PEPSICOSDM Project

Submitted to: Prof. VinodKalia

Submitted by:Group C01Luv Kumar12P211Rahul Kumar12P224Rajan Mishra12P225Shivan Goyal12P233Suraj Khanna12P235

Table of ContentsPepsiCo Inc...........................................................4

PepsiCo India.........................................................4PepsiCo Distribution channels........................................6

Channel Members......................................................8Godown...............................................................8

Distributor..........................................................8Wholesalers..........................................................9

Retailer.............................................................9Refrigerator Problem................................................15

Reverse Supply Chain Management.....................................16Maaza Scheme........................................................17

Duplicate Brands....................................................18Communication of Schemes............................................18

Too near Wholesalers................................................18

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Executive SummaryThe project required studying the distribution model of PepsiCo

India, identifying the problems, recommending suggestions for

improvements and forecasting the implications of those

suggestions, if implemented.

Firstly, Literature Review of the company was done by studying

various secondary resources available online. Then, two

wholesalers and three retailers of PepsiCo were contacted in

Gurgaon and information was gathered through them about the

distribution network of Pepsi and present problems faced by them.

The channel members involved in distribution were identified and

their roles were studied.

The major issues which came out through wholesalers are retailers

were of rate cutting, improper communication of schemes by the

company, rate cutting by too near wholesalers, refrigeration

problem, schemes by other company and reverse supply chain

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management. Each of these issue was diagnosed by the group and

possible improvements and their implications have been discussed

along with the problems in detail in the following report.

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Introduction

PepsiCo Inc.PepsiCo is a global food and beverage leader with net revenues of

more than $65 billion and a product portfolio that includes 22

brands that generate more than $1 billion each in annual retail

sales. Our main businesses – Quaker, Tropicana, Gatorade, Frito-

Lay and Pepsi-Cola – make hundreds of enjoyable foods and

beverages that are loved throughout the world. PepsiCo’s people

are united by our unique commitment to sustainable growth by

investing in a healthier future for people and our planet means a

more successful future for PepsiCo. They call this commitment

Performance with Purpose: PepsiCo’s promise to provide a wide

range of foods and beverages from treats to healthy eats; to find

innovative ways to minimize our impact on the environment by

conserving energy and water and reducing packaging volume; to

provide a great workplace for our associates; and to respect,

support and invest in the local communities where they operate.

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PepsiCo IndiaPepsiCo entered India in 1989 and in a short period, has grown

into one of the largest and fastest growing food and beverage

businesses in the country. PepsiCo India’s growth has been guided

by PepsiCo’s global vision of “Performance with Purpose”. This

means that while businesses maximize shareholder value, they have

a responsibility to all the stakeholders, including the

communities in which they operate, the consumers they serve and

the environment whose resources they use.

One of the largest food and beverage businesses in India: PepsiCo

India’s diverse portfolio includes iconic brands like Pepsi,

Lay’s, Kurkure, Tropicana 100%, Gatorade and Quaker. PepsiCo

India has not only grown to become one of the country’s largest

food and beverage businesses but has also become a powerful and

consistent driver of PepsiCo’s global growth. Within 2 decades,

the company has been able to organically grow eight INR 1000

crore plus brands in India, which are household names trusted

across the country.

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Distribution ChannelPepsiCo Distribution channels

Company follows hub and spoke model of distribution. A hub and

spoke network is a centralized, integrated logistics system

designed to keep costs down.

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Distributor

Retailer

WholeSaler

Retailer

Godown

For the urban cities, direct distributors are appointed by the

company, which are supplied directly by the company depots

against bank transfer of money. These distributors appoint

salesman for which they are provided subsidy from the company,

whose job is to market the products of the company. The schedule

of the salesman is repeated for every week.

For rural India, the distributor receives the supplies from urban

distributor against bank transfer of money.

