Episode 28

Retail environments – Solving the last mile obstacles for go-to- market strategy

Category :  Sales & Distribution

The retail solution that Vector Consulting Group has implemented for its clients allows them to enjoy phenomenal growth in secondary sales. However, this pull-based replenishment flow system often hits a new saturation point every so often, which calls for a shift in the approach to unlock the next growth area.

This episode on the Counterpoint Podcast is the first part of a two-episode series on this topic.

Sunil Davis, a senior consultant with Vector will first unravels how and why the market reaches such sales saturation points and then discusses the steps companies need to take in such situations, to reach for and achieve the next leap in sales performance.

Transcript
Shubham Agarwal : Hello, and welcome back to yet another episode on the counterpoint Podcast. I’m Shubham Agarwal and the past 27 episodes on the show, we’ve dedicated many episodes to understanding and detailing out the pull based replenishment system, especially in a retail environment. Now, while the solution works wonders within a year or two of implementation, and it gives exponential growth rates, there have been lot of questions that we received from you, our listeners, raising concerns about the longevity or the sustainability of the solution, and of maintaining the growth rates that are seen in the initial few years. So the perplexing question still remains that whether one can truly achieve exponential growth rate, not just a year or two, but year after year for many years to come. So today is going to be a revelation day for the retail environment, I guess. And to raise the curtain from this is Sunil Davis with us who’s from the Vector Consulting Group, like we all know. And it’s great to have him back on the podcast as well. So let’s welcome him. Hi, Sunil. Welcome again.
Sunil Davis : Thank you, Shubham. Your introduction actually reminds me of an old Bollywood dialogue. “Samjha ke dara rahe ho ya dara ke samjha rahe ho”, don’t know what is true.
Shubham Agarwal : I think aap jaise bhi samjho, hum samajhna chahte hain That’s okay. Yeah. And I think it’s a situation where, you know, which God knows, results into how many millions of corporate PPTs to explain the retail sales curve or market share with all the retrofitting theories on maturity, stagnation, life cycle, GDP? I mean, that list is on.
Sunil Davis : Yeah, and if nothing else, works, people, you know, take recourse to conspiracy theories of what competition is doing the socio political environment, and for God’s sake, given global warming is contributed to prove one’s point. So it’s really crazy.
Shubham Agarwal : Right now, but Jokes apart Sunil, in a retail environment, there’s always the so called Last Mile obstacle, right? I heard. Yeah, right. And I think that proves to be the Achilles heel in preventing to achieve the the inherent potential, like we like to call it in terms of the width and the depth of distribution. Don’t you agree on that?
Sunil Davis : Yeah, that’s what it looks like Shubham. But first, let’s talk about what you mean by the inherent potential in a retail environment. See, in India, in India, a typical mid size distribution company, we have like, you know, 15 to 25 regional distribution centers, they serve around 300 to 2000 distributors, who in turn services directly around one lakh to say 10 lakh retailers, so around a million retailers, by this setup. Now, just to give you a small reference, in India is estimated that just one segment of retail outlets, your friendly neighborhood Kirans outlets, that is the mom and pop grocery retail outlets, it’s around 12 to 13 million more than a crore. Now, this kind of reach and expansion, which a company can achieve is truly amazing. And this is the internet potential we talk about. So if we get it, this is the depth and the width of distribution one can really achieve.
Shubham Agarwal : Yeah, no, I agree with you, because that’s a huge scale. And with that kind of a headroom for growth, what really prevents organizations from from growing exponentially for decades together, I’m not sure
Sunil Davis : has shown you seem to be in a hurry to get a quick fix one liner solution.
Shubham Agarwal : I’m always I’m always finding that yeah, one one, you know, trick line that can help and transform each and everyone’s life. Yeah, but so, so Sunil, I think, let me confess I’ve read so many success stories at Vector Consulting as well, you know, giving a 40% to 200% growth. But but then I keep wondering say a midsize distribution, a midsize distribution company, say 500 Crores annual turnover, if it gets a 50% growth year on year in five years, it should reach 4000 Crores
Sunil Davis : and we are doing a CAGR. Okay.
