Britannia shifts focus to direct supply, to operate with zero-day inventory
New Delhi: Britannia Industries Ltd is adapting the “leanest possible” distribution model to directly “tailor-serve retail outlets” across the country in less than a day as part of its plan to multiply sales and expand retail reach, said a senior executive. Currently, the process takes between one and three weeks.
In the new distribution model, the Kolkata-headquartered biscuit maker plans to operate with a “zero-day inventory” by “reducing distance between its distribution centres and retail stores” that the company reaches directly.
“Direct distribution results in much better offtake of brands. We have seen two to three times higher brand offtake (sales) after we started serving a particular retail outlet directly,” said Gunjan Shah, vice president (sales), Britannia Industries. The aim, he added, is to go as deep possible ensuring it makes “commercial sense”.
But how far can Britannia go? “In some areas, we can go up to the level of a store that sells Britannia products worth Rs1,000 at least,” said Shah. That’s just 100 packets of biscuits priced Rs10 each—Britannia’s largest selling pack size in non-metro markets.
The decision to focus on direct distribution came soon after Varun Berry took over as the company’s managing director in March 2014. At that time, Britannia used to serve only 6.5 lakh retail outlets directly. In comparison, Fritolay — a brand marketed by PepsiCo where Berry spent almost two decades — had a direct reach of 1.1 million outlets despite being one-fourth of Britannia’s size.
“From now on, every year we will add 2-3 lakh outlets to our direct network,” Shah said. At present, the company directly reaches to 1.7 million retails stores of the 4.8 million outlets where Britannia products are sold. There are about 11 million retail outlets in India, of which around 8 million sell biscuits.
In the new direct distribution model, the entire supply chain is controlled by Britannia. Every day, around 20,000 people who are on Britannia’s direct payroll, visit retail stores, analyse local demands, suggest required tweaks in product placements based on the company’s in-house analytics and take orders on their mobile phones through an app. The orders are then delivered directly by Britannia from the nearest distribution centre within a day.
Traditionally, Britannia stocks products at its distribution centres. Products first go to its exclusive wholesale dealers, then distributors and direct retailers. The entire process takes anything from one week to three weeks, depending on the distance between the retail outlet and the factory. Britannia wants to reduce this to less than a day.
While the focus on direct distribution was initiated in 2014 and increased reach, the new form of direct distribution is fairly new. In the last couple of years, Britannia tested the model for commercial viability in different pockets across 10 cities, starting with Mumbai.
“The new system is mapped real-time. It also reduces operational cost for dealers and distributors as they would not need to stock products,” added Shah.
At present, Britannia has more than 800 vendors, 70 factories, 50 depots, 300 stock-keeping units and 3500 wholesalers. “The role of dealers and distributors is changing first. We need them for local knowledge, logistics and credit collection. Plus, they would take our products to geographies where Britannia can’t reach direct in a commercially viable manner. This would further expand reach,” added Shah.
Britannia is not alone in implementing the new distribution model. Kolkata-based cigarette-to-biscuit maker ITC Ltd, which reaches about 2 million retail stores directly, has been working on a similar ‘factory-to-retail in a day’ model for the last few years, Mint reported on 10 June 2015. Britannia’s rival Parle Products, the maker of Parle G biscuits, has the largest retail reach.
According to a McKinsey and Co. report on the future of retail supply chains, companies can reduce costs by about 20% at the distribution centre level, while optimal deployment of inventory can reduce working capital by about 10%.
To move to a “zero-day inventory” operational model, Britannia has been increasing its distribution centres aiming to reduce distance between them and retail outlets. “We now have around 14,000 distribution points, 4 times higher than what it was in 2013,” he added.
“Britannia has been in revamp mode for the past couple of years backed by change in distribution strategy. The focus on direct distribution is the right thing that the company has done. It would help accelerate revenue, increase market share, and improve cost efficiency in the long term. But direct distribution would not make commercial sense in remote areas,” said Sachin Bobade, an analyst with Dolat Capital Market.
For Rs 8,684-crore Britannia Industries, the theme is “pretty clear”: “Reduce distance to the market”, Berry told investors in the company’s last earnings call on 14 February.
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