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Disruptive distribution

Published

4 years ago

March 5, 2021

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Distribution channels are the conduits through which companies deliver products and services to customers and end users. Some businesses sell directly to their customers, while others might use a retailer or wholesaler to serve as an intermediary. Companies may also use agents or brokers to facilitate the movement of products to distributors that sell those products to the customer.

Product distribution is vital for company?? operations. A manufacturer wants to have the ability to analyse and improve relationships between manufacturers and customers. If there?? no way to do this, corporates won?? improve. When a company runs into bottleneck in the distribution, a lot of bad things can happen. When deliveries start to fall short, customers, retailers and your suppliers won?? be happy. If the company wants the product distribution to be successful, a feedback loop that allows making continuous improvements is necessary. If the company business in such situation has been digitalised, then all the problems can be addressed in an efficient manner.

The last decade has brought in many disruptions in our life and the way in which we buy items. Use of technology by both the distributors, retailers and product users is becoming common. As it pertains to customers??buying products online, there?? a level of trust customers have on the distributor when they buy a product they can?? physically see and touch. For merchants, this is where accurate pictures and descriptions are extremely important.

It is interesting to see what cement distribution has to do with technological advancement. Cement being a routine, mundane product nobody ever thought where the technology can come in buying cement. But that is not correct; we draw attention of our readers to a company by the name Shankara Buildpro. It is the only stock listed company doing retail business of cement and related products. It calls itself as a leading building material retailer with more than 125 outlets across the country with 30,000 plus products. It is interesting to see the business model adopted by the said company. It has both brick and mortar stores as well as online store.

There has been the use of technology by the cement distributors but that is mainly pushed by the cement manufacturers. When large corporates like ACC, Ambuja, UltraTech and Shree Cement implemented enterprise solutions for their factory operations and logistics, it was obvious for them to extend it further to cement distribution.

We would to draw attention to a report prepared by Kanvic Consulting on the subject which has many contours connecting to the technology, logistics and distribution.

Drive digital @ scale

To realise the potential of digital for their bottom-line, cement companies should make four major changes. First, they need to make digital a priority for the top level management. Second, they need to replace the technology lens with a business outlook. Third, they must invest in digital talent. Fourth, they need to break down the silo mindset.

Make digital a priority

Kanvic Consulting study of Indian cement companies has revealed that digital is not yet a priority for top level management. In most cases, digital initiatives are usually left to lower levels of the organisation or the IT department, who are tasked with implementing new solutions like CRM. As a consequence, digital fails to become a strategic priority for the business.

To drive digital in a concerted way across the organisation; leaders need to place it firmly on the agenda of top management by discussing it alongside with other strategic decisions. Furthermore, it is essential that a digital champion is appointed at a senior level that has the authority to lead the process across functions and with direct accountability to the board. They also have the responsibility of creating firm-level awareness of digital and its importance to the organisation?? future. To kick-start this process one large manufacturing organisation conducted a workshop facilitated by external experts who brought an outside perspective on the opportunities and threats digital presented to their business. This helped foster a sense of urgency around digital and successfully brought it onto the board?? agenda. Only these endeavors will lead the distributors to go digital. If it is left to only digital fraternity then it may take its own time.

Go beyond technologies

Even in cement companies that have adopted progressive digital initiatives, there is a tendency to see them through the technology lens, which limits the field of vision to specific solutions, rather than looking at the all-encompassing impact of digital across the business.

With digital technologies advancing at a fast pace and customers??ven in more conservative B2B organisations??apidly adopting new buying behavior, a narrow view of digital will leave cement players exposed to the threat of digital disruption.

However, the real long-term benefits from digital will come when individual initiatives such as these are taken in line with a strategic roadmap to digitalise the business. This approach will help prioritise the areas to digitalise first for maximum business impact and provide a common infrastructure to realise synergies across the business.

The Indian cement industry is gradually shifting away from the traditionally dominant trade channel that retails cement bags to large numbers of small customers, and toward non-trade customers like large construction and ready mixed concrete (RMC) companies. This trend will accelerate further as sectors like infrastructure and low-cost housing increase their share of cement demand. For example, infrastructure share of demand is projected to rise from around 20 to 25 per cent by 2020. These segments will put greater pressure on price realisation through their desire to keep costs low and the high level of bargaining power that comes with a large scale of projects.

In terms of productivity, the industry has reached the best efficiency norms and there is very little scope for any further improvements in terms of operations of a plant. Therefore, the clear challenge for Indian cement companies today is to identify new sources of margin improvement. Logistics and distribution happens to be one. According to Kanvik, three key areas where Indian cement companies can drive margin improvement through achieving performance excellence. These areas are sales and marketing, supply chain and digital.

The long-term profit improvement in the Indian cement industry is the application of digital at scale. Today companies are adopting new hardware and software solutions on a piecemeal basis to address specific problems, but few players are viewing digital as a driver of overall business performance and all are struggling to adopt a truly digital culture. It is important to note however that since the cement industry is highly regional in nature, the supply-demand scenario will differ from region to region based on the competitive dynamic and price discipline exercised by the companies.

Key customers

It is a well-established concept in the industry that every corporate knows its key customers. Even at a distributor level it is a practice to keep track of key customers. A key customer is a person or a company who gives a substantial quantum of business to the organisation. These key customers some times are given special discounts like cash discount, trade discounts, turn over discounts, quantity discounts and other privileges according to the organisation?? policies. They may also be given a lenient payment facilities by the organisation. It is always much easier to keep the details of key customers if the company is on digital platform.

Credit score

Credit score is a statistical analysis performed by lenders and financial institutions to determine a firm?? or a small, owner-operated business??creditworthiness. Any advance given as credit must be settled within stipulated time frame to have a worthy credit score. Credit scoring is used by lenders to help decide whether to extend or deny credit. A credit score can impact many financial transactions, including mortgages, private loans, further credits, etc.

Questions

In the cement trade business on credit and recovery of payment has been a challenge. Therefore the online models which always have a definite period for payments have not been successful in cement. As stated above cement being an age old product, users are more comfortable in sourcing it in a traditional way. Today the trading community is very watchful about the experiments like infra.market or Shankara Buildpro since success is yet to be established. However, we feel cement being a high volume and low margin item, the distributors and retailers will be under pressure in the years to come and some what a hybrid model, which is a blend of online plus using partly traditional business model may emerge as a compromise.

Acknowledgement: A report ??uilding a new India??by Kanvic consulting

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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings

Published

3 years ago

October 21, 2021

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Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

Source:moneycontrol.com

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Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

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The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…

ETBrandEquity

Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)

Published

3 years ago

October 21, 2021

admin

Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.