China FMCG industry RTM and WS development practice,Bain presentation (draft) November 2013,Summary of key messages (1/2,FMCG companies face a series of challenges in selecting and managing RTM models when they pursue growth in China Sheer size of opportunity (universe of outlets) Managing pricing is particularly difficult in China, because Chinese shoppers are “repertoire” and because of complexity of markets/channels Need to balance execution effectiveness, and cost to serve with increasing reach Most successful FMCG companies in China need to be good at managing multiple RTM models at the same time as a sustainable competitive advantage. There is no one size fits all approach Direct selling (controlled model): Core strength of some MNCs (including KO) for organized and even fragmented trade but Chinese FMCG players increasingly adept at this model Indirect selling: commonly utilized by Chinese FMCG players given speed, reach and lower cost but many models with varying roles and levels of control The most successful MNC and Chinese FMCGs tailor direct and indirect selling models to different market and channel/customer priorities, with strong internal capabilities and systems to manage conflicts between models,3_85,1,2,3,Summary of key messages (2/2,Managing hybrid models (combination of direct selling and indirect selling) is a dynamic process. Successful FMCGs continuously evolve their models along with different stages of development Adapt to market dynamics e.g. urbanization, industry consolidation, channel mix evolution Optimize costs with increase in scale and internal capabilities, without sacrificing control Many FMCGs invest in building dedicated internal capabilities and systems for each model. For indirect selling: wholesaler management capabilities and systems critical but so are network of scaled, capable and loyal WS Management tools and detailed playbooks to manage pricing transparency, margin pool, transshipment, optimize cost to serve etc. WS reps dedicated to recruiting, setting targets, incentives, upgrading/training W/S, increasing loyalty and occasionally restructuring Fully integrated with sales systems For many FMCG companies, there is a large size of the prize from successfully managing the complementary indirect selling model,3_85,5,6,4,Agenda,11_89,Managing multiple RTM models in China Key success factors for managing indirect selling models in China Some implications for KO,FMCG companies in China face a series of challenges in selecting and managing RTM models,Sheer size of opportunity, universe of outlets Complexity of managing different markets and channels Different drop size and economics Managing pricing is particularly difficult in China Constantly evolving market and competitive dynamics Large and fragmented network of distributors/ wholesalers to manage; size Analyst reports; Literature search,Want Want RTM development,2,67_85 76_85,90s,Quickly expanded across China through indirect sales and distribution model for general trade (same RTM for snack food only manage tier1 DTs 25 sales offices in China Very limited sales rep. #, only responsible for collecting money from tier 1 distributors,00,12,05,Growth constrained by varying quality of wholesalers and relatively weak internal sales capabilities,06,10,Built up direct sales model and internal capabilities Expert Interviews; Literature Searches,41_85 129_84 6_84,2,Mainly sell through W/S markets 25 sales office in China Very limited Want Want own sales people Only responsible to collect money from T1 DTs No visibility on T2 DTs or below,Want Want,T1 Distributors,T2 DT / WS,Indirect selling Expert Interviews; Literature Searches,64_85 68_85 83_84 87_84 122_84,2,Global and national KA retailers,Want Want,KA sales,T1 Distributors,He Want” sales,T2 DT / WS,Direct selling Expert Interviews; Literature Searches,40_85 41_85 17_84 18_84 58_85 79_84,2,Global/ national Indirect distribution,Indirect selling purely transactional,Basic 2 party contract, subject to renewal each year,Mark up + rebates on vol. target,Mark up + rebates on vol. target Literature searches,Systematically manage W/S performance,with greater support of good performing, scaled W/S,Clear W/S segmentation criteria based on performance Transparent to all the W/S through dedicated W/S website Criteria incl. market share within the territory, volume/ revenue target, in-store execution, etc. Systematic process of target setting, tracking & evaluation At national, regional and local level Tie incentives (bonus, rebates or upgrading) with the performance rating,We review the wholesaler performance database each year to rate them and reward them accordingly. The next year we engage more with the high performers. The objective is to convert them into our distribution partners.” Chairman & CEO, Want Want China Holdings,Special financing support, trainings, talent develop for high performance W/S Dedicated website to interact with wholesalers,In 2013, we will continue pr