regional offices in Mumbai, Delhi, Bangalore, and Kolkata respectively. It has 23 distribution centers in India and products produced in the plant in Pune and Baddi is exported to countries like 5
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Bangladesh, Sri Lanka, and Nepal. It has its products available at point of sale in 750,000+ stores in India. Loreal has categorized its brands in four division; Consumer Products Division which has mass consumer brands, Professional Products Division for salons, Active Cosmetics for pharmacy and Loreal Luxe Division which has luxury products.
Their focus is on the production of products in hair care, skincare, hair color makeup and perfume. The plant in Pune and Baddi is responsible for producing 85% of products for Indian markets and remaining for exports. It has set up a research and innovation center in Mumbai where it studies the skin types of Asian people and formulates the different type of cosmetics suitable for different skin types. Loreal takes its corporate social responsibility very seriously and thrives to make a contribution towards the society. They have launched many social initiatives in India, one of them being Beautiful Beginnings program for training underprivileged women in hairdressing and beauty care, Care project which focussed on safety, the environment, child education, and health & hygiene, sustainable development in their production plant in Pune and Baddi, etc.
Some of the facts about L'Oréal:
Number of Employees: 82,600
Number of Patents registered: 498
Number of countries they are operating in: 150
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Fig 1: Global map of L’Oréal
L’Oreal India L’Oréal has been present in India since 1994 as a wholly-owned subsidiary of L’Oréal S.A.
For the sake of optimal catering to this market, the cosmetics Group has launched several brands covering various product categories. In India, they are present in all distribution channels with 15 brands Mass consumer brands: Garnier, L’Oréal Paris, and Maybelline New York Luxury brands: Lancôme, Yves Saint Laurent, Kiehl’s, Ralph Lauren, Giorgio Armani, and Diesel Professional brands: L’Oréal Professionnel, Matrix, Kérastase and Kéraskin Esthetics for salons Pharmacy brands: Vichy and La Roche-Posay
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Sales & Distribution Management Out of the four divisions, the most profitable is Consumer Products division followed by Professional Products Division. The channels where Loreal products are sold are general stores, chemists, modern trade and cosmetics counter. Products like shampoos, hair color and skincare products are mostly sold in general stores and chemists whereas makeup products are mostly sold at cosmetic counters. Most of the consumer division products are sold at general stores and it generates around 82% of Loreal’s revenue as compared to modern trade stores. This is because the products are available at MRP at the general stores, the customers have a personal relationship with store owners, these stores are at a short distance from their homes and they can purchase the product over credit and pay later. More than 50% of the consumption of any type of product produced by Loreal like hair care, hair color, makeup, etc. is in urban areas and it's growing in rural areas. They have been able to hold low prices with respect to their cosmetics division due to local production and raw materials supply from the Pune plant that supplies the subcontinent with nearly 85% of its needs.
Product portfolio Loreal has a portfolio of 14 brands that are sold in Indian markets. The distribution of products depends upon the type of stores and the product. The company has positioned itself as a transformative beauty leader that upgrades the consumers’ beauty regimes with more sophisticated, safe, qualitative and efficacious innovations.
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Distribution channel of L’oreal in Ranchi The typical distribution network of Loreal in Ranchi that operates includes both C&F agents (carrying and forwarding agent) and distributors as well.
This C&F agent is fully responsible for the safe handling, carrying and storage of the goods and are engaged in the collection of payment cheques from the distributors.
Manufacturer
C&F agent
Distributors
Retailers
Distribution network in Ranchi area L'Oréal brands are Carried and Forwarded by C&F agent, Vinaika warehouse campus located in Sidroli, Jharkhand. The C&F agent forwards the brands to various distributors in Ranchi. There are two distributors of L’Oréal in Ranchi: 1. Kamal and Company 2. Yash Enterprises
S.No.
Name of Distributor
Address
1
Kamal and Company
Near Upper Bazar, JJ Rd, Upper Bazar, Ranchi, Jharkhand
2
Yash enterprises
Shradhanand Rd, Deputy Para, Upper Bazar, Ranchi, Jharkhand
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The distributors are distributing products to specific areas. They categorized Ranchi city to Ranchi-1 and Ranchi-2 areas. Bijaya enterprises are catering to the area under Ranchi2 which covers Harmu, HSC, Hinoo, etc. It caters to an area with pin code 834002.
Yash enterprises and Kamal & Company catering to the area under Ranchi-1 in which it covers Kantatoli to Mainroad, cater to an area with Pincode 834001 and Kanke road. In Ranchi, around 15 L’Oréal Professional Salons, i.e. these professionals use the L'Oréal brands officially in their salon can be found as well.
