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Introduction Case study 1 : nestle Case study 2 : Coca-Cola Conclusion References

Distribution channels or marketing channels

The 3rd marketing mix tool- distribution An individual firms success not only depends on how well it performs but also on how well its entire distribution channel competes with competitors channels. Distribution or marketing channel decisions are among the most important decisions that management faces. A companys channel decision directly effects every other marketing decision. Management must make channel decisions carefully, incorporating todays needs with tomorrows likely selling environment. Some companies pay too little attention to their distribution channels, but others have used imaginative distribution systems to gain competitive advantage. Most producers use intermediaries to bring their products to market. They try to forge a distribution channel- a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user through their contacts,experiences,specialization and scale of operation. Intermediaries usually offer the firm more than it can achieve on its own.


Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods (CPG), are products that are sold quickly at relatively low cost. Though the absolute profit made on FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such products can be large.

Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, light bulbs, batteries, paper products and plastic goods.FMCG may also include pharmaceuticals, consumer electronics, packaged food products and drinks, although these are often categorized separately.

FMCG products contrast with durable goods or major appliances such as kitchen appliances, which are generally replaced less than once a year. In Britain, "white goods" in FMCG refers to large household electronic items such as refrigerators. Smaller items such as TV sets and stereo systems are sometimes termed "brown goods"

A subset of FMCGs are Fast Moving Consumer Electronics which contain innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS Systems, cell phones and Laptops which are replaced more frequently than other electronic products mainly due to technology changes.

Some of the best known examples of Fast Moving Consumer Goods companies include Clorox, ColgatePalmolive, General Mills, H. J. Heinz, Reckitt Benckiser, Sara Lee, Nestl, Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kimberly-Clark, Kraft, Pepsi, Wilkinson and Mars.

Nestl S.A.

Type Public (SWX: NESN) Founded Vevey, Switzerland (1866)

Headquarters Vevey, Switzerland Key people Henri Nestl, Founder Paul Bulcke, Chairman & CEO

Industry Food processing Products Baby food, dairy products, breakfast cereals, confectionery, bottled water, more...

Revenue 107.55 billion CHF (2007) Net income

10.65 billion CHF (2007)

9.9% profit margin

Employees 265,000 (2007)

Website www.nestle.com

Nestl at a glance :

Nestl with headquarters in Vevey, Switzerland was founded in 1866 by Henri Nestl and is today the world's leading nutrition, health and wellness company. Sales for 2007 were CHF 107.6 bn, with a net profit of CHF 10.6 bn. We employ around 276 050 people and have factories or operations in almost every country in the world. The Company's strategy is guided by several fundamental principles. Nestl's existing products grow through innovation and renovation while maintaining a balance in geographic activities and product lines. Long-term potential is never sacrificed for short-term performance. The Company's priority is to bring the best and most relevant products to people, wherever they are, whatever their needs, throughout their lives.


Analysis of Nestl :

Strengths :
Access to the Nestl Groups proprietary technology / brands, expertise and the extensive centralised Research and Development facilities under the General Licence Agreement. High quality and safe food products at affordable prices, endorsed by the Nestl Seal of Guarantee. Strong and well differentiated brands with leading market shares. Strong equity with consumers as a Company with high quality brands. Ongoing Product innovation and renovation, to convert consumer insights. Well diversified product portfolio.

Efficient supply chain. Distribution structure that allows wide reach and coverage in the target markets. Capable and committed human resources.

Weakness :
Exports of coffee to Russia, constitutes substantial part of overall exports. Complex supply chain configuration.

Threat :
Competitive environment with diverse players. Rising prices of raw materials and fuels. Change in fiscal benefits/ laws.

Opportunities :
Potential for expansion in the smaller towns and other geographies. Potential for growth through increased penetration. Growing trend for Out of Homeconsumption. Leverage Nestl Technology to develop more products that provide Nutrition, Health and Wellness.