Shubham Agarwal : I mean, but we don’t see that we don’t see that happening. What’s What’s the mystery then?
Sunil Davis : See, mathematically you are right. And yeah, 500 in 5 years with the 50% CAGR around 4000 crore. But you know, let’s not leapfrog up to five years at one go. Let’s try to understand how the retail solution really works. And what really constrains the growth as per your statement. So we’ll try to get your statement, right. But before doing that, let’s try to understand the you know, the data flow. Yeah. So if you’re talking about an end to end pull based replenishment system We are actually looking at what we say right from the upstream vendors to manufacturing plant to a central warehouse to the regional distribution centers, to the distributors, each link, replenishing the next link based on a daily signal of consumption at the link. Now, once we have this network with the norms decided, we commenced the implementation of the pull based replenishment system, we do see a leap in performance. And the first jump in sales comes by plugging the unavailability at each link. Typically, at a distributor level, we see availability close to 100%. And depending on the environment, this gives a jump of 15 to 20% growth over and above the normal growth. Now, the solution also helps to release the capital from the stock of distributor. Now, Shubham, you know very well how this helps, right?
Shubham Agarwal : Yeah, no, definitely, I mean, this initial jump is extremely helpful for the company for the distributors, and the release of capital, like you said, from, you know, from the stock that is kept at the distributors end in the market to extend it helps to the distributor to extend credit to, you know, new outlets, they can expand the reach. And that definitely helps. Yeah.
Sunil Davis : So, depending on this environment, this kind of helps to get the next jump up 20 to 60% growth. Now, with the reach multiplying, we counter a new obstacle and just use your predicted effect thinking to say What can this obstacle be?
Shubham Agarwal : I mean, obviously, the manpower you absolutely, yeah, I believe they need to increase the sales force becomes a necessity to you know, sustain the order taking from the existing outlets, and scale up the business development activity to include the new outlets that we have added.
Sunil Davis : True, true. So, what happens is, this proves to be kind of like a constraint why because in most of the environments, it is not easy to justify increasing the sales force due to the Delta gain for the company and distributor not justifying the Delta operation expense of manpower and distribution costs. Now, this is mainly due to what I say as the law of diminishing returns. Now to understand this, you should see the potential of each outlet varies and which are the outlets with the company has already targeted, obviously, the bigger ones. Now take an example of a pen, I mean a writing instrument like pen. So a typical stationery outlet will sell say 2000 units a week. Now, the same product also sells from a grocery store, but the grocery store will sell around 200 units a week. Now, when we go on adding 1000s and 1000s of outlet, the newer set of outlets have potentially lower sales volume per outlet. So that’s what becomes a law of diminishing return. So, this becomes like a constraint
Shubham Agarwal : right no, I understand, but this cannot be the end of the growth story right?
Sunil Davis : Of course not, we have found the injection to trim this problem. So, basically, we use the division of labour concept by separating sales that is the transaction of order taking from the business development activities like range addition, new outlet addition, and once the order taking is managed through an order center, for a retailer look at it, we call it the FDFT the fixed a fixed time service guarantee offer wherein as per the retailer’s chosen preference of time slot, a personalized assistance is given for order taking through the tele sales setup. Plus a retailer also has the option to reach the company directly digital way 24 By seven through a retailer app or a whatsapp Connect Now okay, add to the order center the complete integrated portal and predictive dialing which gives a personalized wow to the retailer and to give you the context. Each telesales seat manages 2000 to 3000 retailers on a weekly ordering frequency. Now, this completely removes completely removes the constraint of the manpower addition or the obstacle of manpower addition. And also it enables issues of like, you know, absenteeism, weather conditions, iterations. Now there are things of a past. Well in one of our FMCG implementations, where the starting condition was a Salesforce of 250, managing a base of 50,000 retailers. Within six months, we were able to do two lakh retailers with the same strength of Salesforce, supplemented with an order taking center of 70 seats. Now that’s a scale that we are talking about.