Sources of Conflict in Distribution Channel: Channel conflict can arise due to
overproduction as well. Newer versions of products, changes in trends, insolvency of retailers and wholesalers are some of the reasons for channel partner conflict. In this case, adopting a good stock clearance strategy is necessary.
Communicational disabilities are one of the reasons for conflict between C and F agents and distributors. Lack of proper communication may lead to untimely deliveries, thereby creating a conflict
Sometimes lack of peripheral co-ordinations amongst the two distributors become a source of conflict. The two distributors instead of delivering in their specified territories may engage in collusion to gain more profits, thereby surpassing their operational boundaries
Logistics Involved: Along with international logistics and industrial logistics teams, the sales logistics teams manage demand, develop services for the group’s commercial partners and supply the retail outlets. The sales logistics team does research work for digital consumers, supply chain sensing, demand shaping, and revenue management, market-driven networks, accelerating innovation through open design networks, the evolution of predictive analytics, emerging
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business intelligence solutions, and technologies to improve safe and secure product delivery. Listed below are the key priorities of supply chain management:
SalesForce Management SalesForce Organization
The right sales force structure that will align the sales with the company’s objectives is very important for any organization. The first step of creating a sales force organization starts with allocating the resources among the sales force and managing them efficiently to meet sales and marketing goals. An effective sales force organization will be able to provide not only account and geographic coverage but will also help in minimizing the wastage of resources and time which will eventually lead to a greater probability of attaining sales quotas. L’Oréal has salesforce organization which is driven by its product category division. A separate distribution channel and a dedicated sales force are established for each product category division. A cross-functional sales force structure encompassing its various brands for each product category division.
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L’Oreal Product Category Divisions
Individual brands and their distribution channel
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Organizational Structure of L’Oréal
Chairman and CEO Jean-Paul Agon
President (Consumer Products Division) Alexis Perakis - Valat
President (L'Oreal Luxe Division) Nicolas Hieronimus
President (Professional Products Division) Nathalie Roos
President (Active Cosmetics Division) Brigitte Liberman
Key Members of the organization
L’Oreal Organizational Structure 14
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Regional Sales Manager
Area Sales Manager
Kamal & Company (Distributor)
Yash Eneterprises (Distributor)
Wholesalers
Indirect Retailers
Direct Retailers
Customers
Customers
Customers
Salesforce structure in Ranchi
Selection of Salesforce 1. Screening the resumes 2. Creating a bank of applications 3. Conducting an initial interview 4. Conducting an intense interview 5. Testing the skills with practical situational application 6. Background verification and reference check 7. Conducting a physical examination for fitness check
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Training & Motivation of the SalesForce Designing and executing an effective sales training program is pertinent to any organization. The training needs of salesforce usually revolves around the following:
1. Product Knowledge 2. Customer Knowledge 3. Competitive Knowledge 4. Selling Skills 5. Company Knowledge
After the training needs are identified, the next thing is to design and then execute a training program. ACMEE framework used for training of the salesforce is represented as below:
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Aims (Why?)
Content (What?)
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Methods (How?)
Execution (Who, When, Where, What?)
Evaluation
ACMEE decisions for salesforce training program Aims (Why is the training needed?) – The objective of the training is the first decision to be made. Content (What should be the content of the training?) – The content of the training program will vary for new trainees from those of experienced salespersons. Methods (How will the sales training conducted?) – There are numerous methods that are usually adopted by L’Oréal such as classroom training, web-based training or onthe-job training. Execution – In this phase, the following decisions are taken: When to conduct the training? Where to conduct the training? Who will conduct the training? Who will be the trainees? What should be the budget for the training? Evaluation – In the last phase involves measuring the effectiveness of the training program. The actual outcomes of the training are measured against the expected outcomes to evaluate whether the investment made in training was worthwhile or not.
Dimensions of sales motivation 17
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Performance evaluation of sales personnel
In order to incentivize the salesforce for their performance and motivate them by rewarding their good performance, frequent performance evaluation of sales personnel is important. It also helps in identifying the training needs of the sales force. It is also a way to identify and weed out unproductive resources. Usually, the performance evaluation is tied to sales quotas of individuals and they are incentivized based on the targets achieved by them. Most salespersons’ performance evaluations are conducted by the field sales manager who supervises the salespersons.
Salesforce Setting up performance evaluation procedure Perfomance Deciding sales management action and control Evaluation Procedure Establishing performance standards
Comparing actual performance with the standards Reviewing performance evaluation with the salesforce Deciding sales management action and control
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Designing Sales Territories
Sales territories in Jharkhand
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Summary of Primary Research L’Oréal’s success in the cosmetic industry is due not only to their high quality but also to the corporation’s marketing efforts to make sure their various brands have a strong market presence. To make its presence feel in different parts of the India L’Oréal has established an efficient distribution network that caters to the customers as per the need and demand which also depends on the customer segmentation depending upon the purchasing behavior and power. As we know the brand loyalty of L’Oréal is very high and hence L’Oréal follows a pull strategy. Customers of L’Oréal goes directly to the outlets and buy the products.
