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BCG , Join BCG , Interview Prep , Practice Circumstances , Distribution, http://www. bcg. com/join_bcg/interview_prep/practice_cases/dis, The Boston Asking Group House &gt, Join BCG &gt, Interview Prep &gt, Practice Cases &gt, Distribution Strategy Distribution Strategy Crafting a Distribution Technique for a Glucose Cereal Maker Your consumer is the sweets cereal label of Foods Inc.

, a U. S. -based distributor and manufacturer of packaged food. According to the split president, Food Inc. , s classic strength has been with food markets, which still account for almost all its $1. billion in sugar food sales. Nevertheless Big Meters Mart, a deep discount chain, has become growing in a healthy rate of almost 12-15 percent annually and has become Meals Inc. , s largest customer. Your client can be not sure how to react, and has asked BCG pertaining to assistance with its distribution technique. Establish Understanding of the Case First, let me be sure I understand the challenge. Our consumer specializes in sugars cereals customarily distributed through grocery stores. Sales to Big M Mart, a discount string, have been developing at 12-15 percent each year, and the string has recently end up being the largest supplier of the customer’s product across the country.

We are in this article to help measure the distribution approach in light of Big M Mart’s growth. That may be correct. Can you explain to me how grocery stores differ from discount stores? Sure. Grocery stores generally specialize in foodstuff, as well as selling some home goods and over-the-counter drugs. Discount stores, on the other hand, present food alongside a wide variety of products, including clothes, home gadgets, and housewares. Does Big M Mart market its food products differently than do food markets? Discount retailers advertise affordable prices for a wide selection of foods, specifically staple, nonperishable foods.

Is there a chance i take a moment to create a few remarks to personally? Please feel free. Set Up the Framework Before making recommendations, I do believe we would have to evaluate if sales progress at Big M Mart is good or perhaps bad for Foods, Inc. To accomplish this, I would to begin with how its sugar cereal performance by Big M Mart compares with that in other distribution channels. Second, We would look at its performance for Big M Mart pertaining to competitors’ functionality. Next, I might determine what pushes customer buys. Finally, I would want to know the supply sequence.

That certainly sounds like an acceptable approach. A few proceed. Assess the Case Using the Framework 1 of six 10/2/09 6: 57 EVENING BCG , Join BCG , Interview Prep , Practice Circumstances , Distribution, http://www. bcg. com/join_bcg/interview_prep/practice_cases/dis, Initial, I would like to get a better sense of where Big M Mart stands with regards to our client’s other syndication channels by examining the client’s product sales data and margins, by simply distributor. The marketing division does not have margins simply by channel, yet tracks product sales and volume for its top five distributors.

Exactly what does this mean about Big M Mart as a distribution outlet? It appears to be as if the most notable distributors have already been growing more important, but especially Big M Mart, which can be growing quicker than all of the others. This can be particularly true when we check out volume, where Big M Mart’s progress is much greater than that of the other four channels. And how could you translate what these types of data says about margins? While the customer’s sales through other distribution channels are growing more quickly than amount, Big M Mart volume level and revenue growth are the same, so the normal price paid by Big M Mart has remained continuous.

That signifies that sales progress at Big M Mart could have negative implications to get our patient’s margins. Up coming, I would like to consider how each of our client is performing in relation to competition within Big M Mart. Have they been gaining or perhaps losing business? How might you find that out? I would make an effort to interview Big M Mart’s purchasing personnel, since they could possibly track individuals data because of their own functions. Why might they want to speak with you? So how does15404 you strategy such an interview? I would procedure the getting personnel and suggest that the client and Big M Mart work ogether to identify guidelines to reduce costs and increase sales of sugar cereals at Big M Mart. Let’s say within a perfect universe you could get a failure of Big M Mart revenue for the four most significant competitors (see market shares below). a couple of of six 10/2/09 6: 57 PM HOURS BCG , Join BCG , Interview Prep , Practice Circumstances , Distribution, http://www. bcg. com/join_bcg/interview_prep/practice_cases/dis, What can we infer about our client’s opponents within this funnel? Who if he or she be worried about? As if our customer is dropping market share, as Tasty Breakfast, while Cereal Co. nd Private Label happen to be gaining discuss. Private Label, yet , looks to end up being growing by a very small base. I would like to explore how come our customer is losing market share to Cereal Co. at Big M Marts. Are their very own prices much better than those of each of our client? Over time of value wars 6 to eight years ago that lowered sector margins, the cereal firms have refrained from cost competition inside the same funnel. If prices are not generating the difference, We would look at elements such as manufacturer selection, percentage of shelf space, item placement, and in-store promotions.

