How do I increase the ROI for my ice cream business?
I am an ice cream distributor for a well renowned multi-national company. My distribution area spans around 400km. I have 11 eutectic vehicles operating in this area. I have my own cold store. The products are supplied by the company and they provide me margin for distribution. From marketing perspective, Price is controlled by them, product is controlled by them, promotion is controlled by them and placement is guided by them, but we do it. Our business backbone are two things electricity and fuel. Over the years, fuel prices have increased drastically, thereby, increasing our cost of doing business. For electricity, there are two aspects, one at our end, which we manage by power generation and the second one at retailer end. I have more than 1200 retailers with more than 1700 cabinets. The retailers range from high class retailers to low class retailers in various areas. The electricity crisis at retailers end has badly affected our business. Here there are two aspects, rising cost of electricity and electricity load shedding. More than 95% of our retailers don't have or don't afford having power generation for freezers. Since the marketing Ps are not controlled by us, our business volume has decreased by more than 25% from 2010 till today. Given the scenario, where we don't have control over factors highlighted, how can we improve the business ROI? Incase, more information is required, do let me know.
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Oct 26, 2014
This might sound crazy but have you considered moving into another venue type?
I imagine between fuel costs etc you might consider moving several vehicles into factory lunch service type services just to minimize the driving and maximize the sales. (It might be worth testing it out anyway.)
Oct 27, 2014
As I read the mentions about them blocking you in so many ways my idea becomes pretty impractical. However if they make it too difficult you should consider another distributor and then you can really fight for your business by trying different approaches. Best of luck in your endeavors!
Oct 26, 2014
This is what happen when you engage with MNCs as trading partner. MNCs block the decision making process. Your crucial problem is the cost of Energy / Fuel and you cannot do with the pricing of the products.. Your overheads costs has increased.
Few suggestions.
1. You design the stocking/storage in such a pattern that you have cost effective energy.. You can consult the expertise.. they will be able to guide you in this matter. Whatever the expenses may be, let your distributing channel share it.. after all they will also get the benefit from this move.
2. Make a representation of the Distributors and Retailers to the MNC respective person and explain the problem and ask them either to increase the commission on sale or increase the price of the product.
3. Thirdly, try to find an alternate company (indigenous) and promote the brand.. For indigenous companies.. you will be at a commanding position, since you already have the channel.
Oct 26, 2014
Thanks Sharmila. For point 1, not clear, appreciate if you can elaborate. For point 2, already working on it and so far no success. For point 3, the MNC is the market leader and competition is very poor, therefore, we don't have much of a choice. You are however, spot on the point of MNCs blocking the decision making and only pocketing their profits. We have an average of 8 product price increase by the MNC every 2 months, given this fact, the MNC can improve distributor margin, but they wouldn't. They only care about their margin and need a distributor which is neither healthy, nor weak, just to survive.
Oct 27, 2014
Point 1. indicate that you should locate a Consultant who can work out how you can save Energy and Fuel which is the overhead under your control. There are many alternate system and energy saving system also available.. But you need to hire an Expertise.. Though it will cost, but you can get the expense distribute amongst the other distributor and retailers.. You have to find a way towards saving the fuel and energy.. May be you need to design a distributing system which is cost effective.
Oct 25, 2014
Mudassar, you have solved half the issue yourself by identifying the problem.
Based on whatever information you have provided, here are some very broad areas you could look at. I urge you to do a complete study and be convinced of the numbers and results before actually implementing anything.
I'll put your problems into 3 categories: inefficient fuel related, inefficient electricity related, and rework.
Lets look at the fuel and electricity bits together first.
You'll need to study both frequency of trips to each retailer as well as routes used. Try improving on these based on:
- if you can stock more in one trip at retailers with reliable power backups (to save you multiple trips, and perhaps pass on a fraction of the savings to your retailer as incentive)
- Likewise, if it makes more sense making more trips instead of stocking at retailers with poor power backup, consider more efficient vehicles with greater capacity maybe. And see if the routes taken can be improved.
- In an area if there are multiple retailers, with some more reliable (in terms of power backup) than others, consider stocking more with the reliable ones, and the other retailers in the area sourcing it from the reliable retailers. There would be a difference in margins that both retailers enjoy, which you'd need to explain to the unreliable retailers as being a measure to offset their inefficient power situation.
- Another scenario could be where you consider the possibility of adding an extra distribution level (at the cost of some margins), whereby part of the costs will pass onto this layer (would need considerable study on your part to see the benefits/drawbacks of this.
Finally, rework. Anything that's repeated or wasted, is rework, and has unimaginably huge costs associated with it. Melted ice-cream, extra trips, shifting locations multiple times to manage power issues, etc., can all add up and shave off several % points off your ROI.
Good luck.! Let me know how things turn out.
Oct 25, 2014
Thanks for your response.
1. For "reliable power backups", there is a cost associated with it and who will bear it.
2. For more trips, there is fuel cost factor and secondly, as I mentioned vehicles are fitted with eutectic refrigeration boxes, therefore, they have to return either same day or next day due to temperature issue.
3. For the multiple retailers point with variable margins, we don't have this option because of extra freezer energy cost at retailer end and secondly, trade price is controlled by the company and we can't change it, neither can we cut price.
4. For extra distribution level, this is applicable if we enjoy an already good ROI and can pass on some of our profits. We are already suffering from ROI issues and don't have any margins/profits to pass over.
In any case, thanks for your response.
Nov 2, 2014
If you're going downhill, the faster you take a big decision, the better. Good luck, Mudassar.
Thanks Brian, but I didn't get your point. Btw, we are not allowed to sell any other coldchain item on our vehicles (as per MNC policy).