Emerald Emerging Markets Case Studies

Naturo products – sales and distribution management

Rajeshwari Krishnamurthy,
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 Naturo products – sales and distribution
management
Rajeshwari Krishnamurthy

Introduction Rajeshwari Krishnamurthy

is based at Marketing,
Anil Gupta was beaming with joy. The financial year 2015 had just ended and the business Great Lakes Institute of
turnover of Naturo products in the city of Jamshedpur had exceeded his expectations. He Management, Manamai
clearly remembered how three years ago he had been very apprehensive about taking the Village, Tamil Nadu,
distributorship of this company. But now, with the business turnover of US$140,000, for the
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India.
year 2015, he was very pleased with himself for going ahead with the decision.
However, Gupta was now faced with an important related dilemma regarding the
continuance of the distributorship business. He was earlier the distributor of the
organization Himalaya herbal products in Jamshedpur. Recently, that company had been
pressurizing him to come back. Gupta had roped in a business consultant to look at the
pros and cons of both the businesses. Himalaya herbal had been around in the market for
a much longer period than Naturo. Initially, the company had begun with a lot of zest and
market spending but of late its sales were declining. With Naturo coming in aggressively,
its distributors and sales force had been moving away from the company.
However, Himalaya herbal was determined to hit back. In fact, the company had been
approaching many successful Naturo distributors and Gupta was one of them. Gupta also
knew that once he refuses to go back to Himalaya distributorship, he may never get a
chance again. Though he was happy with his Naturo performance, he was keen to take
stock of the situation more closely. After all Naturo was a relative new entrant and he
wanted to be sure that he was taking the right decision by deciding to continue with the
company’s distributorship. And not resign and go back to his earlier company Himalaya as
a distributor. This decision involved comparing the various elements of distributorship, the
returns on investment made, other important aspects like retailer satisfaction and so on.
Gupta was sure he had all the required information but in different places. It was time to
take stock.

Naturo – the company

Naturo Founder’s (founder of the company) Naturo Ayurved Limited had created quite a
disruption in the fast-moving consumer goods (FMCG)[1] segment. Naturo Ayurved
company, which had started as a small pharmacy, had expanded to sell the full range of
Disclaimer. This case is written
consumer categories, from edible oils, biscuits and noodles to toothpaste, hair and skin solely for educational
care products, and groceries. The company had witnessed explosive growth in the past purposes and is not intended
to represent successful or
few years. Please refer to Table I. unsuccessful managerial
decision-making. The authors
Naturo was fast posing a serious threat to other leading FMCG companies in the Indian market may have disguised names;
financial and other
such as Dabur, Emami, Marico and Godrej Consumer. The business was divided into two recognizable information to
categories – Cosmetics and Foods. Cosmetics had an SKU (Stock Keeping Unit) range of 200 protect confidentiality.

DOI 10.1108/EEMCS-06-2017-0111 VOL. 8 NO. 4 2018, pp. 1-15, © Emerald Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
 Table I Business performance of Naturo Products
2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-2017
Year 2010 2011 2012 2013 2014 2015 2016 (est.)

Turnover
US$m 24 47 66 82 176 295 736 1,472
Source: Naturo Annual reports

while the foods business had an SKU range of 210. Ghee (dairy product) was the biggest
money spinner for Naturo, contributing to 30-35 per cent to its revenues, followed by the
health-care range (around 20 per cent), and the toothpaste Dant Kanti (8 per cent).

