Candy and Chocolate India (CCI): Last Mile

Distribution Challenges

By,
Naveen Nirmal Kumar (EPGP-10-119)
Candy and Chocolate India (CCI): Last Mile
Distribution Challenges

1. Why CCI should invest in rural? What are the opportunities in rural
markets for CCI?
Several numbers and data suggest that rural markets were an exciting
opportunity during 2012 for investment and growing opportunities in
rural markets.
Data:
• There were 638,588 villages that constituted as rural areas.
• Census of India’s provisional report in 2011 revealed 68.8% of the
country’s 1.2 billion who resided in the rural areas.
• 58% of the country’s rural population were from the 6 states of the
country – Uttar Pradesh, Bihar, West Bengal, Maharashtra, Andhra
Pradesh, and Madhya Pradesh.
• Female sex ratio favoured rural areas than urban at 947 for every
1000 men.
• 50% of India’s Gross National Product came from the rural markets
during 2001-2010.
• Based on McKinsey report, rural consumption was presumed to
accelerate at 5.1% CAGR during each of the decades: 2005 – 2015
and 2015 – 2025.
• Total rural consumption was expected to grow to INR 16,701 billion
by 2015 and INR 26,363 billion by 2025.
• By 2025, rural households in the annual income of INR 90,000 –
200,000 would contribute 70% of the total rural expenditure.
• Mobile communication in the rural markets significantly from 4%
(financial year 2006-07), to about 45% (2011-12), a staggering 10
fold increase over 5 years.
• Fund allocation for rural development areas were at INR 741 billion
(2011-12) and INR 732 billion (2012-13) based on specials
programmes for rural development, rural employment, rural housing
and roads & bridges.

2. What are the barriers for CCI to distribution in rural markets?

The following attributes can be considered as barriers for CCI to
distribution in rural markets.
o Geographic vastness of the 6 key states which constitute 58% of the
prospective rural market.
o Routes-to-market to be considered such that the prospective
geographic landscape can be reached over the areas and the states
which have greater prospects.
o An estimated rural consumption pattern which was expected to
increase by 2015 and 2025 but the lack of information changing
consumption pattern and sectors poses barriers to entry.
o Opportunities to use mobile technology to leverage the significant
growth in this areas until 2012.
o Unorganized confectionary market estimated at 35% of the total
confectionary consumption in India was another barrier to be
organized which is another barrier to overcome.

3. Describe confectionery market in India. How is the market different

in urban and rural India?
Confectionary market had a revenue of over INR 6.5 billion in 2010.
Organized or branded confectionary market in India was growing at a
composed annual growth rate (CAGR) of 12% in value. Unorganized
confectionary market in India contributed to be at 35% and was
unexploited but through challenges of lowering margins.
By 2014, the expected sales in the market was at INR 11 billion. Market
volume of confectionary reached 193 million kilograms in 2010 and
was expected to grow to 264.4 million kilograms by 2016.
The top 4 players accounted for 75% market share with Kraft Foods at
30%; CCI, 15%; Nestle, 15%; and Perfetti, 15% with products &
brands were widely differentiated based on price and quality.
Unorganized market had an advantage of localized raw material
sourcing and manufacturing which gave them cost advantage over the
organized player who were challenges to lower their profit margins
which required the companies to have impractical market penetration
rates; often to the rate of 30% or more. This challenged the organized
market to restructure their routes to enable roads to the rural market.
o Urban and rural penetration of confectionary products was more
than 15% while chocolate penetration at 2%.
o In terms of value, distribution of confectionary products through
kirana stores accounted for about 76% and convenience stores
distributed 13.5%. Medical Stores, Paan/Beedi stores and other
sources sold over 10% of confectionary products.
o The growth of confectionary sales as percentage share of retail outlet
sales grew from near zero to approximately 2% during 2002 – 2012.
o Western India was the largest confectionary consuming region of the
country with 32%, followed by Northern India at 28%, South India
at 23%, and East India at 17%.
o Children, aged 2 to 8 years, accounted for 15% of total Indian
confectionary consumption while those aged 8 to 25 years consumed
25%, those aged 25 to 64 years consumed 55%, and the rest 5% by
those age 64 years and over.
o Sugar candy was an impulse purchase, chocolates were
predominantly planned purchases.
o Urban consumers (especially children) were drawn to brand quality,
and rural consumers (also mostly children) were driven by price.
o Socio-economic changes in the country was leading the mithai
eating and gifting during festivals slowly by chocolates.