The major benefits of hub and spoke model can be underlined as:

Reduced Capital for Inventory and Lowering Facilities Costs

These are the primary reasons to convert to a hub and

spoke distribution system:

o Reducing the number of warehouses significantly reduces

rent and other building expenses such as utility and

maintenance expenses. In addition, lower operational

and administrative overhead is achieved as taxes,

insurance, telephone and other facility overhead is

eliminated.

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o Reducing the number of warehouses and centralizing

inventory dramatically decrease the amount of inventory

carried. Only the hub needs to carry a lengthy supply

and nodes can switch to a more economic Just-in-Time

inventory method.

o Moving equipment becomes easier as logistics becomes

simpler to manipulate.

Economies of scale result in cost savings The major

reasons for this are:

o Mass shipping and receiving of larger quantities will

lower inbound and outbound shipping costs

o Centralized purchasing lowers per unit, shipping and

administrative time as operating supplies can be

purchased in larger quantities

o Inventory control is better by not having to reconcile

as many locations.

Routing For a network of n nodes, only n - 1 routes are

necessary to connect all nodes; that is, the upper bound is

n - 1. For example, in a system with 10 destinations, the

spoke-hub system requires only 9 routes to connect all

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destinations, while a true point-to-point system would

require 45 routes.

Channel MembersThere are four main channel members apart from company factory

and consumer. These are, in order of product forwarding:

GodownThese are the hub. They receive products directly from the

factory and their function is to store products and forward them

to distributors as and when orders are placed. They don’t have

any margin but are company owned and are paid directly by the

company.

DistributorPepsi doesn’t have any separate stockists, only distributors are

present. They receive products from the godowns and supply to

wholesalers and also directly to retailers. They appoint a

salesman for retailing, and for this they get subsidy from

company. Their margin depends on whether they are supplying to

wholesaler or directly to retailer and vary from 2% to 5%

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according to company, but in reality it is lower as they

sometimes sell at lower prices to increase volumes. This leads to

rate cutting. They also get various schemes from the company,

which are generally to be forwarded to retailers and wholesalers.

There are 6 distributors of Pepsi in Gurgaon.

WholesalersThey buy from distributor and supply to either retailers or

nearby village wholesalers. There are more than 100 wholesalers

of Pepsi in Gurgaon and surrounding areas. They try to get

products as cheap as possible and for this they often ask for

bulk discounts from distributors. They also try to get products

from distributors of other states. They have very strong

networking and huge storage capacity. There margin is 2% to 3%,

depending upon the product and the price which they are able to

get from distributors. Sometimes, they also get scheme from the

distributor. At present, there is a scheme in half litre bottles

for wholesalers, i.e. they get 4 bottles extra on buying a whole

carton. Wholesalers are generally not exclusive to Pepsi and also

carry other company products. Interestingly, most of the

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wholesalers are common with Coca Cola because of the same nature

of business and same target shops. Wholesalers generally don’t

get credit from distributors because they try to find the lowest

price in the market and buy, and thus they are generally not

loyal to any distributor. Also, the responsibility of

transportation of good lies on the wholesaler and he is

responsible for any damage to goods.

Retailer Retailers cater to the customers. They buy either from the

wholesaler or distributor, depending on ease of purchase,

relations and credit policy. Wholesalers generally supply them on

credit. According to a wholesaler, he supplies to the retailers

on credit and has maintained different rates depending on the

credit days. If the retailer pays him within 30 days, he supplies

on normal rates, but if the retailer pays after 30 days then he

charges a premium. Retailers of Pepsi vary from small pan shops

to big departmental stores and restaurants. The margin to

retailers is from 14% to as high as 18% depending upon the

product and rates they get from wholesalers. There are also

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schemes for retailers. Presently, they get 3 bottles extra if

they buy a full carton of half litre bottles.

We visited two wholesalers and four retailers in Gurgaon, and

tried to gather information from them. We also tried to contact a

distributor Varun Beverages, but unfortunately we were unable to

fix a meeting with him before midterm review.

