Part 3 · FMCG trade practice · Chapter 3.5
Appointing a stockist
Draft: the wording may change.
The idea
When a company appoints a stockist, both sides are making an investment. The company gives a territory; the stockist puts in money, godown, vans and people. Before signing, the stockist should work out how much money the brand will tie up and what it will return in a year — the return on investment (ROI).
What the company looks for
The ASM or RSM usually visits before appointing anyone. They check:
- Capital: can the stockist pay for stock and carry market credit?
- Godown: space, dry floor, safe from rats and rain, close to the market.
- Delivery: vans or tempos, and people to run them.
- Existing brands: no direct competitor in the same category.
- Market standing: do retailers in the area know and trust this family?
- Records: are bills, GST returns and accounts in order? (Part 1.)
What the agreement covers
Every company's agreement is different. Read yours line by line, and ask about any of these that are missing:
| Point | What to look for |
|---|---|
| Territory | Which towns and beats; whether the company can appoint a second stockist there |
| Products | All products, or only some categories or pack sizes |
| Competing brands | What you may not carry |
| Payment terms | Advance, cheque on delivery, or credit days |
| Deposit | Whether a security deposit is asked, and when and how it is returned |
| Schemes and claims | How schemes are announced, how claims are filed, how long settlement takes |
| Damage and expiry | What the company takes back, and how |
| Secondary data | What the company expects you to report and in what format |
| Ending the agreement | Notice period; what happens to unsold stock and pending claims |
The last line is the one people skip. When an appointment ends, unsettled claims and old stock are where the stockist loses money.
At the counter: working out the ROI
A biscuit company offers a district town. The SO estimates sales of ₹15,00,000 a month before GST, at a stockist margin of 5%.
Money the stockist must put in:
| Item | Amount |
|---|---|
| Stock: 20 days at cost | ₹9,50,000 |
| Market credit: 10 days | ₹5,00,000 |
| Claims waiting with the company (about one month of schemes) | ₹60,000 |
| Deposit (if asked) | ₹1,00,000 |
| Share of a second-hand delivery van | ₹2,00,000 |
| Total investment | ₹18,10,000 |
Money it earns in a month:
| Item | Amount |
|---|---|
| Margin: 5% of ₹15,00,000 | ₹75,000 |
| Less two DSRs' salary | −₹30,000 |
| Less van running and driver share | −₹15,000 |
| Less godown and office share | −₹8,000 |
| Less losses (damage, expiry not taken back) | −₹3,000 |
| Net per month | ₹19,000 |
Net per year: ₹2,28,000. ROI = ₹2,28,000 ÷ ₹18,10,000 = about 13%.
Is 13% good? Compare it with the interest on the loan that funds the stock. If the loan costs close to that, the brand earns very little. Now look at what moves the number:
- Stock down from 20 days to 12 days frees about ₹3,80,000. ROI rises to about 16%.
- Claims settled in two weeks instead of four frees another ₹30,000.
- If the brand shares beats with another brand you already deliver, van and salesman costs fall, and ROI can cross 20%.
Ask the SO for the figures behind his estimate: which outlets, which beats, how much the previous stockist sold. An estimate with no outlet list behind it is a hope.
Common mistake
Counting only the margin. A stockist hears "5% margin" and agrees. He forgets the money in the market, the claims waiting with the company and the salesman's salary. Six months later the brand is "doing well" on sales and losing money in the books. Do the two tables above before signing, not after.
Where you'll use this
Chapter 3.6 shows where the 5% margin comes from. Chapter 3.13 shows why claims waiting with the company are your money, not the company's. Chapter 3.17 shows how to keep a separate profit and loss for each brand once you have several. In Part 4, brand-wise reports give you these two tables every month.
Check yourself
- Name four things a company checks before appointing a stockist.
- Why are pending claims part of the stockist's investment?
- What happens to ROI in the example if stock days fall from 20 to 12?
Answers
- Any four of: capital, godown, delivery, competing brands, market standing, records.
- The stockist has already given that value to retailers or spent it; the money is sitting with the company until it settles.
- About ₹3,80,000 less is invested, so ROI rises from about 13% to about 16%.