4. Does the case have any hero (case protagonist), a dilemma or

potential solutions?
Yes, the case has two heroes: Sanjay Gupta – Director of Sales and
Marketing and Naren Shah, Associate Director of Sales and Marketing.
Their dilemma relates to the future potential of CCI’s RTM to be rural
centric and with 6 alternate RTMs, to choose the most optimal RTMs
which could:
i. Lower the cost of direct distribution
ii. Identify:
a. Cost effective.
b. Scalable.
c. Easy to operationalize RTMs.

5. Identify the criteria on the basis of which evaluation and comparison

of alternatives (or potential solutions) for distribution should be
made?
Overall objective of CCI to choose RTM is to be able to lower cost of
direct distribution.
The alternate RTMs should enable:
a. Cost effectiveness.
b. Scalable.
c. A RTM easy to operationalize.

6. Evaluate the alternatives for distribution on the basis of chosen

criteria and find out which among the available options is best
for CCI.
The alternatives for distribution can be chosen based on the population
density in the villages and % of population.
Alternative 1: Catering to villages in the range of 2000 – 9999
Ranges No of Villages % of Villages % of Population
2000 - 4999 80413 35.2
5000 - 9999 14799 16% 14.4
49.6
There are 16% of the villages which contribute to nearly 50% of the
rural population. The best model to reach to this larger mass of rural
market is through the superstockist model.
Reason: Based on careful analysis of the demographics, CCI can cluster
the villages on the criteria of cost of servicing, sales potential and profit
potential. Substockists can then be identified and appointed. An
existing superstockist in the nearly region can cater to the newly
appointed substockist and if the economics permit, a new superstockist
may be considered.
Alternative 2: This alternative is to reach out to villages with the %
population of 42% with population in the range of 500 – 1999.

Ranges No of Villages % of Villages % of Population

500 - 999 145402 46% 15.5
1000 - 1999 129977 27
42.5
There are 46% of the villages which contribute to 42.5% of the
remaining rural population. Since the total number of villages to reach
such a population is high, RTM have to be cost effective and the
representatives should be part of the locals to ensure a larger reach.
a. Since the concentration of SHGs were significantly high in the south
at 46%, registered with nationalized banks in India, they are good
resource to pivot and reach the rural markets in the south. Support
of the NGOs to group SHGs at district and/or state levels can be used
 to build operational efficiencies and to avail several financial
schemes of banks. SHGs were already leverages by the corporations
Hindustan Unilever and ITC to reach rural markets as they
significant rural presence in several parts of the country, very good
organizational capabilities that reduces transaction costs for
corporate in large impoverished and low demand villages. NGOs or
the SHG federation would ideally not have more than 0.5% margin
on the product sales. Pricing of the products to SHG group members
would be the same as substockists pricing. Hence, they can be broad
under the superstockist from a larger regional center as an extension
of hub & spoke model.
b. For the other regions in the country (North, West and the east), a
blended channel of SHG and mobile traders would be a
recommended model or a model which leverages Mobile traders
predominantly.
Mobile traders used bicycles or travelled by foot to sell products to
households, retailers, and at haats. They acted as salespersons,
distributors, and brand activation agents. This was known to be a
cost effective way to reach villages with populations of 10000 and
less and those villages that lacked good roads. They could serve the
local communities effectively because they belong to these places
and were more familiar with the area and people around. Each
mobile trader could cover at least two villages/day soliciting local
traders and households. The itinerary of the mobile trader coincided
with Haats at times. They worked for 27 days a month and could sell
 value packs along with some other low cost confectionary products.
Once mobile traders were proved to be good, they could be
continued on a commission basis (instead of stipend+commission)
and supervision could be done by the local superstockists.
These are viable options which are cost effective, scalable and easy
to operationalize when compared to using channels such as Haats,
Van sales or tie-up with India Post.
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