Reasons for success

There were many reasons cited for the success of Naturo products. According to Harish
Bijoor (leading brand consultant), it was “product strength”. Another view by Sridar
Ramanujam (Founder, CEO, Brand Comm.) highlighted Naturo’s association with “Yoga”
and that the fact that the Naturo Founder had political inclinations worked in his favour in
running the business. Yet another opinion by Anand Halve (Co- founder, Chlropyll) was that
Naturo’s “Swadesh” approach (Made in India) was the reason why consumers were
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adopting the products. According to him, the consumers also believed that the products
were chemical free and contained organic and natural ingredients. According to Samir
Kumar (Head Creative “brand Harvest”), the non-profit orientation of the company was
contributing immensely to its popularity.
From a market stand point, reasons for success of Naturo included rapid growth in
distribution, product quality and the sales force employee welfare schemes.
Naturo – distribution. The distribution reach of Naturo was climbing rapidly. Table II outlines
the percentage of retail outlets’ reach across the leading players in the FMCG category.
The increase in reach was particularly creditable as Naturo was a recent entrant compared
to the other players. The company sold its products through both its exclusive stores (about
11 in Jamshedpur) and through common retail counters (about 1,500 in Jamshedpur). It
even had tie ups with government organizations like DRDO (Defence Research and
Development organisation) for technology transfer.
Exclusive stores. The concept of exclusive stores was very popular in textile industries or
in automotive industries but not so popular in FMCG sector, though there were a few firms
especially in the cosmetics and health-care sectors running their exclusive stores (e.g.
Himalaya, Lakme). Till 6 months ago, the Naturo products were sold only through its
exclusive stores which were of three categories:

1. Chikitsalya: This was an exclusive store and that had a company “trained and
employed” doctor who prescribed Ayurvedic medicines. As medicines were not
normally allowed to be sold through OTC counters, the trained doctor gained
significance. Chikitsalya outlets had a target of making a sale of value US$7,353 per
month. They procured their stocks directly through the company and profit margins
ranged from 5 to 8 per cent.

Table II Reach of various players in FMCG industry

Company FMCG Ayurvedic Dabur Zandu Naturo Himalaya

Reach 99 79 54.6 16 15 5.5

(%)
Source: IMRB report- Oct 2015- Mar 2016

PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 8 NO. 4 2018

 2. Arogya Kendra: These did not have a resident doctor but had a target of making a sale
of value US42,942 per month. They procured their stocks directly through the
company. Margin ranged between 5 and 8 per cent.
3. Swadeshi Kendra: These also did not have a resident doctor and had a target of
making a sale of value US$1,470 per month. They procured their stocks directly
through the company. Their profit margin ranged between 5 and 8 per cent.
Going forward, Naturo as an organization has plans of coming up with more exclusive
stores that were of the size of Big Bazaar and Kmart. These were expected to have all
amenities that are available in any high end retail store.
Non-exclusive stores (Retail counters). The company had recently allowed the products to
be sold over the retail counter and had also tie up with large national retail chains like Big
Bazaar. Although this increased the reach of the products tremendously, in the words of an
exclusive store owner, “the introduction of selling through these counters had adversely
affected their market prices” (the local retail shops have an option of selling the Naturo
products at cost and make up for the lost margins from commodity products like daal and
pulses. This option is not available to the exclusive stores who sell Naturo products at
Maximum Retail Price only.) This along with other policies on credit extension, product
promotions and damage stock clearance affected retailers’ satisfaction levels.
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Distribution chain. Naturo Company had a Carrying and Forwarding agent (CFA). A CFA is
an agent who moves the goods to the various distributors in a specified geography.
Gupta’s distributorship in Jamshedpur and the exclusive stores received supplies from
CFA, while retailers got supplies from the distributor on a weekly basis.
The whole system worked on cash payment. The distributor paid cash upfront for his
supplies and the retailers made immediate cash payments to distributor. There were no
special promotions from the company as the demand exceeded supplies.
Currently, there was no stock return policy from the company; people did speculate that if
the company had some return policy it would have helped both the distributors and the
retailers. The company policy was that the distributors maintained an inventory of 15 days
(and 7 days transit), i.e. if a product sold 10 units in a month distributor had to have at least
5 units in stock at any time. Retailers had no such guidelines and could decide their stock
level with autonomy.

Naturo business performance in Jamshedpur

Jamshedpur was a fast-growing city in India with a population of 6,30,000 according to
Census 2011. Most leading companies had presence in the city and Hindustan Unilever
(one of the biggest in the category) was doing a business of US$1.1m. The city had an
outlet universe of around 4,700 and Naturo covered around 1,500 of those.
The average retailer margin in cosmetics for Naturo products was 12.5-20 per cent and in
the food category, it was 5-7 per cent. The average distributor margin across categories
was around 5 per cent. The total business turnover about two years ago was US$0.22m.
Per annum and had now grown explosively to US$0.58m per annum. In the city of
Jamshedpur, the company was aggressive about increasing its outlet reach and the
distributor had targets of adding 10 new retail counters every day to cover the 4,700 retail
universe in the city. In Jamshedpur alone, the company had three sales people to reach this
target. The sales targets for distributors were doubled each month and if they were unable
to meet these targets the Area Sales Manager of the company assisted them with problem
identification and resolution. However, Gupta till now had managed to achieve targets
consistently.

