Mit Case Study

BCG Join BCG query grooming utilisation Cases statistical scattering http//www. bcg. com/join_bcg/interview_prep/practice_cases/dis The capital of Massachusetts Consulting Group Home Join BCG discourse Prep Practice Cases Distribution Strategy Distribution Strategy Crafting a Distribution Strategy for a Sugar grain Manufacturer Your leaf node is the starting line caryopsis divider of Foods Inc. , a U. S. - ignorantd distributor and manufacturer of packaged foods. According to the division president, Foods Inc. s traditional strength has been with food crossing stores, which still account for the majority of its $1. million in ice lolly cereal gross gross sales. But pornographic M market place place, a discount chain, has been ontogenesis at a healthy rate of to the highest degree 15 per centum per year and has now become Food Inc. s largest customer. Your knob is non legitimate how to react, and has asked BCG for assistance with its scattering strat egy. Establish rationality of the Case First, let me make sure I understand the problem. Our lymph node specializes in sugar cereals traditionally distributed through grocery stores. Sales to sizable M market, a discount chain, puzzle been growing at 15 sh ar per year, and the chain has recently become the largest distributor of the leaf nodes product nationwide.We be here to help evaluate the distribution strategy in blithe of astronomical M grocerys turn outgrowth. That is correct. Could you explain to me how grocery stores differ from discount stores? Sure. grocery stores generally specialize in food, as well as merchandising some household goods and over-the-counter pharmaceuticals. Discount stores, on the an different(prenominal) hand, pop the question food alongside a wide variety of merchandise, including clothing, home electronics, and housewares. Does jumbo M marketplace market its food products differently than do grocery stores? Discount stores advertise glare impairments for a wide variety of foods, in particular staple, nonperishable foods.Could I take a moment to write a a couple of(prenominal) notes to myself? Please feel free. Set Up the Frame release Before reservation recommendations, I think we would need to evaluate whether sales growth at titanic M Mart is good or bad for Foods, Inc. To do that, I would first witness at how its sugar cereal motion at liberal M Mart compares with that in former(a) distribution channels. Second, I would look at its performance at mountainous M Mart in relation to competitors performance. Next, I would regard what drives customer purchases. Finally, I would sine qua non to understand the supply chain.That certainly sounds resembling a commonsense approach. Lets proceed. Evaluate the Case Using the Framework 1 of 6 10/2/09 657 PM BCG Join BCG Interview Prep Practice Cases Distribution http//www. bcg. com/join_bcg/interview_prep/practice_cases/dis First, I would wish to get a come apart sense of where outsized M Mart stands in relation to our clients other distribution channels by examining the clients sales data and margins, by distributor. The selling department does not leave margins by channel, but tracks sales and good deal for its top five distributors.What does this imply about braggy M Mart as a distribution outlet? It looks as if the top distributors soak up been growing more substantial, but particularly Big M Mart, which is growing faster than all the others. This is particularly true when we look at volume, where Big M Marts growth is much higher than that of the other four channels. And how could you go out what these data says about margins? While the clients sales through other distribution channels are growing faster than volume, Big M Mart volume and sales growth are the same, so the average outlay paid by Big M Mart has remained constant.That implies that sales growth at Big M Mart could construct negative implications for our clients margins. Next, I would the deals of to look at how our client is doing in relation to the rivalry within Big M Mart. Have they been gaining or losing market partake? How competency you find that out? I would try to interview Big M Marts purchasing personnel, since they would probably track those data for their own purposes. wherefore would they want to talk to you? How might you approach such an interview? I would approach the purchasing personnel and enkindle that our client and Big M Mart work ogether to identify best practices to reduce costs and increment sales of sugar cereals at Big M Mart. Lets say in a perfect world you could get a breakdown of Big M Mart sales for the four largest competitors (see market parcel of lands below). 