Main Brands

Today Nestl is present in different markets with the following main brands: Nescaf, Nespresso,Tasters Choice, Ricor, Ricoffy, Bonka, Zogas, Loumidis Poland Spring, Nestl Pure Life, Arrowhead, Vittel, Deer Park, Levissima, Perrier, S.Pellegrino, Ozarka, Contrex, Ice Water Mountain, Zephyrhills, Nestl Aquarel, Hpar, Acqua Panna, Nestea, Nesquik, Nescau, Milo, Carnation, Libbys, Caro, Other beverages Nestomalt, Nestl Nestl, Nido, Nespray, Ninho, Carnation, Milkmaid, La Dairy - Shelf stable Lechera, Moa, Klim, Gloria, Svelty, Molico, Nestl Omega Plus, Bear Brand, Coffee-Mate Nestl, Sveltesse, La Laitire, La Lechera, Ski, Yoco, Dairy - Chilled Svelty, Molico, LC1, Chiquitin Nestl, Antica Gelateria del Corso, Dreyer's/Edy's, Ice cream Drumstick/Extrme, Maxibon/Tandem, Mega, Mvenpick, Sin Parar/Sem Parar/Non Stop, Delta Nestl, Nan, Lactogen, Beba, Nestogen, Cerelac, Nestum, Infant nutrition Neslac, Guigoz, Good Start Performance nutrition PowerBar, Pria, Musashi HealthCare nutrition Nutren, Clinutren, Peptamen, Modulen Bouillons, soups, Maggi, Buitoni, Thomy, Winiary,Torchin, Osem, Totole, seasonings, pasta, sauces Haoji Frozen foods (prepared Stouffers, Lean Cuisine, Hot Pockets, Buitoni, Maggi, dishes, pizzas, small Wagner, La Cocinera meals) Refrigerated products (cold meat products, Nestl, Buitoni, Herta, Toll House, Sabra dough, pasta, pizzas, sauces, snacks) Chocolate, confectionery Nestl, Crunch, Cailler, Galak/Milkybar, Kit Kat, Smarties, and biscuits Butterfinger, Aero, Polo Nestl Professional Chef, Davigel, Minors Purina, Friskies, Fancy Feast, Alpo, Gourmet, Mon Petit, Petcare Felix, Dog Chow, Cat Chow, Pro Plan, Purina ONE, Beneful, Tidy Cats Coffee

Distribution Efficiency

Effectively moving products from factories and distribution channel to customers and consumers is an essential part of a successful business. The continuing trend is for products to be transported over long distance within the supply chain. This has been facilitated by more efficient and more reliable systems for distribution. Improving distribution, results in cost reduction. Nestle takes steps to ensure that opportunities are continuously reviewed and that practical solutions are implemented. Nestle also recognizes the importance of ensuring that transport resources (vehicles, containers, etc...) are used in the most efficient way. Methods to accomplish this include high load utilization levels, optimization of distribution networks and use of distribution contractors.

Dual-temperature vehicles
During 1998, Nestl Argentina implemented an effective way to improve vehicle utilization in its fleet of temperaturecontrolled vehicles, reducing the number of journeys by 7% and cutting fuel consumption by over 30 000 liters per year. The innovative approach is based on the use of separators inside normal temperature-controlled vehicles. The separators create two temperature zones and enable Nestl Argentina to consolidate deliveries of compatible temperature-controlled and conditioned products (e.g., ice cream and confectionery) into a single vehicle.

This approach has resulted in significant improvements in vehicle space utilization, fewer journeys and reduced transportation distances. In addition to reducing the impact on the environment, the use of dual-temperature vehicles has benefited customers.

Orders for both confectionery and ice cream can now be sent together and not as separate deliveries. Nestl Argentina has extended the concept to chilled product distribution between factories and distribution centres. With the introduction of more vehicle separators, additional savings of close to 16 000 liters of fuel are expected per year.

Transport Resources
Methods have been developed to ensure that vehicles, containers etc are used in the most efficient way. Examples of initatives include the development of OPal, a software tool to assess and recommend pallet layouts. This led to a significant reduction in numbers of pallets, and therefore vehicles and journeys. Paper board slip sheets and innovative pallet designs have also improved load utilisation, as has the development of dual temperature vehicles enabling consolidation of deliveries of products such as ice cream and confectionery.