VOL. 8 NO. 4 2018 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3

 Naturo distributor was known for his record keeping skills. He tracked costs, documented
sales and looked after administration well. The various cost elements at the distributorship
have been given in Table III.
Sales force work – culture at Naturo. The work culture in the company was highly
appreciated; some of the key elements were:
 Both men and women of a family were employed by Naturo.
 Naturo had implemented internet enabled GPS tracking system in its sales force to
ensure that they went for regular site visits. Moreover, they were required to click
photographs of the counters visited and have them sent to head office through emails.
 Due to respect for the founder Naturo Founder, the distributors did not demand for
Goods unloading charges, employee sharing expenses, etc., which were very
common with other FMCG companies like Himalaya, HUL, etc.
 Employees were loyal to Naturo as they felt that by working for Naturo they were
contributing to “swadeshi” movement.
 The holiday calendar of Naturo was very different from that of other FMCG companies.
Employees got holidays on many local Indian festivals.
 The key strategic personnel in Naturo Company had a rich FMCG background. This
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improved appreciation of sales force problems more easily.

The context of Himalaya herbal products company

Himalaya Herbals was founded by M Manal as the Himalaya Drug Company in 1930. The
ambition as he saw it was to bring the traditional science of Ayurveda to society in a modern
format. In 1934, its product Serpina® became a pioneer drug for hypertension. In 1955,
Himalaya launched Liv. 52, a liver formulation. The product soon became its flagship brand
and a fast-growing herbal medicine. The company then thought of venturing into personal
care segment which were eventually launched in 1999 under the brand name Ayurvedic
Concepts. These were later re-christened as Himalaya Herbals. Currently, personal care
contributed 38 per cent to the total business in India. Within this category, Himalaya rapidly
became the top player in the face cleansing and lip care segment. It had over 20 per cent
share in face wash segment, making it the largest brand in the country. The company had
presence across the globe, including India, USA, South Africa and other countries in
Europe, the Middle East and Asia and served the health and personal care needs of
consumers in 90 countries. (Source-website-www.himalayawellness.com)
The annual sales of Himalaya in Jamshedpur exceeded US$440,000; they covered more
than 900⫹ retailers. There were two distributors of Himalaya in Jamshedpur – Flyfoot
Enterprises and Prateek Enterprises. They had taken up distributorship in 2005 and also
held the distribution rights of other companies such as Zydus, Boroline, Fun N Fruits, Sugar
free, Sun Parma, Everyuth and Figaro. Flyfoot Enterprises was awarded as No. 2
distributorship across FMCG in Jamshedpur by an A.C. Nielsen market survey. (Source –
Himalayan sales force, Jamshedpur; Wikipedia-Himalayan drug company)
The distributors maintained 1 month of inventory for Himalaya products, and the CFA
carried materials four times a month to the distributor. The transactions were made all in
cash with no credit allowed. Thus, only if the distributor paid the company upfront with full