Visits to Big M Marts suggest that each name-brand company retains 30 percent from the shelf space, while white label has 10 percent. Cereal Company. brands, nevertheless , tend to be placed reduce on the shelf than your customer’s products. Well, I think that children are a sizable target market pertaining to the sweets cereal suppliers. The lower rack placement could be especially important to children who also are looking at the several types of cereals. Any kind of other marketing promotions? Some Cereal Co. brands have product sales promotion tags, and the staff notes that store flyers advertise specials on Cereal Co. rands for Big M Mart buyer cardholders. So , even if all of the companies are maintaining product prices, maybe Cereal Co. is strategically discounting prices to get market share. It seems like as if there may be evidence of cooperation between Food Co. and massive M Mart. Do we know anything about their relationship? During earlier talks with Big M Mart, you learned that your client’s competitors include 50 product sales representatives specialized in the Big Meters Mart consideration. Your consumer has several. Cereal Company. appears to be 1 day more methods to its relationship with Big M Mart than our client is.

This might explain the better item placement and promotion applications. 3 of 6 10/2/09 6: 57 PM BCG , Join BCG , Interview Prepare , Practice Cases , Distribution, http://www. bcg. com/join_bcg/interview_prep/practice_cases/dis, I think I have a good sense of distribution and competition. I might now prefer to look at the consumers and discover why they find the products they do. One speculation I have is that shifting manufacturer loyalties will be hurting each of our client’s business at Big M Mart. That’s interesting. What do you imagine might inspire purchases of sugar cereals?

There are lots of factors, such as the video games in the bins, the price of the cereal by itself, how this tastes. To better understand client behavior, we would conduct market research, possibly through focus organizations, customer declaration, and selling price sensitivity research. BCG teams often do such research. Let’s presume your staff conducts a lot of analysis. Your quest concludes that many buyers often fall into two categories. About 60 percent of purchasers go straight to a single cereal and grab this. We can phone this group the “brand-loyal” shoppers.

An additional 40 percent of buyers look at all of the cereals then select one which interests them. A few call this group the “impulse” potential buyers. For the brand-loyal consumer, the priority would be merchandise availability, although product positioning would be necessary for consumers who choose to shop about. Within these kinds of groups, are consumers cost sensitive so that one manufacturer can appeal shoppers devoted to another company? In general, your research indicates that consumers are not really price hypersensitive and are incredibly loyal to their preferred brand.

But when the most liked cereal can be unavailable, the brand-loyal buyers will purchase discounted cereals approximately 35 percent of times. Well, as a result information, it seems that price is not just a major driver of purchases unless the most preferred cereal is out of stock. In these stock-out scenarios, you explained, brand-loyal clients will buy discounted cereals 35 percent of the time. What goes on when the consumer does not purchase a discounted cereal? In about 25 percent of cases, the consumer walks aside without getting any cereal at all.

In the remaining forty five percent of cases, the brand-loyal buyer will act like an impulse shopper and select another brand. Interesting. It seems as though product availability could be a significant driver of total cereal volume for Big M Mart. Of course , we might need to know how often stock-outs occur that trigger consumers to walk away with no purchasing food occur. Seeing that I have a pretty good understanding of client motivation, I’d now prefer to ask a few questions about the client’s supply string. I would desire to talk to the client’s circulation personnel to understand the syndication process also to determine how generally stock-outs happen.

Can you explain how each of our client’s food is distributed at Big M Mart? Cereals will be distributed from your factory towards the distributor’s storage place twice regular monthly. The dealer then shares the shelves itself. Can we have any kind of knowledge about when the individual shops are out of stock? No, do not, since each of our client only delivers towards the warehouses and has no immediate access to in-store inventory data. Since all of us identified merchandise availability as a key success factor previously, I would want to make sure that the stores were stocking the product correctly.