Shubham Agarwal : No, really, that that’s wonderful, because that’s some scale we’re talking about. And now I understand the technology enabled war-room concept which guides the real sales effect Yeah, on their app to focus on the task assigned for each route to expand the range or activate new outlets and things like that
Sunil Davis : also it’s also Yeah, it’s interesting you know Shubham thanks to the voice of the retailer reaching the company directly through the telesales setup, even the issue resolution speed and turnaround drastically improves. And that also helps in maintaining the service level and the performance level. The placement and availability Yes, it goes through a kind of like a huge exponential curve, where we see a lot of you know, leaps and bounds. But again, again, after a point of time, it shows a stagnation. Now, very often in spite of the Reach additions continuing, it shows a stagnation. And can you guess why this happens?
Shubham Agarwal : I guess this happens, because, you know, the the reduction in the wallet share, mainly at the so called big retail counters is what causes this
Sunil Davis : he absolutely I mean, typically the reach addition, yes, but the depth part of it. Now, this is where the availability at the retailer has improved. But capital from time to time gets cornered by the competitor products generally due to a volume based game offered because the competition is not just sitting quiet, right. So this is what happens. And that gives a level of stagnation.
Shubham Agarwal : Yeah, I’ve heard about the the conspiracy theory that excellent availability provided by our solution. It contributes to the reduction in inventory at retailers does not really get reclaimed by the addition of range. And I think we have the classical flight of capital syndrome.
Sunil Davis : I God the flight of capital is a battle we fight and we try to establish, but actually gives a lot of Amar Chitra Kathas people keep on giving stories, but it is simply a known causality that in spite of knowing that volume based schemes are not good for the shelf space rotation, the retailer, you know, bites the bullet, and he has that FOMO the fear of missing out what looks lucrative for a short term gain and locations it does also so he says, you know, why should I keep buying from you? I’ve got this scheme, let me take this scheme. And again, it’s not a surprise, right. And therefore, we are also you know, designed in our injection, how to trim this. And by the way, we had a session on that, if you remember that’s
Shubham Agarwal : right. That’s right, the retailer loyalty program, right, again, discussion on that. So, Sunil before we go ahead, I just had a quick question which you know, popped up in my head with the tele calling and you know, with this digital interaction with the retailers to you know, look at the scale that physical connect sometimes goes away, have you ever heard any retailer come back to you and say, you know, the physical Connect is also important, we don’t get that enough.
Sunil Davis : Yeah, it is important also, I mean, we are not denying the importance of the need to have that physical connect and you see, nowhere are we kind of like removing that from the system. The physical Connect is now kept as what I call it as like a doctor, you know, a doctor who goes to a hospital first visits the ICU patient, then he goes to the ward and then he goes to the OPD section. Now the Salesforce the Salesforce on the ground, actually you know ensures that any retailer requires attention or any retailer has given a whatsapp guy I have a problem he rushes to him. And whenever the Salesforce is on the round in that market, they will just visit him to say hi bye, koi problem hai, koi visibility ka issue hai, aapke liye hum kuch hoading kr sakte hain kya, the Connect which has now been there is much beyond a transaction of order taking. So, the retailers are reinforced with the fact that hum hain aapke liye, we are there for you. And at the same time, there is no need of going week after week just to take the orders. So, this physical Connect is maintained as per the needed as per the case when it is essential, the guy may even go twice or thrice in a week, if there is some serious problem to take care in terms of if there is an issue of like, you know, he had a quality issue, there is a complaint, we address it as on such a priority that the retailer feels Yes, this is a company which is there at my beck and call. So this Connect is not lost. And at the same time I have the scale to go to lakhs of retailers. So that’s the beauty of the solution.
Shubham Agarwal : Great. Thanks for you know, quickly explaining that. So coming back to where we left with the retailer loyalty program for all the listeners, you might want to go through the podcast on a retailer loyalty program. To give you a quick brief on that 100% reliable replenish frequently element of the pull based solution which is a very important element is made rewarding for the retailer by incentivizing the increased buying frequency and the increased buying of relevant range in a period. So basically complete de risking or new range is given through a 60 day buyback option. Plus, add to that the Sales bandwidth in such market focused on demand generation activities, which have really shown great results. Now in environments having a trade specialist who influences the majority of the buying decisions, like, you know, mechanics for the auto parts, or carpenters or contractor for furniture work, or electricians for the electric works, the company designs and develops a partnership program with influencers to ensure pull, or demand for their products inherently, again, that is covered in a subsequent episode, on the podcast, it’s it’s called influencer loyalty program.
