Sugar Cereal

Our client, Foods Inc., sells a variety of sugar cereals traditionally distributed through grocery stores. Sales to Big M Mart, a discount chain, have been growing at 15% a year, and the chain has recently become the largest distributor of our client’s products. The client has asked us to evaluate their distribution strategy given Big M Mart’s growth.

Our client, Foods Inc., sells a variety of sugar cereals traditionally distributed through grocery stores. Sales to Big M Mart, a discount chain, have been growing at 15% a year, and the chain has recently become the largest distributor of our client’s products. The client has asked us to evaluate their distribution strategy given Big M Mart’s growth.

The client has asked us to evaluate their distribution strategy given Big M Mart’s growth.

Push the candidate to start on revenue; once she has done so, show her Exhibit 1 and Exhibit 2. The candidate should note that: • top distributors have grown more important • Big M Mart has grown faster than all others, particularly in terms of volume • While other customers have seen both volume and sale rise, Big M Mart’s sales moved in lock step with volume, indicating that sales to Big M Mart are lower margin than other stores Once the candidate understands how the client is doing with Big M Mart, she should look to learn about the competition’s performance with Big M Mart. Once she understands to focus on market share within Big M Mart, provide her with Exhibit 3. Upon seeing the Exhibit, she should ascertain that our client is losing share to Cereal Co. and Private Label. At this point, ask the candidate why she thinks the client may be losing business. Possible answers include lower price, product placement, promotional differences, and branding. Once shelf space is mentioned, inform the candidate that Cereal Co. brands tend to be placed lower on the shelf than our client’s. This should lead her to realize that children are more likely to notice the lower products. Once promotions are mentioned, tell her that some Cereal Co. brands have promo tags and advertised specials for Big M Mart customer cardholders. She should then realize this allows Cereal Co. to strategically discount prices despite maintaining retail prices. If she asks why Cereal Co. seems to receive preferential treatment, tell the candidate that they have 50 sales representatives dedicated to the Big M Mart account, while our client has seven. Ask the candidate to brainstorm the various aspects that drive cereal purchase. Possible answers include box design, toys inside the cereals, taste, and cereal aesthetic. Push the candidate to come up with additional items after the first round of suggestions. Tell the candidate that buyers can be segmented into two man categories. Approximately 60% of buyers are “brand loyal,” going for one main cereal, while the other 40% are “impulse” shoppers. that consider nearly all cereals before them. • If the candidate asks about price sensitivity, tell her that brand loyalists are not price sensitive at all when their favorite brand is available. However, when their desired brand is not available, they will try discounted cereals 35% of the time. • 25% of the time during a stock out, brand loyalists will leave without a purchase • The other 40% of the time they behave like impulse shoppers (i.e., random) At this point, the candidate should determine that product availability is a major driver of volume at Big M Mart for cereals. If the candidate asks, provide her with the following information regarding the distribution to Big M Mart: • Cereals are distributed from the factory to the distribution warehouse twice a month; the retailer then stocks shelves itself • Our client has no direct access to in-store inventory information • Big M Mart stores average 15% of sugar cereal brands out of stock, across all brands The candidate should recognize that stock outs are harmful to our client since they represent lost sales, and that they also hurt Big M Mart, who loses sales 25% of the time when a brand-loyal customer walks away without buying anything. Ask the candidate to provide a final recommendation. A strong ending will state the recommendation first; a possible answer might be to work more closely with Big M Mart. A first priority should be to increase resources dedicated to the store to ensure better product placement. The case should be made that stock outs for our product hurt their overall sales by roughly .75% (15% stock out * 60% brand loyal products * 25%willingness to forego purchase = 2.25%; ~1/3rd sales for our customer = .75%)