ANALYSIS OF INDIAN MARKET Garnier being an important brand of L’Oréal in both hair care and skincare is available allround the globe easily. In the Indian market, the hair care products of Garnier like “Garnier Fructis”, “ultra doux” etc. are available in both organized and unorganized retail shops in India. The high-end skincare products like “Nutrition site” are available only in selected retail outlets in the country. In India Garnier manufactures its products in Pune whereas it’s registered office is in Mumbai. To popularize its product line L’Oréal has occupied brand corners in many big malls and retail outlets in which Garnier products get a major chunk. L’Oréal has tie-ups with many big beauty salons and parlors who can promote and sell its products. Money-spinning mass-market brands such as Garnier are being pushed hard in India, where the company estimates there is a market of 50 million. Garnier products are easily available for sale on many websites in India.
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Visit from Area Sales Manager: Frequency: Once a week Agenda: Knowledge about existing products, introducing new products, understanding the demand and feedback of products in the market Performance Parameter: Growth in sales over the past period, increase in no. of retailers keeping the SKUs Coverage: Over 150 retailers in Ranchi Wholesalers Redistributors Types of products: Make-up Skin Care Hair Care Main Competitors: Haircare – Tresemme and Dove by Unilever, Head & Shoulders and Pantene by P & G Make-up – Lakme, Huda and Mac Skin Care –
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Ponds, Olay and Kaya
L’Oréal Invoice L’Oréal is a very responsible brand which beliefs in maintaining the highest accounting standards and hence provides invoices to all the suppliers that have registered with them, they also ensure that their distributors follow the same standards and provide well-detailed invoices to their customers. My Invoice Portal is required to be updated on a monthly basis.
Sales Target of L’Oréal The sales target given by L’Oréal to its distributors is Rs. 60,00,000 per month which has increased over the years as a result of the increased penetration of L’Oréal in Tier 2 and Tier 3 cities. L’Oréal has enlarged the market coverage of each distributor in order to meet the demand.
Stock Inventory The stock inventory is replenished every 6 days.
Credit Period The credit period provided is 12 days which is twice the time provided for managing the inventories. Margin 22
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The margin varies according to the product but on average, it is 3% on the products delivered for distribution.
Savings The savings (ROI) for a distributor ranges between 2.5-3.5% on the goods sold, hence selling more volume is the aim of each distributor since higher volumes would lead to higher profits.
Loan No loan has been taken as a result no interest is paid on the business operations of the firm.
Expenses
Salesperson and Manager’s salary
Renovations on infrastructure
Computer & Printing expenses
Logistics & Transportation
Merchandising – shared by the company and the distributor
Sales Target & Inventory decisions The sales plan is different depending on the products sold, the target market which is the potential market of the distributor where the sales would be made and the past performance, if a distributor performed very well in the last year then the target is increased and better inventory terms are negotiated in such cases.
Promotion & Incentives
Trade promotions including discounts, contests, sweepstakes, and coupons run round the year.
Incentives are provided to the salespersons based on the sales targets.
Competitions are organized for the distributors wherein the top performers are awarded and are recognized for their efforts.
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Investment & Profit Analysis Targets given Targets
Cost (Rs.)
Sales Target (year)
72000000
Sales target (month)
60,00,000
Inventory period (in days)
6
Credit period (in days)
12
Working capital bloc (in days)
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Inventory terms Particulars
Cost (Rs.)
target for a month
60,00,000
1 day
200000
6 days
1200000
Inventory holding
1200000
Credit terms Particulars
Cost (Rs.)
Market credit period (days)
12
Credit holding
2400000
Desired investment by L’Oréal
3600000
based on the credit & inventory holding Owner's initial investment
20000000
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Profit Margin Analysis Particulars
Rs.
Sales revenue (month)
60,00,000
Sales revenue (year)
72000000
COGS (83% of revenue)
59760000
Gross Profit
12240000
Operating Expenses Labour expenses: 5 salesperson
25000
1500000
1 manager
50000
600000
1 computer operator
20000
240000
1 shop floor representative
30000
360000 2700000
Transportation & Logistics cost @ 5% of SR
3600000
SGA @ 3% of SR including merchandising
2160000
Other expenses @ 1% of SR
720000
Total expenses
9180000
EBIT
3060000
Tax expenses @28% tax rate
856800
PAT
2203200
PAT Margin
3.06%
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Ratios Particulars
Rs.
