Indian Institute of Management - Kozikhode

EPGCMM-06


Candy and Chocolate India (CCI): Last Mile Distribution Challenge

Case Analysis Note







By
S.N. Name Roll No. Designation Organization
1. Mr. Umesh R.
Sonawane
EPGCMM-06-024

Manager Corporate
Communications
Sahara India
Pariwar


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1. Why CCI should invest in rural? What are the opportunities in rural markets for CCI?
Ans: Following are the silent features of Rural Market, which makes it attractive for CCI-
a. Compared to urban market rural market is much bigger in size. With a 68.8 %
population residing in rural, its one of the largest opportunity sector for any
marketer.
b. Contributing 50% to Indias GDP rural income is on increasing spree. Its a
significant and quality elevation in overall rural income per capita.
c. The fact that Indias per capita chocolate consumption is as low as 20gm
(whereas the world average is 3000gm, for Europe its 6500gm and for USA its
9000gm), makes the entire country a lucrative market. This situation even
gets worst for the rural market.
d. In both consumption and penetration Indias rural market is light-years
backward compare to the urban market.
e. With recent development projects, government subsidy and higher crop
values give rural consumer high purchasing capacity. It makes a perfect
opportunity for companies like CCI to cash in.
f. Un-organised chocolate market is huge in rural areas working on higher
margins, resulting into substandard products at a higher cost. If an organised
player like CCI works out their last mile strategy, they could vouch for their
product quality at lower cost for rural consumers.

2. What are the barriers for CCI to distribution in rural markets?
Ans: Rural market poses following entry and working barriers for CCI-
a. Scattered population - Reaching a scattered population in rural area is the
biggest challenge for any marketer trying to achieve its foothold. Distances
not only makes distribution expensive, but also non-feasible.
b. Transit damage problems - Due to long transit in rural distribution, food and
confectionery, distribution always faces dire consequences of products
getting stale and non-edible by the time it reaches retail shops.
c. Low Density of shops - For villages with population lower than 10,000 has
hardly 1-2 retail shops that too stay open only on weekly haats day, now to
supply these shops it is economically not feasible
d. Literacy level - Sub-standard education system and low literacy levels adds
to the difficulties to have good rural talent for recruitment
e. Seasonal nature - It's natural that rural consumer (farmer) whose income is
solely dependent upon seasonal crop tends to spend also seasonally. Hence,
even CCI can expect a chocolate sale seasonally.
f. Research difficulties - Above mentioned common rural market issues also
makes it difficult to observe and research behavioral patterns of the rural
consumer.
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3. Describe the confectionery market in India. How is the market different in urban and
rural India?
Ans: Following are confectionery market features with urban and rural differentiations-
a. With organised market growing at 6% and 12% organised candies and
chocolate market has a bright future.
b. Although, in terms of revenue candies are ahead, but chocolates are showing
rapid growth in the recent past.
c. Over 5 Mn. Retail and Kirana stores is the reach of this market, which poses
one of the largest market in the diverse country like India.
d. Recent branding efforts by some of the organised players positioned
chocolates as more of a gifting articles replacing traditional sweets.
e. Product penetration for urban market is 75%, whereas the rural market is
only 0% penetrated.
f. Urban chocolate market mainly driven by brand, compare to rural market,
which is more driven by the price of the product.
g. Price sensitive consumer of rural market favors sub-standard cheap product
over good quality high cost branded product
h. This price sensitivity also a major reason why rural market favors value SKU
whereas urban consumer gives sales for all types of SKUs
i. Educated consumer and organised branding effort has exploited urban
market, but difficulties in sales and distribution has made rural market still an
untapped entity.

4. Does the case have any hero (case protagonist), a dilemma or potential solutions?
Ans: According to me Mr. Akhilesh Gupta is the hero in this case. One can observe his
belief in the RTM strategy for rural market and his dedication to do what it takes to tap
rural market. Also, potential solution lies in the analysis I will explain below with pros
and cons that depicts the right way to go that last mile for CCI.

5. Identify the criteria on the basis of which evaluation and comparison of
alternatives (or potential solutions) for distribution should be made?
Ans: Looking at CCIs long term vision and market conditions, following are the criteria
worked out-
a. Its important for a potential solution to be workable and practical
b. The solution must adhere to CCIs business objectives to build brand, to
enhance the product reach, increase revenue and make the entire rural
distribution self-sustainable.
c. Ensure limited use of resources to increase affordability and scalability of the
entire operation.
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d. Increasing bottom-line with reduced number of intermediaries and minimum
overheads.
6. Evaluate the alternatives for distribution on the basis of choosing criteria and find out
which among the available options is best for CCI
Ans: Looking at the data given in the case, below is the evaluation for each of the
alternatives-

Type Margin Price
Retail shop 12.5% 0.875
Sub-Stockiest 4.5% 0.835
Super-Stockiest 2% 0.81

Alternative 1: Super stockist Model
Pros:
Flexibility in operations and scalability
No channel conflict, hence sustainable option
Cons:
Limited expansion
Revenues generated are less compare to resource it requires

Alternative 2: Haats
Pros:
Total 43000 haats in India, weekly reach
Preferred shopping destination for rural India over retail shops
Good connectivity
Multiple villages are attracted to haats, around 20-40
Footfall of 5000 to 12000
Cons:
Problem with channel establishment due to moving of temporary haats

Alternative 3: Vans
Pros:
High mobility
Used widely in rural areas
Brand awareness
Cons:
Its expensive with van costing 3500 per day
Limit the area as only 33% of rural market is connected with good roads


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Alternative 4: SHGs
Pros:
Margins are high for CCI
Personal selling possible
CSR opportunity
Cons:
Sales will be limited
Uneven spread of SHG across India

Alternative 5: Mobile Traders
Pros:
Local knowledge
Can reach haats and retail shops
Reaching areas without roads
Flexible pricing depending upon penetration
Cons:
Lower sales volumes
Only low cost and value pack selling possible

Alternative 6: Tie-Up with India Post
Pros:
Economical way to reach rural market
Direct connect with consumer
Cons:
Have to use in continuation with retailers and mobile traders
Due to the sheer size of its network Indian post has high negotiating power
No relevancy within tie-up products

Recommendations

The combined solution of using haats and mobile traders is what I would
recommend
Low connectivity, remote villages will be covered by Mobile traders
Lower volumes of the mobile traders will be compensated with high volume sales at
haats
Direct connection with consumer mobile traders will also contribute to brand
awareness.
Haats presence will expose the brand to a large number of audience, also mobile
traders can become secondary touch point
As a secondary touch point mobile trader channels will also contribute to brand
recall function
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