Optimising Networks
Working with contractors and co-operating with other producers allows the free vehicle capacity of one company to be matched with the available loads of another. Combining road and rail transport also helps to optimise distribution and reduce vehicle journeys. Computerised milk-collection systems have reduced driving distances by as much as 10%.

Nestle India - Background

With an employee-strength of over 3000 and turnover of US$ 497 million in 2003, Nestle India is one of the leading companies in the FMCG space in India. The company is acknowledged amongst Indias Most Respected Companies and amongst the Top Wealth Creators of India Nestl India has over the years built strong brands like MAGGI, NESCAFE, CERELAC, LACTOGEN, KITKAT and POLO. Nestle is major player in many segments of the FMCG sector such as noodles and sauces [MAGGI], instant coffee [NESCAFE] and weaning foods

Factors for success

The company has continuously focused on operational efficiency; improving product availability and visibility and initiated efforts to make its products more relevant to the consumers. This has been supported by the distribution of smaller stock-keeping units (SKUs)

Promotion strategy for market expansion

The following are some of the strategies used by Nestle for market expansion: Availability of NESCAFE enhanced through an expansion of the vending machine network. New consumption opportunities for chocolates and confectionery were identified and developed in areas like railway platforms, college canteens and major events. Nestle set up Caf Nescafe and Coffee Corners across metros and mini-metros

Thrust on supply chain

During the past few years, Nestle India has continuously focused on improving the supply chain to reduce wastage, improve efficiencies and provide consumers with fresh stocks all the time. Reduction in the finished goods inventory pipeline to improve freshness of stocks and reduce working capital Control on distribution costs through innovative measures Sustained improvement in customer service levels to improve product availability across all geographies and channels

From bean to bar - the production process

This case study looks at the massive, complex worldwide operations that ensures that chocolate products are on the shelves of retail outlets 365 days a year. It represents a triumph for careful planning and meticulous organisation. The UK's chocolate industry is over 150 years old. Chocolate manufacture provides steady employment and job security for tens of thousands of employees in manufacturing locations like York and Birmingham. Chocolate sales are an important source of income for many retailers. As a major buyer Nestl seeks to be as closely involved in the supply chain as possible, to ensure quality and fairness

Chain of production
The supply chain is the sequence of activities and processes required to convert raw materials and components into consumer goods and services and to deliver them to the consumer. For cocoa, the chain is often complex and varies from one country to another. However, a typical pattern would pass through the following stages. Primary producers. The first stage is to grow the cocoa beans. Often the many small farmers involved will live some distance from the market. They depend on people operating in the tertiary or service sector of the economy to collect, purchase and transport the cocoa product to warehouses. In an exporting country like Ivory Coast, export warehouses are located near one of the country's ports, Abidjan and San Pedro. It is at this stage that companies such as Nestl play an important role in the supply chain by checking consignments for quality. Nestl may buy directly from an export warehouse, or it may approach intermediary suppliers who buy cocoa beans in bulk from across the world and arrange shipment to the confectionery manufacturers.

The secondary stage of production is the manufacturing companies . These companies bring together the sugar, cocoa and other raw materials to manufacture the chocolate products we know so well: they convert the beans into chocolate bars and other finished products.

The final stage in the production chain is selling (retailing) to final consumers. Just as Nestl buys in bulk from exporters and suppliers, retailers buy in bulk from Nestl. Every Kit Kat or other chocolate product that you buy will have been through all these stages of production.

A company like Nestl is involved at every stage of the production chain. It gets to know as many people as possible in the supply chain, providing growers with technical advice, advising intermediaries about quality issues, and of course researching the market to find out what the consumer wants.

'Have a break, have a KitKat'

Kit kat
This product was developed as a four-finger wafer crisp, initially launched in London and the South East in September 1935 as 'Rowntrees Chocolate Crisp' and renamed two years later as KitKat Chocolate Crisp. It became KitKat after the Second World War. No one is sure where the name KitKat came from but its thought the famous KitKat Club of the 1920s had some influence. Within two years of launch, KitKat was established as Rowntrees leading product, a position that it has maintained ever since .

Distribution strategy
Nestl has developed distribution channels which ensure the availability of Kit Kat to buy wherever and whenever the consumer wishes to purchase it.

