A Market with close to 1 million potential customers (changarros) in Mexico is always relevant for any company strategy looking to land or expand in LATAM
In my years of experience implementing and delivering a variety of solutions for Sales and Distribution globally, I have seen many different particularities for each market, but never something as big as the gap between the software offering and the business process that exist for some players when implementing solutions to serve the unique needs of Mexico or Brazil. This is not because the technology or the solutions aren’t good enough – I would say that the challenge here is that such solutions are not “Latinized” yet.
The funny part is that, when sometimes my colleagues of other regions like USA or Australia have asked me (more than once): “Why would things work like that in Mexico?” – The first and short answer that comes to my mind is what Guillermo del Toro said in Oscar’s Academy Awards Ceremony in 2017: “Because we are Mexicans”.
What is that thing that Mexicans, and in general Latin Americans do different in their Direct Sales Channel, compared to other geographies? Here is my take on this, 10 basic reasons. Of course, there may be more particularities applicable just to certain businesses, but I am trying to tackle this from a generic perspective. The 10 items are not listed in any order in particular and should be ranked by the reader depending on the strategic views that are applicable.
- DSD from a Sales Perspective, over a logistic view. The terms “Direct Store Delivery” are meant to be taken literally as they are stated: A driver or sales agent takes product directly to Point a Sale. In developed markets, this entails a pretty simple process: Perform a delivery and obtain a Proof of it (PoD), making this operation a logistic matter. On the other hand, in emerging markets DSD is actually understood as a Sales Distribution Channel where Sales reps may do Presell, Van Sales, Delivery, or a mix of them. Some companies call this channel DTS, Proximity, Horizontal Distribution, or “Detalle”, and it is intended for a certain type of stores with similar sales process that involve smaller, very detailed transactions. “Mom&Pop” (or “changarros”) stores are the most common among the type of customers that are serviced through a Direct Distribution channel in emerging markets.
- Number of Visits. In Mexico, it is very rare to see a high Drop Size (average sales value per ticket) when talking about DSD operations, as the transactions are typically made in the smallest sales units and in low quantities with a high inventory rotation (stores don’t have enough room to accumulate long days of stock). This means that the average sales rep has to perform a good number of stops to be able to be productive enough to make a sales commission. A good average is about 30-35 stops per day, although I have seen operations with targets in Presales over 120 calls per day.
- Cash is (still) King. Despite of efforts of Mexican Government for discouraging use of it, Cash is still the king in this Channel. Cash is hard to track, so in reality most of the “changarros” are in a special tax regime that do not have the same obligations as types of formats even inside the same country (this is, if ever registered for paying taxes). Given the extended usage of cash transactions in this model, there are additional impacts considered in the next two items in the list.
- Control over Cash. After a large number of transactions, a typical sales rep may end up with a lot of cash in hand given the collections of the day. In some extreme cases, sales reps can have up to 5 months of their salary in a single day of sales in DSD. And having a bunch in your pocket in cash may be a big temptation for spending, right? (at least it is the case for my wife!). As you can imagine, self-robbery, fraud and money misplacement are common and many controls (both in process and systems) have to be put in place in order to mitigate the risks.
- Safety. “Changarros” can be found everywhere, but they are especially common in low income areas where the risk of robberies to both merchants and sales reps is an unfortunate common practice, and this is accentuated by the fact of having most of the operations running in cash.
- Build a relationship between the store and the sales rep. A necessary skill to perform the job of a sales rep is to enjoy working with people, considering that you will have at least 35+ different interactions per day. And this skill works for a necessary objective, which is to be able to become a trusted advisor for the store aiming to maintain (and increase when possible) a good level of sales. Latino people can be very emotional compared to other cultures, given this, casual conversations go a long way on fulfilling this objective.
- Credit based in trust. A very common sales tool is for the sales reps, using their best judgement, to grant some form of informal credit for the stores (informal meaning that it doesn’t go through the regular Accounts Receivable process, as the systematic management of such micro-credits is a tremendous amount of work). In numerous occasions the store owners don’t want to affect their cash flow or simply don’t have the necessary cash to purchase the sellable goods – although they may have it later after they sell them. Then, the Sales Rep becomes the best judge to grant a credit line to the store, as he or she becomes co-responsible for this revolving credit line.
- Returns. Returns are one of the largest sources of revenue leakages for organizations, and this is aggravated by the nature of certain products in which this can even become a source for fraud. Manufacturers must define a well-controlled process on how to execute product at the Point of sale, aimed to reduce the returns by rotating effectively and selling the right quantity. And if returns happen they need to be prepared with the right controls and processes, ensuring that they are part of the reconciliation/settlement of the Sales rep.
- Promotions and Trade Marketing. As opposed to Modern Trade, DSD Channel there are few promotions and special discounts for lifting sales. Most of the investments for pushing Sell-in and Sell-out are related with Trade Marketing, such as exhibitors, coolers, banners, painting store front or any other help to engage both consumers and retailers with the brands. But quite often those investments are misused or not well placed, and it lands on the responsibilities of the Sales Rep to correct those situations.
- Technology. There has been a large democratization of technology in this channel in the last decade, thanks to the vast availability of Cloud based, SaaS models. More often than ever you can find Point of Sale systems in the small stores, as well as sales reps armed with the latest and greatest DSD and SFA tools. However, we are still in a stage of “doing things”, we need to move to “do the right things” via additional technification of our processes. Things like consolidated sellout data embedded in the decision process, cashless payments, Data Exchange in the point of Sale, among others, will be driving the conversation. China is a great example of cutting-edge technologies being implemented in this front.
After finalizing this list, I realized that I left behind an important number of additional outstanding reasons that are worth to mention; but if I try to list them all on a single article it will be too lengthy to be productive. I will be preparing a separated document soon with a complementary list, so please, stay tuned!
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