Sales channels to reach your customers
Selling through retailers, wholesalers and other distributors
Selling through an intermediary may be a more cost-effective way of reaching your end-customers than selling to them directly.
If you are targeting business customers who prefer to deal with large suppliers, selling directly to them may not be a realistic option. Instead, you might aim to supply wholesalers who have existing relationships with those businesses.
If individual consumers buy low value quantities of your products, the best option might be to target retailers that sell similar products. Or you might choose to focus your efforts on a relatively small number of wholesalers who can in turn supply your products to many retailers.
Other distribution channels may also reach your end-customers. For example, technology suppliers often sell to resellers who can configure and install the technology to suit end-users’ particular needs.
Managing your distributors
You need distributors who will value your product. If they sell competing products, what will make them push yours?
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Think about how you set your prices. Distributors will be more enthusiastic if they can make a large profit – but setting too low a price will eat into your own margins.
Effective advertising and promotions can be vital. As well as marketing to the distributor, you can promote your products directly to end-customers. Distributors will be keener to stock and sell products that their customers are asking for.
The key terms of the supply relationship should be covered in a written contract. Key issues might include:
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how much stock the distributor will hold
what the distributor will do to promote your products
how quickly you can resupply and minimum order levels
whether the distributor has exclusive rights to your product (for example, in a particular territory)
what happens if either you or the distributor want to end the relationship
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FMCG stocks at all time high … Whats there in future?
If i go back 4 years, I see FMCG sector in shackles, but now the sector is back on track and is on the path to recovery. Growth is being witnessed in urban as well as rural areas.Major Drivers: With the implementation of VAT from 1st May 2005, it was a shot in the arm for organised players, as brands will become cheaper in times to come. Owing to this, smaller and unorganised players might lose the competitive edge, which in turn will benefit larger players. Organised retailing has brought a new lease of life to the FMCG sector. With income growth prospects looking strong, FMCG demand is likely to trace GDP growth in the next three to five years.Some stats: Index grown from 1636 to 2211 (35% growth) … investors are bullish on it and still forsee appreciable growthSuggestions: I think the investors to caution at current valuation levels. Investors should look at long tern i.e. three to five and should have the appetite to withstand any sharp decline in stock prices in the near future.Competitive strengths: FMCG companies success is often attributed to their marketing and branding skills. Ability to continuously create successful brands and advertising which gets the message across often spells success for a company. Once a brand is successful, it easier for a company to piggyback on its initial success introduce more products and associate them with the known brand. As they say, nothing succeeds like success.The consolidated topline in the last quarter of the top 5 FMCG major (HLL, ITC, Nestle, Britannia and Colgate) has grown by an enthusing 22% YoY, indicating that the FMCG sector is on the path to revival, with both rural and urban markets contributing to its growth. Infact, rural growth has outpaced urban growth in the past six months.When compared to 5 smaller FMCG companies (including the likes of Godrej Consumer and Marico), the larger companies have clearly outperformed as far as the sales growth is concerned. Though the net profit growth of the smaller FMCG majors combined has outpaced the likes of HLL and Nestle, in the long-term, i believe that the FMCG sector is a volume game (market share). In a downturn, when consumers tighten their pockets, there is a possibility that consumers can be more ‘pricey’. In the long-term, the challenge before FMCG players is on two fronts:1. Increase the consumer base – Here the semi-urban and rural market is an important leg2. Increase consumption of products per person (including upgrading existing customers to higher priced products in the same category)Future of FMCG: HLL expects the FMCG sector to triple in value by FY10. As per NCAER estimates, consuming class will touch nearly 50% by FY08 and much of this growth will come from the rural hinterland. With the modern retail sector expanding at a faster clip, FMCG companies are most likely to benefit. Currently, only 4% of industry sales are through the organised retail chains, which is expected to touch atleast 10% in the next three to five years. However, the profit margins are likely to shrink, albeit by around 100 to 200 basis points. But again, the FMCG sector is a volume-driven game i.e. growth at margin.So it is recommended that investors should choose those companies that have the ability to maintain market share (despite the ups and down in consumer spending) and have the ability to launch products on a continuous basis. By the way, FMCG sector/stocks are defensive in nature and therefore, returns are likely to be stable over the long-term.