Let’s say that in your previous in-store research, you found that Big M Mart stores proportioned 15 percent of sugars cereal brands out-of-stock, across all brands. 4 of 6 10/2/09 6: 57 PM BCG , Join BCG , Interview Prep , Practice Cases , Distribution, http://www. bcg. com/join_bcg/interview_prep/practice_cases/dis, Stock-outs might be a major problem pertaining to our customer, since 70 percent of shoppers look for a certain brand of food and thirty five percent of those would purchase a discounted manufacturer in a stock-out situation.

Big M Mart would also have an incentive to minimize out-of-stock incidents, since 25 percent of the time, a brand-loyal consumer will walk away without shopping for anything. Summarize and produce recommendations Big M Mart is each of our client’s leading customer, accounting for more than 20 percent of our patient’s sugar food revenue. Although sales to Big Meters Mart happen to be increasing by using an absolute basis, our client’s margins you will find lower than in its other stations and its competitive position is eroding in this channel. At Big Meters Mart, the client encounters competition by both white label and Food Co. even though the latter appears to be the greater menace. There is apparently a romance between Big M Mart and Cereal Co. as evidenced by their joint promotions, the superior placement of the Cereal Company. product, plus the substantial assets that Food Co. has dedicated to the best M Mart account. We learned that 60 percent of shoppers are brand-loyal, implying product availability is most important. Nevertheless , 40 percent like to try different kinds of food, indicating product placement is likewise important.

Consumers do not seem to be price mindful, unless the kind of cereal they are really looking for is out of stock, whereby there is a better tendency to base acquisitions on price promotions. Regarding distribution, our client is definitely making transport twice monthly to Big M Mart’s warehouses. Big M Mart, in turn, is in charge of stocking the shelves. All of us currently have simply no direct knowledge of when the client’s goods are out of stock at the individual retailers, but there is evidence that stock-outs carry out occur which includes frequency. Well, it sounds as if you understand the circumstance. What would you recommend the client do?

The sales through Big M Mart may actually have an adverse impact on the bottom line, as they include lower margins than revenue through food markets. The client may work with grocery stores to ensure that they are able to compete effectively with Big M Mart in the sweets cereal industry. This strategy could be risky, however , since Big M Mart is a significant and important customer. Therefore , I would recommend our client function more collaboratively with Big M Mart. To defend their current situation at Big M Mart stores, your customer should maneuver toward a partnership with Big Meters Mart and dedicate more resources for the relationship.

The consumer and competitor data suggest that our client’s first priority should be to boost distribution to assure better product availability. Additionally , it should force for item placement equal to, if not really better than, that of its opponents. Why would Big M Mart be willing to get into a alliance with Food Inc? Foods Inc can offer to share its information about buyer behavior to assist increase income for the two itself and Big M Mart. Stock-outs hurt Big M Mart in two ways. Initial, some brand-loyal customers just walk away with out purchasing cereal whenever their preferred brand is unavailable.

Second, we know that other brand-loyal customers buy lower-priced cereal whenever they come across a stock-out of their desired brand. Both of these instances lower Big Meters Mart’s income. By eliminating stock-outs, Big Meters Mart may increase the sales by just ensuring that buyers don’t leave without buying. Converting these kinds of purchase events to revenue would maximize Big Meters Mart’s product sales of sugar cereals by simply more than a couple of percent(1). Better availability also helps Big Meters Mart and our customer increase their earnings by deterring the brand-loyal shoppers coming from trading into lower-priced cereals.

Recall that 35 percent of the brand-loyal shoppers buy a discounted food if their preferred brand is definitely not available. If improved circulation now the actual preferred brands more constantly available, the shoppers will pay a higher price for these products. Finally, we’re able to use the information about consumer purchase behavior to help persuade Big M Mart to 5 of 6 10/2/09 6: 57 PM BCG , Sign up for BCG , Interview Preparation , Practice Cases , Distribution, http://www. bcg. com/join_bcg/interview_prep/practice_cases/dis, share information regarding product availableness in its specific stores.

We’re able to work with the client and massive M Mart to improve the latest distribution program to allow for more economical deliveries, and ensuring that each of our client’s method consistently found in the store. Thanks. Those seem like solid recommendations, but I would suggest that you fully understand the root cause of the stock-out situations and the cost to remove them ahead of moving forward. (1) 15 percent sold-out x 62 percent brand-loyal customers times 25 percent willing to forgo buy = 2 . 25 percent six of 6th 10/2/09 6th: 57 PM HOURS