Table III Cost elements at the distributor’s place

Item Rent Salary Delivery Power Computer Unloading /Misc. charges Total

US$ per month 1470 1176 331 44 30 75 3125

Source: Company Officials

PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 8 NO. 4 2018

 cash, did the CFA dispatch the material from the godown. This sometimes created
bottlenecks and blockages with the materials getting stuck due to various reasons for
several months. In such a scenario, payments were also blocked for that duration.
However, this pattern was the norm in the herbal and ayurvedic FMCG category, with all
other companies also following the same all-cash no-credit cycles.
Himalaya gave 6 per cent margin to distributors, while the margins for retailers were in the
range of 10-15 per cent. However, bulk purchases made by large organized retailers such
as Big Bazaar allowed them a total margin of around 20-25 per cent. Also, the margin was
region-dependent, i.e. eastern region got 6-8 per cent, while the western region got 10-12
per cent. (Source – Himalaya trade and distributors, Jamshedpur)
The distributors had a staff strength of 17-18 people and companies gave subsidy for the
employees working at the distributors’ place. So if the distributor was paying US$100
around US$50 or less was borne by the company. Currently, Himalaya had three people
subsidized at the dealers’ location. (Source – Himalaya trade and distributors, Jamshedpur)
The company paid rent to its retailers around US$10 to US$40 per month for display of its
products and promotions, based on location and sales of the retailer. However, this amount
was not paid in cash but was adjusted against the bill value or through its products
(Source – Himalaya sales force, Jamshedpur)
Most of the distribution business worked on the rapport and relationship between the
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dealership and the company. However, an incident had occurred in 2010 wherein
Himalaya attempted to find another distributorship due to non-performance. This move by
the company backfired and the issue had to be resolved by the tactical handling of the
situation by the sales person from Himalaya.

The problem of price undercutting

The company distributors were facing price undercutting problems from the hawkers in the
market. These hawkers leveraged the margin percentage difference between the east and
west regions and got the merchandize from the east as the material was cheaper by 6 per cent
and sold it in the western parts of the country with a very little margin. In this process, they saved
taxes too. Retailers in these regions also preferred this arrangement as they themselves did not
need to pay taxes and ended up saving almost 4.5 per cent of the total tax money.

Other problems faced by the Himalaya distributor

There were a few other problems that the Himalaya distributors had faced. The company sales
team pushed stocks to achieve their sales targets without considering the market situation. This
did not go well with the distributors. The company wanted to place their own software and
people at distributor’s place. This was not received well by the distributors. The distributor had
a good relationship with CFA so got stocks on time and in case if it was blocked due to some
reason, they both managed the situation amicably. The company gave promotional material
(such as free samples) for publicity of the products but since there was inadequate space, it
cluttered the space in the Godown. The current retail coverage was optimal but had repetitive
distribution. (Source – Himalaya sales force, Jamshedpur)

What to do?
Gupta hired an external consultant to do the analysis and help him with the decision-making on
whether he wanted to continue with Naturo Ayurved or go back to Himalaya herbals. He shared
all his current understanding of the distributorship business with the consultant.
The consultant drew up a comparison table of the distributorship across Naturo and
Himalaya companies. Please refer to Table IV.

VOL. 8 NO. 4 2018 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5

 Table IV Comparison of distributorship aspects between Naturo and Himalaya
Aspect of distributorship Naturo Himalaya

Inventory level at distributor 15 days ⫹ 7 transit 30 days

Total company turnover in Jamshedpur USD 588,200 USD 441,176
Years in existence 3 years Ten years
No. of distributors in Jamshedpur 7 2
Credit to distributor None None
Margin to distributor 4-5 6
Retailers reach as % of FMCG universe 15 5.5
Past growth in business turnover Tremendous Stagnant/ Marginally declining
Price under cutting Limited Prevalent
Product promotions No Yes
Retail coverage 1500 900
Exclusive stores in JSR 11 0
Damage stock return policy No Yes
Other aspects GPS Tracking of sales Subsidy to employees and rent at Distributors office
Online demand capturing
Palm tops for salesmen
Salesforce work culture Employee friendly Not known
Source: Analysis between company employees and the case author
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The consultant still felt the need to get some first-hand understanding of the entire
business. His talk with Gupta (Exhibit 1) revealed that Naturo had some strong future plans.
They were planning online and real time inventory updates, on the spot order, order
tracking and fulfillment including online Billing and online shopping plans through Apps
and palm tops. They were equally focused on opening mega stores – to be serviced
directly from CFA, where there would be consultants to aid the decision-making of
customers. Employment to the complete family with additional benefits was going to be
taken up – including aspects of Shift wise Duty and transport facility. Quality was getting an
overall facelift through Service level agreements and lab tests. Acquiring other players
onboard was also on the cards, for e.g. Sona Biscuit of Kolkata and marketing and
branding their products under their own brand name – Naturo biscuits.
Keywords:
Sales management, The consultant further decided to meet up with some field personnel regarding Naturo’s
Distribution channels, performance in Jamshedpur. The interactions by ways of questions and answers are given
Retailing in Exhibit 2.