Initial Investment
20000000
Net Working Capital/Year
4000000
Net PPE for a year
3000000
Total invested capital for a year
7000000
ROE
11.02%
ROI
31.47%
ROI for a distributor should ideally be around 30% which is being achieved by L’Oréal
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Recommendations L’Oréal does not extend a credit line to the distributors whereas the distributors are providing credit to the retailers which creates stress for the distributors, therefore we recommend for L’Oréal to extend credit to their distributors. L’Oréal should do not have a reward or incentive scheme for sales achievement if provided would motivate the sales force to attain more sales thus increasing revenue for the company The sales margin passed on to the distributors and retailers is very less as of now and the distributors feel if there is an increase in this margin there might be an increase in sales volume.
Conclusion Conquering new markets is at the heart of L’Oréal’s expansion strategy and to achieve this they require a strong Sales & Distribution channel. In the City of Ranchi, the number of distributors is pretty less, having said that these distributors cater to the needs of most of the retailers and there is no channel conflict as such between these distributors. The Distribution channels are very well coordinated and the penetration level in Ranchi seems to be decently achieved however there can be more distributors in order to increase the sales volume. Overall, L’Oréal’s Sales & Distribution in Ranchi seems to be well established. The training and selection of Salesforce is very well regulated by the distributors business practices and are already trained owing to the long time in this business, citing which L’Oreal should adopt more training and selection methods for its Salesforce in future if it decides to increase the number of distributors and expand their business in Jharkhand with the state propelled to accommodate more sales opportunities in future.
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Appendix Visit Distributor and Retailers Excerpts from Primary Research with the Distributor –
1. Brief Description of you Hi, I'm Mr.Rahul Kedia the owner of Kamal and Company located in Upper Bazaar. We are associated with Loreal over past 3 years. We deal with Loreal, Maybelline and Garnier product distribution in Ranchi
2.
What is the initial investment? Was it self-financed or loan? Initial Investment which would be required is around 5 lakhs. It is partially self-financed and loan.
3.
Who all are your customers? Our customers are Retailers, Redistributors, E-retailers and few wholesalers.
4.
What all the products do you carry in your Loreal portfolio? We deal with Loreal, Maybelline and Garnier product distribution in Ranchi. The demand for Garnier products is much more compared to the other two in Ranchi.
5.
What are your turnovers and how many you order it on a monthly basis? Who bears the cost of transportation to your godown?
6.
What is your profit margin for every product? The profit margin for every product is around 5%
7.
What is your credit policy? How much your total turnover stock turnovers have is in credit?
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Current credit policy is 12 days. But for some retailer, it is customized on the basis of past performance and business relations.
8.
Does the company has laid any terms and conditions for being a distributor (any security)? Any guarantee on returns in terms of profit? No, the company has not laid any terms and conditions for being a distributor. No, we are not responsible for providing any guarantee on returns in terms of profit.
9.
What is the safety stock which you carry? How many days do goods to travel to your warehouse from the day you order? Safety stock is 5 days volume of the monthly turnover.
10.
What all are your expenses? Operating Expenses Labour expenses: 5 salesperson
25000
1500000
1 manager
50000
600000
1 computer operator
20000
240000
1 shop floor representative
30000
360000 2700000
11.
Transportation & Logistics cost @ 5% of SR
3600000
SGA @ 3% of SR including merchandising
2160000
Other expenses @ 1% of SR
720000
What is your team size? We have a team of 15 people which includes 4 salesperson, 2 delivery man, 2 godown keepers, 1 operator, 2 drivers, 1 accountant, 2 labour and myself.
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How are your sales target decide? We are not responsible for deciding the sales target. Company has a specified sales target depending upon the region they are serving and the last year data of same month and current trend.
13.
How frequently does the ASM visit your warehouse? How many sales officer
visits? ASM visits once in a month to my office whereas the Sales Officer visit once in a week to my offices.
14.
What all are the performance parameters for training and evaluating you and your sales team? Currently, the performance parameters are only sales and efficiency to do the given job. For sales boys it's the number of outlets covered and volume sold.
15.
What is the motivation for you and your team?
Yes, Every month we give an Employee of the month award to the best employee. So an additional bonus when the targets are overachieved to the whole team.
Excerpts from the Retailers
1. What is the stock turnover for Loreal (Garnier) products? 2. What are the margins for the nestle products for all the products? 3. From which distributor do you source your products? 4. How frequently does the salesperson travel to your office? 5. What is the credit offered by the distributor? 6. How us L’Oréal faring as compared to its competitors in terms of margins and sales volumes 7. What schemes are given to you by the company and the distributor?
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