Priya Namak Company – Revamping the Distribution Structure

The case of Priya Namak Company (PNC) deals with the distribution and packaging decision at multiple demand points of iodized salt. The supply is done from the source plant located on the west coast of Gujarat. At Priya Namak common salt is extracted from seawater through the natural evaporation process using sun heat. The whole process spans over a few months. The solid whitish material that settles after evaporation is common salt in crude form. It is processed for removing the impurities and further treated to bring the iodine content at the desired level. The finished product is called iodized salt, meant for human consumption. Iodized salt is a low-priced daily consumption product used in food preparation.

Iodine is used by the body to form thyroxin, an essential hormone. Salt is used as a medium for supply of iodine to the body. Because of the requirements of the thyroid gland and to reduce the inci­dence of goitre (an iodine-deficiency disease), a normal person needs about 75 mg of iodine per year. The country is now producing an estimated eight million tonnes of salt per annum, out of which three million tonnes (expected to rise to 10 million tones in the near future) is consumed by the industry. Of the total edible salt market, 75 per cent is served by unbranded products, 23 per cent by branded salt and the balance 2 per cent by specialized edible salt varieties. Out of the total packed salt around 55 per cent is accounted for by the large brands, and the balance 45 per cent of the market comprises of small local brands. Typically, the average salt consumption of a human being is 11-18 grams per day. Now, one can easily guess the bright future for manufacturers of iodized salt, considering the fast growing population and the consequent need for satisfying its salt requirement.

Priya Namak is the largest and the most integrated salt works complex in the country, generating over 2 million tonnes (p.a.) of solar salt. The company also manufactures a variety of chemicals for which the major raw material is salt. After the washing, sieving, grinding, evaporating and chemical treatment, the finished product obtained is iodized salt. Currently, Priya Namak is producing 1200 tonnes of vacuum-evaporated iodized salt per day and 2000 tonnes of other chemical products. The salt works and the processing plant are spread over 2500 and 650 acres of land respectively.

The company has a projects division comprising the research and development department, helped by a mechanical and detailed engineering department. Forming the backbone of its research-based operational policy, it has a computer-aided research, design, engineering and man­agement centre equipped with pilot plant facilities, advanced computing facilities and a host of state- of-the-art software. The division is capable of carrying out plan simulations, basic engineering, project monitoring, planning and scheduling in all the disciplines.

The process equipment division of the company comprises a foundry, a workshop and control facilities. It has shops for melting and moulding, a fettling shop, a pattern shop, a machine shop, a fabrication shop, a heat-treatment facility and a testing and quality control cell. It is capable of manufacturing static equipment, seawater pumps and process pumps ranging from carbon steel, stainless steel and grey cast iron to titanium.

The engineering division comprises the construction, electrical engineering, instrumentation and maintenance departments. Equipped with a variety of facilities, it is capable of carrying out construction-related activities, including the building of heavy foundations, structural work, erec­tion of plant and machinery (including boilers and turbo-generators) and the installation and com­missioning of electrical, instrumentation and control systems disciplines.

For salt, Priya is one of the leading companies in the iodized salt segment with a considerably good market share compared to its national competitors.

Priya had sales of about INR 150 crores in 2001 and exported 12,000 tonnes of iodized salt to the Middle East and East Asian countries. Priya is selling its “Priya—Common” iodized salt at Rs 7 per kg and planning to bring out a low-end brand “Priya—Janata” at Rs. 5 for the low-end market to convert the users of loose salt to the branded and packaged salt product.

Priya is currently operating through a single marketing agency that reaches the consumers through a network of 30 distributor-cum-C&F (carrying and forwarding) agents, 2500 stockists and 7,00,000 retailers. Priya was earlier doing the entire retail-packaging job at their Gujarat plant, which has now been shifted to fi eld packaging at the C&F’s place. The company now dispatches the material in bulk through railways to the C&F agents in 50 kg bags in trainloads to economize on freight. On an average, each C&F agent procures 2000–2500 tonnes of iodized salt from Priya per month. Salt being an essential commodity, the demand for it does not fl uctuate too much. However, each C&F agent keeps a safety stock of 50 tonnes, The C&F agent supplies the products to stockists in the required pack sizes of 500 g, 1 kg, 5 kg, and so on. The packaging is done according to the hygiene norms set by Priya. Depending on the sales volumes, Priya has appointed 30 packaging partners as C&F agents, with varying packaging capacity, all over the country. Salt in bulk is supplied to the packaging partner-cum-C&F agent as per the requirements of distributors, who in turn get their requirement from the stockist who is in touch with the retailers. Because of
low unit price of the product, the logistics cost of salt distribution is to the tune of 54 per cent of the product-selling price. This means that for the one-kilogram salt pack selling for Rs. 7, the logistics cost works out to Rs. 4.05 per kg.

According to the ORG-MARG retail store survey for April 2002, the size of the iodized branded salt market is 15 lakh tonnes per annum; valued in monetary terms at about Rs 700 crores. Iodized branded salt market is estimated to grow at 20 per cent per annum. The market share of the national brands and the local brands in the iodized salt segment is 70 per cent and 30 per cent respectively. Priya continues to reap the early bird advantage, having 36 per cent share of the national branded salt segment. Due to an effective iodine-deficiency campaign, the penetration of branded iodized salt is about 20 per cent nationally. Even though manufacturers are trying to dif­ferentiate through attributes such as “iodized,” “granular,” “free flow,” and “vacuum evaporation” to influence the customer, the consumer preferences are for reputed brands and familiar names like Priya. The salt is a habitual product and the consumer does not prefer frequent brand switches. The housewife looks for the comfort level and the measure of salt. The outcome of the research, conducted by a leading market research organization in the country, is that the Indian consumer is willing to switch among a set of preferred brands, depending on the availability, personal prefer­ence and product offering. Similar to other FMCG products, if a consumer gets a certain branded salt free with other purchases, the chances that s/he may continue using that brand are increased. Hence, the market offering and the distribution muscle are the keys to success in the iodized salt market. Priya penetrates urban, semi-urban and rural markets through economy pack sizes and forms and product development for newer and more evolved offerings. The nearest rival of Priya has shown an average increase in market share of one and half percent in the last five years. It has already reached 1500 towns and has a network of 1150 distributors. As against the field packaging strategy of Priya, the packaging for Brand B is done at the factory.

Due to the growing competition, Priya felt a need for reviewing its distribution system and appointed a consultant to review the exiting system and suggest improvement. The consultant indi­cated that Priya has no direct interaction with channel members leading to the poor information availability about the market. The consultant suggested reducing one channel layer in the distribu­tion chain. The consultant further observed that the distributor-cum-C&F agency is a single entity affecting the distribution, leading to the high level of outstanding payment and longer cash cycle. Therefore, the distributor and C&F functions need to be separated and Priya should directly deal with distributors, opined the consultant. In addition, Priya should IT-enable its distributor chain. The consultant was of the opinion that this structural change would help Priya to have better con­trol over the distribution channel, information availability and a more dynamic response to market conditions. Further, he was of the view that with the new arrangement, Priya would also have better controls on inventory and outstanding payments. This would help Priya to reduce working capital needs and corresponding interest cost leading to higher sales and market share.

The consultant further made a remark that to remain in the leading position, Priya should con­tinuously review its value delivery system. The commodity market will progressively move into the branded portfolio as long as the value delivery is in line with the product price. The margins will continue to be thin till the consumer perception of the differentiated values that brand offer over commodity changes significantly.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.

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