Note
1. FMCG refers to the category that comprises the daily consumable items such as soap, toothpaste,
foods and beverages. These are characterized by high purchase frequency, lower purchase value
of multiple pack sizes within the same brand and complex distribution systems to reach the end
consumers. The influencing role of trade/channels is high in many cases. This industry is a
significant contributor to the Indian economy and is growing at an annual rate of 11%.

PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 8 NO. 4 2018

 Exhibit 1. Interactions between the consultant and Gupta, the distributor.
Q. The distributor arranges weekly meeting with its sales person, what is the purpose of this?
Ans. The main agenda for this meeting is to give targets to salesman, understand what their
problems are; currently a salesman covers 40 shops in a day but that is not feasible in
Jamshedpur as the working hours is between 10 a.m. and 2 p.m. only.
Q. What is major problem faced by sales people?
Ans. The fast moving packs are short in supply. Also the competitors give trade schemes
to retailers but Naturo does not; in such cases some retailers do not take stocks.
Q. How is the distributor relationship with retailer?
Ans. As the distributor is from Jamshedpur area, they have a good relationship; also Naturo
is branded by Naturo Founder, so people recognize the brand.
Q. What is the process of hiring of salesmen?
Ans. Salesman are all from local Jamshedpur. The company hires experienced and trained
salespersons. .They also look for some market report of their prior experience.
Currently, the distributor has a person solely dedicated for customer calling wherein he
calls retailers and asks for product quality and grievances.
Q. What is the stock return policy of products?
Ans. The company does not take expired products back but in case the product seal is
tampered or if there is any other genuine issue with the product, then they take the products
back.
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Q. Are there issues of price undercutting due to differences in margins between the east and
west regions?
Naturo gives equal margins all across India, it treats all its distributors in the same way,
hence this problem is limited.
Q. How is the distributorship assigned?
Prior to Naturo becoming a brand, the company gave distributorship to anyone without any
profiling, one just needed to pay cash and get the stocks.
However, after Naturo became a well-known brand, profiling is now done on four factors –
financial strength, space availability, market reputation and prior experience.
Q. Has the organization undergone any significant changes recently?
Previously, the organization was liberal and had a soft corner for distributors but now it has
become more professional – similar to other FMCG companies. There are no structural
changes but aspects like beat plan creation, software installation are taking place.
Q. Is there any special connection that the distributors have with the company ?
Distributors are followers of Naturo Founder, and they visit the Holy pilgrimage Haridwar
two or three times a year. This seems to build bonding between them.

Exhibit 2. Interactions between the consultant and Naturo’s sales person

Q. what is the selection procedure of salesmen?
Naturo is a fast-growing company and the sales people are selected through Interviews. It
is an intense process where there are three rounds of interviews in Jamshedpur, two in
Ranchi and the final one in the head quarter Haridwar where the offer letter is given.
Q. What is the sales force hierarchy?
Country head ¡ zonal manager ¡ RSM ¡ ASM ¡ TSI ¡ field manager ¡ sales person
Q. Can you elaborate on aspects of salary, performance evaluation/Assessment and
motivation?
The salary levels are below Industry Standards by 5 per cent – all Fixed No Variable
component. The Sales are linked to Key Performance Indicators. The salesmen have to
interact with Super Distributor, Distributor, Retailer and Sales Man to improve their Sales.
The responsibilities include educating the distributor, retailer and the distributor Sales man
about product features and quality; plus motivate the sales team to focus on selling the
complete range of SKU and not just fast selling items. This helps him gain the confidence
of retailers.

VOL. 8 NO. 4 2018 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7

 The company salesmen take great pride in selling the unique high-quality Naturo products;
the Naturo advertisement on TV also motivates them. Product knowledge is obtained
primarily through team meetings and through books published by Naturo.

About the author

Dr Rajeshwari Krishnamurthy has completed her PGDM (MBA) from Indian Institute of
Management Ahmedabad and has worked in the top corporates like Hindustan Lever,
Nippon Paint in sales and marketing for 15 years. She then did her PhD from IIT Madras and
teaches at various IIMs. Her research interests are sales and distribution and new product
development in FMCG category. Rajeshwari Krishnamurthy can be contacted at:
rajeshwarivictor@gmail.com
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PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 8 NO. 4 2018