2 of 6 10/2/09 657 PM BCG Join BCG Interview Prep Practice Cases Distribution http//www. bcg. com/join_bcg/interview_prep/practice_cases/dis What can we infer about our clients competitors within this channel? Who should the y be worried about? It looks like our client is losing market share, as is Tasty Breakfast, opus food grain Co. nd Private cross off are gaining share. Private Label, however, looks to be growing from a very handsome base. I would like to explore why our client is losing market share to food grain Co. at Big M Marts. Are their prices better than those of our client? After a period of price wars six to seven historic period ago that lowered industry margins, the cereal companies have refrained from price contender within the same channel. If prices are not driving the difference, I would look at other factors such as brand selection, percentage of ledge space, product placement, and in-store promotions.Visits to Big M Marts indicate that each name-brand comp all holds 30 percent of the shelf space, while private label has 10 percent. grain Co. brands, however, tend to be placed lower on the shelf than your clients products. Well, I suspect that children are a large target mark et for the sugar cereal manufacturers. The lower shelf placement could be especially important to children who are aspect at the different types of cereals. Are there both other promotions? Some Cereal Co. brands have sales promotion tags, and the team notes that store flyers advertise specials on Cereal Co. rands for Big M Mart customer cardholders. So, even if all the companies are maintaining product prices, maybe Cereal Co. is strategi visity discounting prices to gain market share. It seems as if there is inference of cooperation amidst Cereal Co. and Big M Mart. Do we know anything about their relationship? During earlier discussions with Big M Mart, you discovered that your clients competitors have 50 sales representatives investd to the Big M Mart account. Your client has seven. Cereal Co. come alongs to be dedicating more resources to its relationship with Big M Mart than our client is.This may explain its better product placement and promotion programs. 3 of 6 10/2/ 09 657 PM BCG Join BCG Interview Prep 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 would now like to look at the customers and understand why they select the products they do. One guess I have is that shifting brand loyalties are hurting our clients market share at Big M Mart. Thats interesting. What do you think might motivate purchases of sugar cereals?There are lots of factors, such as the games in the boxes, the price of the cereal itself, how it tastes. To better understand consumer deportment, we might comport market seek, possibly through focus groups, customer observation, and price esthesia studies. BCG teams often do such research. Lets assume your team conducts some analysis. Your research concludes that most buyers tend to fall into two categories. Approximately 60 percent of buyers go straight to genius cereal and grab it. We can call this group the bra nd-loyal shoppers.Another 40 percent of shoppers look at all the cereals and whence select one that interests them. Lets call this group the impulse buyers. For the brand-loyal shopper, the precedence would be product availability, while product placement would be important for consumers who like to shop around. Within these groups, are consumers price sensitive such that one brand can lure shoppers loyal to another brand? In general, your research indicates that consumers are not price sensitive and are exceedingly loyal to their prefer brand.But when the preferred cereal is unavailable, the brand-loyal customers forget purchase discounted cereals more or less 35 percent of the time. Well, from that information, it appears that price is not a major driver of purchases unless the preferred cereal is out of stock. In these stock-out situations, you said, brand-loyal customers give purchase discounted cereals 35 percent of the time. What happens when the customer does not purc hase a discounted cereal? In approximately 25 percent of cases, the customer flings away without purchasing any cereal at all.In the remaining 40 percent of cases, the brand-loyal customer will act like an impulse shopper and select another brand. Interesting. It seems as if product availability could be a major driver of total cereal volume for Big M Mart. Of course, we would need to know how often stock-outs make pass that cause consumers to walk away without purchasing cereal occur. Since I have a pretty good understanding of customer motivation, Id now like to ask a few questions about the clients supply chain. I would want to talk to our clients distribution personnel to understand the distribution process and to determine how often stock-outs occur.Can you describe how our clients cereal is distributed at Big M Mart? Cereals are distributed from the factory to the distributors warehouse in two ways monthly. The retailer then stocks the shelves itself. Do we have any knowled ge about when the individual stores are out of stock? No, we do not, since our client only delivers to the warehouses and has no direct rile to in-store inventory information. Since we identified product availability as a mention success factor earlier on, I would want to make sure that the stores were stocking the product correctly.Lets say that in your earlier in-store investigations, you found out that Big M Mart stores averaged 15 percent of sugar cereal brands out-of-stock, across all brands. 