Nestle Distribution Channel

 Introduction: Success toady in the competitive world has become very difficult. This is because it does not solely depend on basic factors but on all the factors related to the organisation.

Earlier it was possible for an organisation to dominate in the market but today due to lot of different methods, channels and modern tools for marketing and functioning of the organisation, the world has become very competitive. In this assignment the author is concentrating on two major players in this competition, the distribution channels and the sales force. The company in discussion here is Nestle UK and the product for narrow research is Nestle’s own most successful brand “Kit Kat”.

Nestle homes itself in Switzerland since 1867 today is one of the world’s most successful organisation in the FMCG category. www. total-logistics. eu. com, accessed 08 August 2010) It started its UK activities around 100years before and started their own manufacturing unit. Today Nestle has 8 manufacturing plants in UK with two head offices in Croydon and Dublin. (www. nestle. co. uk, accessed 08 August 2010) Distribution Channels Structure: According to Brassington and Pettitt, a channel structure is a route selected in order to move the product to the market through different intermediaries. This is the distribution channel structure which proves vital for the smooth movement of the product and making it available to the end consumer.

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Distribution Channel Structure forms the fourth element of the Marketing mix for any product. The ‘Place’ element, and therefore it becomes an important factor. There are various channels of distribution adopted by various companies according to their product requirement and strategies. Apart from the above said vital function of a distribution channel, it has various other functions like: 1. Gathering market information which includes market research that helps future market planning. 2. Searching potential buyers and communicating them. 3. Doing promotional activities. 4. Achieving buyer specific demands and requirements. 5.

Deciding on offers and pricing issues. 6. Storage and transportation of goods. 7. Managing funds required for functioning of the distribution channels. (www. tutor2u. net) Nestle adopted a strategy that their products should be made available in all the parts of UK and that they should not be falling behind for the supply, basically called as the ‘whenever’, ‘wherever’, ‘however’ strategy of distribution. In order to achieve this they needed a strong distribution network which supported their strategy and was cost effective. According to marketing department of Nestle UK they had analysed the following different channels of distribution.

Single Tier Distribution Network: Producer – Retailer – Consumer Two Tier Distribution Network: Producer – Distributor – Retailer – Consumer Multi-Channel Distribution Network: Producer – Distributor – Regional Distributor – Wholesaler/Retailer – Consumer (www. nestle. com, accessed 08 August 2010) Owing to the huge retail market in UK the single tier distribution was almost impossible for Nestle to adopt as the distribution for Nestle directly would have become very complicated and the product strategy could not have been achieved.

So they opted for multi-channel distribution network and appointed their own major distribution points at Bardon in Leicestershire and York in North Yorkshire. Bardon handles the food and beverage industry of Nestle in UK and York handles the confectionery industry of Nestle. The product in discussion here is Kit Kat which is distributed from York distribution centre. The physical distribution is done by trucks carrying composite palettes. The transportation is appointed by Nestle and is dedicated only for Nestle. York is a huge hub of confectionery and has heavy storage capacity to cater the market needs.

Kit Kat being highly popular in the market there is continuous distribution running round the clock for Nestle. The demand in the market though fluctuating is handsome and so Nestle deals with it very efficiently. This generates high profit for Nestle as compared to other products. Nestle has their own regional distribution depots which are so placed that they cover the whole of UK. Kit Kat is transported from the national distribution centre at York to the regional depots as and when the requirement is put on. These regional depots then supply pallets of Kit Kat to the whole sellers in the market.

In UK Asda, Tesco, Sainsbury’s, Waitrose, Morrisons, etc. are the major wholesalers those purchase huge stock from Nestle. (www. nestle. com, accessed 08 August 2010) All this is supplied from the regional depots. These whole sellers are direct retailers as well. So Kit Kat reaches the consumers from them as well as from small off license and small retailer shops. Terms of Appointment and Incentives for Distribution Channels: The distribution channels and its elements are all a part of the distribution strategy for any product.

In order for the smooth functioning of the channel there are some terms and conditions between the company and the distributor. This is an agreement between the two over the products. The following are the mainly considered point in the appointment of any distributor as per UK law. 1. The Parties: are the guarantors needed for any obligations of the distributor 2. Territory/Products: The place and its boundary that the distributor is allotted for sale. The products the distributor is allowed to sale and many times the clause of new products that they get added automatically or new agreement has to be done each time. 3.

Nature of Appointment: The company may reserve right to sell the product directly in the same territory or if needed can appoint a new distributor in the same territory. This point can be a complete no or flexible. 4. Duration of Appointment: The length of agreement or contract between the company and the distributor, as in fixed term or short term. If the contract is short term then the notice period has to specified, if it is a fixed term then the exact duration needs to be specified. There can be a linkage of the duration to the distributors performance say above a certain level then certain duration if not then discontinue.