Sunil Davis : So I think you’re really given the complete wear-with and with this, the complete retail solution is there. And it also helps to, you know, launch new products have the GTM create the visibility, and the complete development activities facilitated by the release bandwidth for the sales team. So this really becomes a complete solution. And we always thought this is it, wow, that’s the end of it. In fact, just to give one of the compliments we received from a well known business leader, he said, you know, end of the day, I see my sales team, transforming themselves from being mere order takers to becoming brand ambassadors. So, you know, that was the beauty of the solution, and it definitely gives a huge leap in the performance. But is this the happy ending? Well, no. Now, we get the humble reminder, what Shubham you started with the session, you know, the mathematical calculation, 500 crore where has it become 4000 crore. So this is something which I say, keep us, yes, the solution is great, it shows that two or three years of exponential growth, but it is not a happy ending.
Shubham Agarwal : So, so to stay the undesirable effect, would it be right to say that the sales plot to over a period of time, albeit at a new level, but how can we accept this
Sunil Davis : of course, is not acceptable, you know, very often the client is so overwhelmed with the new level that they justify remaining at inertia saying you know, you require time to stabilize the high risk, high growth phenomena cannot be kind of like taken continuously hum to marathon daudh rahe hain, 100 metre dash nahin, there are a lot of random justification newspaper headlines, trying to justify the new level, because the client is overwhelmed. It’s a new level, which is a far better level, and they feel key going steady now is the great thing to happen. But honestly, you know, we cannot accept this right. So, that is where, you know, the next next leap, or the next jump comes into the picture.
Shubham Agarwal : Yeah, I’m also concerned, because, you know, this two to three year period when when this transition happens, it also kind of coincides with the duration of our projects normally, with, you know, vector consulting handing over the project to the organization completely. Could that be also a parameter?
Sunil Davis : If you tell me like, you know, I would be happy to say, yes, yes, Vector ta tak acha chal raha ta. But honestly, honestly, I mean knowing the inherent potential we as Vector consultants cannot accept the inertia, see, we need to go back to the step one to identify what is the new constraint. And I believe, you know, thankfully, we did. And that led to the holy grail of overcoming the real last mile obstacle of retail solution. In fact, I would like our listeners to ponder upon what really causes the sales plateau, or at best Hindu rate of growth for the distribution company, after a couple of years of excellent growth. And remember, in spite of the headroom to grow exponentially existing in the environment, this is something which I would really love our listeners to ponder upon, and then come to our next session, what do you say Shubham
Shubham Agarwal : interesting, let me be very clear, are you saying that what I thought is an exaggeration can really be a reality that, you know, a five year old 500 Crores company, becoming a 4000 Crore company in just about five years, that too, with, you know, all the profit and the profitability and all the
Sunil Davis : playing too many conditions? But yes, that’s a reality. And that’s a reality which can be achieved. You just have to wait and think for the next session.
Shubham Agarwal : That will be wonderful. I think then then it gives all the you know, we have all the time and there’s this complete selfishness is coming back in coming back to the next episode. And that really sets me thinking as well, I’m sure all of the listeners will be interested to listen to this holy grail of retail solution. Great. So Sunil, thanks a lot for this discussion today. My pleasure. And as for all the listeners, if you have any any doubts or concerns on whatever we discussed today, please write to us on our social media handles or on our website. The link is in the details and we will definitely come back in the next episode, and discuss more about this and go deep into how can we convert 500 Crore to 4000 crore company not to lose the numbers.
Shubham Agarwal : You can always catch on to that and clients always do that to me and that we deliver so you’re wonderful. You can keep thinking and we will definitely have something really insightful.
Shubham Agarwal : Great. Looking forward to a truly great until that time.
Sunil Davis : Okay, we sign off. Bye bye
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