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The available distribution channels in the market for the defined segment are:
5 National multiple grocers (4000 outlets);
12 Regional multiple grocers (350 outlets);
250 wholesalers (1500 outlets);
112,000 independents.
The output criteria for these distribution channels are in Table 14B.
Table 14.B Crazy Foods distribution output criteria
Coverage
Freshness
5 National multiple grocers
***
***
12 Regional multiple grocers
**
**
250 wholesalers
***
*
112,000 independents
**
*
The distribution channel that best meet the product benefit are the national multiple chains;
the others fail in either coverage or freshness criteria.
Supporting the distribution channel
Physical distribution. Crazy Foods currently had 15 per cent of the overall UK yoghourt
market, but weighted for the 70 per cent distribution in the national multiples, they
controlled around 20 per cent of yoghourt sales in outlets where product was sold. The
total value of the brand was £42 million at retail, there was little seasonality. Each national
chain had 25 depots serving 32 branches on average. Each depot would receive around
90,000 units per week; or one lorry per day. Storage policy dictated that one central
production plant served the whole country; the average journey length was 320 kilometres.
Budget implication: Physical distribution. 25 lorries x 320 kilometres per day = approx
£2500 per day delivery costs or £50,000 per month.
Inventory policy. The average level of demand is 450,000 units per day. One standard
deviation is 55,000 units. The company decides to maintain a 95 per cent confidence level
of stock.
Budget implication: The cost of inventory maintained at any one time will be 505,000 units
x production value x interest rate = £750 per week in inventory cost, or £3000 per month.
Warehousing and production. Production can meet current volume requirements. There
are subcontractors available; there are no problems in coping with vulnerability, flexibility,
product or transport requirements. Warehouse location next to production site, meets all
location requirements. Warehouse design for movement of pallets and to keep product
fresh. Cool storage for 505,000 units will require a total expenditure of £25,000 per year.
Budget implication: Warehousing will cost the company £2000 per month.
Sales. Each of the national chains preferred to develop annual plans. Negotiations were
complicated and detailed, and lasted on average 10 working days. Preparation would take
an additional 10 days each. Progress of the product then had to be reviewed on a monthly
basis, requiring one day per month. All this discussion would be at head office - sales
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