Sales of confectionery depend heavily on its availability, with market research showing that well over 60of all purchases are made on impulse. Consequently, Nestl tries to supply as many outlets as possible - both wholesaler and retailer channels. Point of sale merchandising is also important when consumers are making instant, snap decisions from a wide range of products on view. Instantly recognisable packaging also helps to tempt customers. Shoe shops, for example, have recently been identified as having potential for confectionery sales owing to the large number of families that visit them. It is also predicted that confectionery, along with all foodstuffs, will become available through cable and interactive television, videophones and the Internet.

Internationally, Kit Kat is now also manufactured in Canada, Germany, India, Malaysia, China, Japan, Australia, South Africa and the United States. It is available in more than 100 countries throughout the World.

Nestl jars status quo in Japan with new distribution approach

One of the first things newcomers notice when walking Tokyo streetsbesides the abundance of peopleis the abundance of vending machines. As has been noted by countless observers, the diversity of Japan's vending machines is breathtaking. But one kind of machine that you couldn't, and still can't find in Japan happens to be one of the most common in many western countriesthe snackfood/candy machine. the ones holding chips, candy, chocolate bars and gum. Perhaps because of the upfront investment costs, or perhaps out of sheer lack of imagination, Japanese snackfood and confectionery manufacturers have neglected what appears to be a very high-potential distribution channel. Until now. Recently Nestle Japan announced that it had taken steps into this arena with a national roll-out involving streetside dispensers. That's interesting news in and of itself but what's even more compelling is the clever way they've gone about it. Rather than spend a huge amount of time and money developing proprietary machines and installing them nationwide, Nestle has cleverly invented a way of piggybacking on Nestl jars status quo in Japan with new distribution approach. Recently Nestle Japan announced that it had taken steps into this arena with a national roll-out involving streetside dispensers. That's interesting news in and of itself but what's even more compelling is the clever way they've gone about it. Rather than spend a huge amount of time and money developing proprietary machines and installing them nationwide, Nestle has cleverly invented a way of piggybacking on existing infrastructure. They've come out with new packaging that allows Kit Kats to be sold through the 2.7 million beverage vending machines that already populate every village, town and city in Japan.

The Kit Kat Jar is shaped like a soda can, holds four individual packs and costs 200.

the idea is brilliant. It's not just a way of broadening distribution, but a way to reinforce the brand positioning while expanding eating occasions, since chocolate is an excellent accompaniment to the teas and coffees typically found in Japan's vending machines. What better way to "take a break" than with a Kit Kat and a soft drink? It's a first for Japan and could be the harbinger of things to come from other manufacturers who'll be quick to respond with their own products if Kit Kat does well. If Kit Kat succeeds, not only will we see other brands joining in, we may see all kinds of new extensions like drinks based on the chocolate brands themselves (like Kit Kat Kola, Kit Kat Koffee . . .)

Today, a jar of instant coffee can be found in 93 per cent of British homes and increasingly consumers are trying out different types of coffee, such as cappuccino, espresso, mocha and latte. The expanding consumer demand for product choice, quality and value has led to an increase in the coffees being made available to a discerning public. 'value' is the way in which the consumer views an organisation's product in comparison with competitive offerings. So how does coffee get from growing on a tree perhaps 1,000m up a mountainside in Africa, Asia, Central or South America, to a cup of Nescafe, and in millions of homes throughout the world? This case study explains why Nestle needs a first class supply chain, with high quality linkages from where the coffee is grown in the field, to the way in which it reaches the consumer.

Nestle's Trading Methods

Nestle is a pioneer in purchasing coffee direct from growers. A growing percentage of the company's coffee is bought direct from the producer and it is now one of the world's largest direct purchasers. In countries where this is not possible Nestle operates in a way that takes it as close to the growers as possible.

Buying From Dealers

In countries like the UK it is simply impossible for companies like Nestle to buy from the hundreds of thousands of farmers who ultimately supply the company, and so the

coffee is bought from dealers using the international market. However, Nestle visits and gets to know as many people as possible in the supply chain. The company oversees the relationship between the dealer and exporter and often invites shippers to the UK to train alongside its own quality assurance staff. Nestle agrees procedures on everything from pest control to methods of packing to ensure everyone is working towards the highest standards of quality.