There also can be a probation period allotted for the distributor wherein the performance can be evaluated and then agreement can be decided. 5. Obligation of or restrictions on distributor: These are generally related to the sales, promotion and advertising of the product. The rights can be kept by the company or can be given to the distributor. This point also refers to any requirements for sales in the territory say government licenses, quality certificates, pollution certificates, food and drug licenses, etc. The agreement also clearly states the cost bearer of all these permissions and licenses e. . the company or the distributor.

This also covers for any taxes or duties that need to be paid for any particular territory, etc. 6. Intellectual Property: This point in the agreement covers for any patents, trademarks, particular registered designs, technical know-how, and other product related factors held by the company. This point covers for the permission needed if any by the distributor to use product factors for selling. Also the need of any license to use certain elements that the distributor needs to take before taking the distributorship.

In some cases like if the trademarks are owned by the company the distributors are appointed as the registered users. 7. Termination: This covers the termination period and conditions in which termination can take place from both sides the company and the distributor. The notice period before the termination, if termination is due to some underperformance then any rectification time that is allotted to improve, etc. is a part of this clause. 8. Effect of Termination: In case of termination of the agreement the effect of it on the existing orders, stock already at the distributor, etc. elated information comes under this clause.

If the distributor needs to sale the stock back to the company, what will be the cost at which he can sale? All these terms are covered under this point. 9. Notices: In some cases the headquarters are not in UK, so the jurisdiction of the territory may need a UK address for the notice. This is cleared under Notices point. 10. Arbitration: This applies only if needed. And if needed, the language and the place of arbitration are clearly mentioned in the agreement. 11. Relevant Law: This covers for any specific laws those required for the agreement.

The jurisdiction of the territory is fixed. Many times the parent company is in other jurisdiction or vice versa, so the binding jurisdiction is decided and clearly mentioned in the agreement. 12. Notification: Some territories may require additional registration or notification in the local registering bodies; this is also mentioned in the agreement. (Weise, 2007) These are some standard and basic points covered in any appointment of distributorship. Nestle also follows the local law and has these sort of agreements are done with their distributors.

Nestle incentives are very tempting for its distributors as nestle opts for win-win situation strategy. This helps them to keep the product moving always. Majorly two types of incentives are given to the distributors. Sales based commission in percentage of sales target achieved and holiday packages to exclusive tourist locations. (Demirag, 2010) The first one is major of the two as it depends on the performance of the distributor, the more the sales the more the commission. This is purely in the hands of the distributors so it is easy for them to achieve more incentives.

These incentives affect major sales of any product. Reporting, Control and evaluation system for their sales force: Salesforce plays another vital role with distribution channels because it is a major element of the distribution network that works individually. Any organisation should have a proper channel of reporting, control and evaluation of the sales force. Salesforce management is of utmost importance as they face the customers directly and hence the reputation of any company is somewhat dependent on them.

Success or failure is somewhat directly related to salesforce performance (Venugopal, 2006), therefore proper reporting, control and evaluation of the same needs to be very strong and clear in any organisation. (Muczyk and Myron, 1987, et al cited Venugopal, 2006). Reporting of sales force is completely dependent on the hierarchy of the organisation and it differs from country to country and organisation to organisation. The reporting is from daily to weekly to monthly basis. Reporting is done by filling forms or computer generated sheets, emails and now a days through software.

Reporting is usually to the regional managers in the sales department. (Marks, 2008) Software’s are becoming popular as the data can be available for the senior management to evaluate and check anytime they want. Salesforce performance needs to be evaluated through various methods in order to achieve maximum sales. Marks in his book explains’ about the evaluation techniques and methods of salesforce. Monthly audits and performance mapping of individual person in the sales team gives a clear idea of the performance of each individual. This helps the sales manager to design his team and decide the future actions and plans.

Target setting also can be done with useful data from evaluation process. Based on this evaluation the salesforce needs to be compensated with rewards. This serves as motivation to work more efficiently. Regular training and meeting with senior and experienced staff helps improve selling methods and way of work. For Nestle the sales team has monthly orders from the big wholesalers like Tesco, Asda, Sainsbury’s, Waitrose, etc. Kit Kat being highly popular it comparatively easy for the sales team to achieve the set target due to high demand as a result of the popularity.

They work on credit accounts that are opened initially after a small credit check and then the terms of credit period and payments are decided. Recommendations and Conclusions: Overview of Nestle UK concludes at a point that they have one of the best practices in the functioning of the product process in the market for Kit Kat. The only recommendation is that use of the railway network in UK in order to fast supply of the goods and reduction in time factor. This will improve their efficiency in the market and they can achieve the target sales smoothly without any shortages.

In order to have a healthy business salesforce need to be motivated and kept happy. They are the major players in getting the business for any organisation. (Zoltners, Sinha, Lorimer, 2004) Any organisation selling product is complete only if they have a proper distribution structure and effective and efficient sales team. (Johnston and Marshall, 2010)

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