The contact details of the wholesalers we visited are:

Mr. Jasmeet Singh (9953494949) – Pahwa Cold Drinks

Mr. Neeraj Kumar (9811436612) – Aarya Vayaapaar Kendera

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Main issues faced by PepsiCo Rate Cutting A major problem faced by the distributors is

of rate cutting from wholesalers.

Some direct distributors keep profits as low as 1% and sell

to wholesalers so as to take bulk orders, wholesalers in

turn again keep profits as low as 0.5% and sell to smaller

village wholesalers and retailers so as to make bulk orders.

This leads to rate cutting problem, as few retailers do not

buy from the distributor because they can get it cheaper

from wholesalers.

As understood, rate – cutting by wholesalers is beneficial

for the company and is intentional. The two major benefits

of this are:

o Urban wholesalers have excellent reach. Big retailers

from villages come to buy from these wholesalers. If

wholesaler sales go down, and they discontinue selling

our products, then reach of our products will decrease,

and thus the sales will also decrease.

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o Wholesalers mainly rely for sales on rate and

relations. They have very strong relations with their

customers (smaller wholesalers and retailers), as they

supply them on credit. So, if a wholesaler discontinues

selling our brands and houses other company products,

then it can enhance the market for our competitive

brands.

Too near Wholesalers Another problem is in existence of too

near wholesalers. This leads to rate competition between the

two wholesalers. Such smaller wholesalers shall be shut and

these areas should be covered by the bigger wholesaler. Also,

the company and the distributor should consider the market

size and the distance with other wholesaler before

establishing a new wholesaler.

Communication of Schemes Scheme of the month should be

directly messaged to the wholesalers and retailers by the

company and it should be ensured that everyone gets the

correct information and at correct time.

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At times, few wholesalers get to know about the scheme after

many days and they are not able to take benefit of it. This

makes a bad impression on behalf of company and check should

be kept for this.

Duplicate Brands The population in the rural areas is

mostly illiterate, and Pepsi for them means a 10 rupee black

cola drink. Taking advantage of this, there are many duplicate

brands existing in the market, which have high sales. These

brands offer very high margins for retailers and distributors.

This problem can only be tackled by educating people about the

company and its brand value. Some of the famous local

companies are RC Cola, local manufactured and bottled drinks

and local carts selling fresh cola soda.

Refrigerator Problem A very major problem in this

particular business is that some of the retailers are not

willing to store drinks in their own refrigerators and demand

for a company refrigerator regularly. These retailers are

generally big and important and there is always a threat of

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competitor providing them refrigerator and imposing

restrictions on selling our products. The company should try

and identify most beneficial retailers and provide them with

refrigerator or an alternative solution to it should be

developed by the company.

Maaza Scheme Maaza is a very successful brand of Coca Cola

and has great demand in summers. This year the scenario

worsened as Maaza came up with a scheme of ‘Gold Coin under

Crown’. The retailers who had Pepsi refrigerator and were told

only to house Pepsi products started keeping Maaza, as it was

selling as a hot cake. This adversely affected our sales and

posed great challenges for our distributors and wholesalers.

Reverse Supply Chain Management As the glass bottles are

needed to be recycled and thus are to be returned to the

manufacturer, there is a reverse supply chain mechanism.

Whenever any retailer/wholesaler/distributor starts business

with Pepsi, he first needs to buy empty glass bottles from

Pepsi for the first time and then from the next time he is

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supplied with filled bottles in return of empty bottles. This

every time collection of empty bottles calls for great effort

of wholesalers and distributors.

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PART - 2

Suggestions for ImprovementRefrigerator ProblemAs discussed earlier, this is a very important problem specific

to this industry. It will not be viable for the company to

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provide separate refrigerators to every retailer. So to overcome

this problem, company is already providing ice boxes to the

retailers, especially in the rural areas. This activity should be

increased by the company and more retailers should be covered by

the company, as this not only make retailers loyal to the company

but also it saves cost for them, as electricity charges are

omitted. In addition to this, we recommend that the company

should also provide Mitticool refrigerators in the rural areas to

the big retailers. Mitticool refrigerator is an eco – friendly

earthen refrigerator, which has low cost and runs without

electricity. This will be beneficial for the company in image

building and making loyal retailers.