Nestl takes over distribution of its readyto-drink coffee in Thailand

The local unit of Nestl has ended its distribution agreement with Thai Pure Drink and Haad Thip, the local bottlers of Coca Cola, for Nescafe ready-to-drink canned coffee, as it believes it can do a better job. The move is in line with the decision by the Swiss parent firm to take over the distribution and marketing operations of its products from Business Partners Worldwide (BPW). Given its experience and expertise in the coffee business, Nestle has insights into the products and consumer needs Under the terms of its agreement, BPW will distribute all ready-to-drink tea products worldwide. In Thailand, the Nescafe product range has been marketed and distributed by Nestle's own team since April 1. With its major restructuring plan, the company aims to become the market leader in the ready-to-drink segment soon, replacing the Birdy brand of Ajinomoto Sales (Thailand), which now controls more than 60% of the eightbillion-baht ready-to-drink coffee segment.

The history of Coca-Cola

Coca-Cola is one of the most recognisable brand names all over the world. But it has certainly come a long way from being a syrup sold by a pharmacist to something that is sold 7000 times every second in 195 countries. In May 1886, pharmacist, John Styth Pemberton concocted a caramel-colored syrup in a three-legged brass kettle in his backyard. The syrup contained Coca leaves and kola nuts. Later the drink was striped of narcotics. The drink was first designed as a drug that will help people feel better. After sometime carbonated water was added to the syrup and Coca-Cola was invented. The name Coca-Cola was suggested by Pemberton's bookkeeper, Frank M. Robinson. For five cents, consumers could enjoy a glass of Coca-Cola. The first advertising campaign for Coca-Coal was created by the two of them when they took an old oilcloth and hung it in the window saying "Drink Coca-Cola". On an average they sold nine glasses a day. Today Coca-Cola is consumed in more than 195 countries all over the world. Its trademark is recognized by an astounding 94% of the worlds population. In 1988 it was the first independent commercial entity in the communist ruled Soviet Union. Coca-Cola products are served more than 705 million times every day. Every second over 7,000 CocaCola products are consumed. If all the Coca-Cola ever produced were in 6 1/2 oz. bottles and placed end to end they would wrap around the earth more than 11,863 times. The best selling non-carbonated soft drink in Japan is a product of The Coca-Cola Company named "Georgia", a coffee flavored beverage It is loved by its consumers, feared by its competitors and hated by people who see it as the ultimate symbol of American capitalism. Its distribution channels are so well entrenched all over the world, that it is said that there are some areas where it is easier to get a Coke than to get a glass of water.

Its making and Distribution

Coca-Cola is a cola (a type of carbonated soft drink) sold in stores, restaurants and vending machines in more than 200 countries. It is produced by The Coca-Cola Company and is often referred to simply as Coke. Coca-Cola was bought out by businessman Asa Griggs Candler, whose marketing tactics led Coke to its dominance of the world soft drink market throughout the 20th century.

The company actually produces concentrate, which is then sold to various licensed Coca-Cola bottlers throughout the world. The bottlers, who hold territorially exclusive contracts with the company, produce finished product in cans and bottles from the concentrate in combination with filtered water and sweeteners.

The bottlers then sell, distribute and merchandise CocaCola in cans and bottles to retail stores and vending machines. Such bottlers include Coca-Cola Enterprises, which is the largest single Coca-Cola bottler in North America and western Europe. The Coca-Cola Company also sells concentrate for fountain sales to major restaurants and food service distributors.

The Coca-Cola Company has, on occasion, introduced other cola drinks under the Coke brand name. The most common of these is Diet Coke, which has become a major diet cola. However, others exist, including Diet Coke Caffeine-Free, Cherry Coke, Coca-Cola Zero, Vanilla Coke and special editions with lemon and with lime and even with coffee.