4 of 6 10/2/09 657 PM BCG Join BCG Interview Prep Practice Cases Distribution http//www. bcg. com/join_bcg/interview_prep/practice_cases/dis Stock-outs would be a major problem for our client, since 60 percent of customers look for a specific brand of cereal and 35 percent of them would buy a discounted brand in a stock-out situation.Big M Mart would too have an incentive to reduce out-of-stock incidents, since 25 percent of the time, a brand-loyal customer will walk away without b uying anything. Summarize and make recommendations Big M Mart is our clients leading customer, accounting for more than 20 percent of our clients sugar cereal revenue. Although sales to Big M Mart are rectifyr on an absolute basis, our clients margins there are lower than in its other channels and its competitive position is eroding in that channel. At Big M Mart, our client faces competition from both private label and Cereal Co. although the latter appears to be the greater threat. There appears to be a relationship between Big M Mart and Cereal Co. as show by their joint promotions, the superior placement of the Cereal Co. product, and the substantial resources that Cereal Co. has dedicated to the Big M Mart account. We learned that 60 percent of customers are brand-loyal, implying product availability is most important. However, 40 percent like to try different kinds of cereal, indicating product placement is also important.Purchasers do not appear to be price conscious, unle ss the type of cereal they are looking for is out of stock, in which case there is a stronger tendency to base purchases on price promotions. In terms of distribution, our client is making deliveries twice a month to Big M Marts warehouses. Big M Mart, in turn, is responsible for stocking the shelves. We currently have no direct knowledge of when our clients items are out of stock at the individual stores, but there is evidence that stock-outs do occur with some frequency. Well, it sounds as if you understand the situation. What would you recommend the client do?The sales through Big M Mart appear to have a negative impact on the bottom line, as they have lower margins than sales through grocery stores. The client could work with grocery stores to ensure that they are able to compete effectively with Big M Mart in the sugar cereal market. This strategy could be risky, however, since Big M Mart is a large and important customer. Therefore, I would recommend that our client work more collaboratively with Big M Mart. To carry on its current position at Big M Mart stores, the client should move toward a partnership with Big M Mart and dedicate more resources to the relationship.The customer and competitor data indicate that our clients first priority should be to improve distribution to ensure better product availability. In addition, it should push for product placement equal to, if not better than, that of its competitors. wherefore would Big M Mart be willing to enter into a partnership with Foods Inc? Foods Inc could offer to share its information about customer behavior to help increase revenues for both itself and Big M Mart. Stock-outs hurt Big M Mart in two ways. First, some brand-loyal customers simply walk away without purchasing cereal whenever their preferred brand is unavailable.Second, we know that other brand-loyal customers purchase lower-priced cereal whenever they encounter a stock-out of their preferred brand. Both of these instances lower Big M Marts revenue. By eliminating stock-outs, Big M Mart could increase its sales by simply ensuring that customers dont walk away without making a purchase. Converting these purchase occasions to sales would increase Big M Marts sales of sugar cereals by more than 2 percent(1). Better availability also helps Big M Mart and our client increase their revenue by deterring the brand-loyal shoppers from trading down to lower-priced cereals.Recall that 35 percent of the brand-loyal shoppers purchase a discounted cereal if their preferred brand is not available. If improved distribution now makes the preferred brands more consistently available, the customers will pay a higher price for these products. Finally, we could use the information about consumer purchase behavior to help shake Big M Mart to 5 of 6 10/2/09 657 PM BCG Join BCG Interview Prep Practice Cases Distribution http//www. bcg. com/join_bcg/interview_prep/practice_cases/dis share information about product availability in its individual stores.We could work with our client and Big M Mart to improve the current distribution system to allow for more economical deliveries, while at the same time ensuring that our clients product is consistently available in the store. Thank you. Those sound like solid recommendations, but I would suggest that you fully understand the root cause of the stock-out situations and the cost to eliminate them onward moving ahead. (1) 15 percent out of stock x 60 percent brand-loyal customers x 25 percent willing to forgo purchase = 2. 25 percent 6 of 6 10/2/09 657 PM