The implications of this can be:

Cost to the Company The Company will have to bear the

initial cost of production and the distribution cost, and

once these are distributed, the retailer even then might not

be willing to bear the complete cost or might ask the

distributor to pay in instalments. So, these will have to be

limited.

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Smaller Retailers Once these refrigerators are

distributed to larger retailers, the smaller retailers might

start demanding for the same. For this reason, the company

can put a limit that retailers who provide business of more

than 20000 or so for 6 continuous months will only be

considered for this refrigerator from company.

Distribution As these refrigerators are delicate in

nature, distribution can be difficult, as these will need

special care in transportation. Also because of this reason,

the distributors might not be willing to take the ownership

of these refrigerators.

Supplier As this is a latest technology, it will be

difficult to find a supplier who can provide these types of

refrigerators in bulk.

Reverse Supply Chain ManagementThis is a problem faced in this industry since it began to

operate in glass bottles and by now this hassle has been absorbed

by the channel members and thus nobody complains. But if we see

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this on the company level, this is a very important issue. The

company operates 43 bottling plants in India. The empty glass

bottles are taken back to one of these plants and then recycled,

which calls for a huge cost on behalf of company.

A possible solution for this can be to make bottle refilling

station in major towns/cities, which might be able to cut down

costs of recycling, but this can only be claimed to be viable

only after doing a proper cost analysis for the same. The bottle

refilling station will clean the glass bottles and refill them

with a small refilling machine. This will cut down the process of

transportation of empty glass bottles and will also save the cost

to melt and recast the glass bottles every time. But the costs

for this will be largely dependent on the volume of bottles to be

processed and vicinity of towns/villages.

Maaza SchemeIf the competition comes out with such schemes in future again,

our sales can again suffer. So to tackle such problems, it will

be good if we can come out with a better scheme on similar

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products, in a short span of time, so that our sales don’t

suffer. Also, as our loyal retailers (retailers who are provided

with a refrigerator from Pepsi) start housing competitor’s

products, we can keep a check on them and warn them to

discontinue our relations with them if similar activity is

noticed again.

The implications of this can be:

Scheme War As the industry is majorly dominated by two

big companies, thus, offering a similar scheme on similar

product may not only mitigate the effect of other company’s

scheme but can also lead to a scheme war, in which the two

companies are chasing each other to provide better

incentives to company and thus gaining major market share.

Losing Retailers As we go strict with our loyal retailers to

not house competitor’s products, we have a risk of losing some of

them and thus business from them, if competitor has a more

dominant market in that particular area.

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Cost to Company Definitely, offering a lucrative scheme will

bring additional cost to company in terms of scheme incentives,

bottling and distribution.

Duplicate BrandsThis problem can only be tackled by educating people about the

company and its brand value. This is a long term initiative and

needs to be tackled accordingly. Surely, this will add on to the

cost to company.

Communication of SchemesScheme of the month should be directly messaged to the

wholesalers and retailers by the company and it should be ensured

that everyone gets the correct information and at correct time.

The implication of this can be that retailers and wholesalers

might wait before making orders, for the company to announce

schemes at the beginning of month. This will suffer our month end

sale figures. This can be taken care by not making any particular

date of scheme announcement or closure, but varying it with

different dates for different months.

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Too near WholesalersAnother problem is in existence of too near wholesalers. This

leads to rate competition between the two wholesalers. Such

smaller wholesalers can be shut and these areas can be covered by

the bigger wholesaler. But before doing so, the time since the

smaller wholesaler is in operation should be considered, as if a

wholesaler is in operation since long time, he might have build

very strong relationship with the retailers, and thus dissolving

such a wholesaler might lead to lose of sales for company. This

can also be an opportunity of promotion for the competitor.

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