In general, The Coca-Cola Company (TCCC) and/or subsidiaries only produces (or produce) syrup concentrate which is then sold to various bottlers throughout the world who hold a Coca-Cola franchise. Coca-Cola bottlers, who hold territorially exclusive contracts with the company, produce finished product in cans and bottles from the concentrate in combination with filtered water and sweeteners. The bottlers then sell, distribute and merchandise the resulting Coca-Cola product to retail stores, vending machines, restaurants and food service distributors.

The Coca-Cola Company also produces a number of other soft drinks including Fanta (introduced circa 1942 or 1943) and Sprite. Fanta's origins date back to World War II when Max Keith, who managed Coca-Cola's operations in Germany during the war, ran out of the ingredients for Coke, which could be supplied only from the United States. Keith resorted to producing a different soft drink, Fanta, which proved to be a hit, and when Coke took over again after the war, it adopted the Fanta brand as well. The German Fanta Klare Zitrone ("Clear Lemon Fanta") variety became Sprite, another of the company's bestsellers and its response to 7 Up.

Coke: 21st century distribution

The new vending machines Coke have been trialling in Ireland.

These machines, made by a cool company called the Inspired Gaming Group, sell not only Coke, but a range of other services including ringtones and top-up vouchers for mobile phones. The machine also acts as a digital music jukebox, updated remotely to be always up to date and can burn CDs.

The trial of 200 machines has been positive, with revenue per machine twice as high as normal machines. The Sunday Times reported that if these results were repeated on the top 10% of Cokes 2.8m vending machines (accepted this is a bit of a leap), revenue would be boosted by a staggering $1.5 billion.

Coca-Colas New Distribution Model

Coca-Cola is rolling out a new distribution model in Montevideo, Uruguay with US alternative transportation company ZAP. Larger delivery vans will transfer Coca-Cola shipments into 30 small, efficient ZAP trucks for delivery into areas where larger vehicles are challenged by parking shortages, traffic congestion and air pollution. If this is successful, they might expand to large cities around the world where rising gas prices, traffic congestion, pollution and parking shortages restrict the use of large delivery trucks. Since Urban deliveries are becoming more and more challenging with traffic congestion and parking shortages, the ZAP Xebras will help Coca-Cola create a new distribution system that will be better for cities as well as for their bottom line." ZAP Xebras will help improve the distribution operations, save money, time and the environment. Coca-Cola subsidiary Monresa has received the initial order for 30 ZAP Xebras and is now placing them into service delivering beverages throughout Montevideo, the capital of Uruguay. The ZAP Xebras will be incorporated into a mobile distribution hub model where larger delivery trucks would no longer be used throughout the city, but would transfer beverages into ZAP trucks at distribution hubs. Modified

with enclosed, lockable beds, the ZAP Xebras will navigate the more narrow, inner-city streets, making deliveries to smaller retail locations. Because the ZAP trucks will operate more easily in this environment, officials from Coca-Cola say their drivers can deliver vehicles and collect payment at the same time, whereas collections were not practical with the larger trucks.

Coca-Cola's distribution model is similar to the one used recently by United Parcel Service (UPS) in Northern California where a fleet of 42 ZAP trucks and sedans were used to expand small parcel deliveries during peak holiday demand. UPS delivery vans transferred smaller packages to a locked storage unit, then a Xebra transports the packages into dense urban and residential areas where parking and traffic are easier for the smaller vehicles.

Nestle and the CocaCola Company has identified alternate ways to reach its market. Available means vary from direct selling to using one,two,three or more intermediary channel levels. Marketing channels face continuous and sometimes dramatic changes. One of the most important trends is multi channel distribution system. This marketing system is the one which is mostly used by Nestle and Coca-Cola. These trends affect Channel cooperation, conflict, and competition. Channel design begins with assessing customer channel service needs and company channel objectives and constraints. The companys identified the major channel alternatives in terms of the types of the intermediaries, and the channel responsibilities of each. Each channel alternative was then evaluated according to economic, control, and adaptive criteria. Qualified intermediaries are selected and motivated. And individual channel members are evaluated regularly. The success behind Nestle and the CocaCola Company is nothing but its efficient distribution system.

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The Coca-Cola Company[www.thecocacolacompany.com/]

4. Principles of marketing by Philip Kotler and Gary Armstrong. 5. Official site of Coca-Cola[www.coca-cola.com]

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