Submitted To: Submitted By:

Mr. Sujit Sengupta Ish Jain (PG20101096)

Jaismeen Kaur (PG20101101)

Jyotsana Tiwari (PG20101106)

Kuldeep Budakoti (PG20101121)

Madhu Aggarwal (PG20101125)

Manoj Kumar (PG20101129)

Meghna Khandelwal (PG20101134)

Section - B

EXECUTIVE SUMMARY

The poultry industry was largely a backyard venture before the 1960s which has been

transformed into a vibrant agribusiness with an annual turnover of Rs 45 000 crores. Today,

India is the third largest egg producer in the world (after China and the United States of

America), and the ninth largest broiler producer.

The poultry industry has witnessed several ups and downs in the last 25 years as a result of

unplanned growth and a lack of government regulation. Currently, the poultry industry has

been growing at an average of 10% in layers and 15-20% in broilers for several years.

The poultry industry is very modern, with pure-line breeding, the latest vaccines and

medicines, environmentally controlled poultry houses, up-to-date processing units, the latest

management practices, chicken processing, exports of hatching eggs and excellent feed

quality.

Poultry industry is perishable in nature and chicks are required to be transported within two

days at right place and to right people, failing which a great loss has to be bear by the

company.

The most attractive feature of poultry industry from India’s perspective is that it has the

potential to create 25000 more jobs on the consumption of 100 gm more chicken meat per

capita.

As per the instructions about the project report, we have to study the distribution channel of

an organization to have the deeper understanding of the subject.

The study of this industry (hatchery) is interesting because:

The business is sensitive to time. The chicks have to be delivered to the destination

1000s of kilometers within 48 hours, else chicks will die.

The logistic part is very much effective that transportation is easily possible with

minimum loss.

Despite of having the short duration, the quality of the product is up to standard.

The Indian poultry production is considered the cheapest in the world.

In comparison with the rest of the livestock sector, the poultry industry in India is more

scientific, better organized and continuously progressing towards modernization. Breeding

and feeding management has improved through education, training, competition, expansion

and survival instincts.

To understand all these aspects in details, we visited a franchisee of Venky’s India Ltd. i.e.

Mansarovar Hatcheries in Safido, Sonepat, Haryana. There we get to know all the

production and distribution processes and other aspects involved in the industry.

Venky’s, transportation, franchisee, facilitating, farmer, commission agent, retailer

Table of Content

Introduction

Different Stages in Chicken Supply Chain

Channel Structure of Supply of Chicken

Demand & Supply of Eggs and Chicks

Broiler Trade at Delhi

Pricing and Margins in supply chain of chicken

Channel conflicts and coordination

Channel Information System

Critical Analysis

Current Assets Management

INTRODUCTIONVenky’s (India) Limited (VIL) formerly known as Western Hatcheries Limited was established in 1976, mainly to produce day-old layer and broiler chicks for the dense poultry markets of North India.Venky’s impressive portfolio includes animal health products, pellet feeds, processed, and further processed chicken products, solvent oil extraction, SPF eggs, nutritional health products for humans, and pet food & health care products. It has primarily three divisions namely poultry, animal health products, feed and feed ingredients.

The Company is a franchisee of Vencobb and BV-300 breeds and has farms and hatcheries in the states of Maharashtra, Gujarat and North Indian states of UP, Punjab, Haryana, Jammu Kashmir, Delhi and Bihar. It supplies one day old chicks (broilers and layers) to poultry farmers of these states. BV-300 enjoys 85% share in the layer market while Vencobb has 65% share in the broiler market. The product range, catered to retail as well as institutional markets, includes Fresh Chilled Chicken, Frozen Chicken and several Economy products. VIL, state of art, fully automated set-up equipped with a dressing facility imported from the Dutch company Stork processing plant situated at Kamshet. VIL has technical collaboration with SPAFAS Inc. USA to manufacture Specific Pathogen Free Eggs. Its unit is among four such units in the world and the only one of its kind in the developing world.

The company is witnessing a good growth in demand from this segment. The company also sells various poultry products in the ready-to-eat segment through a nationwide distribution network. These products are sold under the brand name Venky’s and are available at Supermarkets and retail stores in all major cities in India

VIL enjoys most prominent position in the broiler and layer breeds market. It supplies one day old chicks to poultry farmers. BV-300 enjoys 85% share in the layer market while Vencobb enjoys 65% share in the broiler market. VIL sells its processed chicken under the Venky’s brand name. Venky’s is the first national brand in the processed chicken segment. VIL is a preferred supplier to the Indian outlets of McDonalds, KFC, Pizza Hut, and Domino’s.

VIL, new ventures in regular succession, besides adding significant value, gave it an edge in technology and high returns on investment. VIL has technical collaboration with SPAFAS Inc. USA to manufacture Specific Pathogen Free Eggs. Its unit is among four such units in the world and the only one of its kind in the developing world. VIL has a technical tie up with Specialty Enzymes and Bio chemicals, US to produce high value enzyme-based products for poultry, human & cattle segments.

VIL was ranked 67th by Forbes among the 100 best global small companies in the year 1999-2000. VIL is regularly paying dividends/ bonus to provide decent returns to investors. VIL bought back 8.75 lac equity shares to further enhance share holder’s value.

VIL, a fully integrated, market leader in poultry industry, future FMCG company in fast growing food market at CMP of Rs 83 is available at a low P/E 6 and 5 on FY04 & FY05 expected earnings offers immense growth potential for bargain hunters.

KEY GROWTH FACTORS FOR VIL

Market Leader, a pioneer in Poultry Industry with fully integrated and world class facilities

Converting itself into a FMCG company with a large array of branded products Huge outsourcing potential remains to be untapped as stores like Walmart, etc, are

looking toward India for its various shelf products including Ready to Eat Chicken products. Venky’s is ideally placed to capitalize this opportunity.

Poultry industry has tremendous growth potential with low consumption of eggs and poultry meat when compared to world standards.

WTO agreements may force EU to cut subsidies thereby offer huge export potential Early entrant in high margin pet food business Proximity to Middle East market with its own brand

Different stages in chicken supply chain

Stage 1 (Processing)

Egg of parent Vencobb breed reaches to Venky’s within two days from America (Tysan group) by air in 10,000eggs per batch.

These parent eggs are processed and grow into hen in 20weeks and within this period they are provided with proper vaccination, food and temperature to grow into a healthy hen.

These hens lay eggs in 24-26 weeks and when these eggs have standard weight of 50-60 gms, they are shifted to Automatic Machines where these eggs are hatched with 100 Fahrenheit temperature and 85% humidity level for 19-21 days.

Then picking is done when chicks come out weighing 40 gms. These chicks are packed in boxes.

Stage 2 (Distribution)

Chicks produced by Venky’s are transported to its franchisee on basis of its online pricing. As these chicks’ reaches top the franchisee within two days, they undergo same process carried by the Venky’s.

Brooding Layering Broiling

These chicks are transported to farmers located in that particular area where they feeds them, and make them to grow into chicken which are sold to Retailers (Meat & Chicken Shops) on the basis of the Mandi prices of that particular area.

Stage 3 (Retailing)

These retailers process them further to make them ready to sell to customers (Local Dhabbas, small restaurants and households).

Chick Hen Eggs ChickGrows HatchingLays

Channel structure of supply of chickenChannel is designed by Venky’s in north India and it is the Venky’s who can eliminate any intermediary or can go for multi channel supply chain structure. Venky’s follow B2B and B2C selling. Under B2B Venky’s directly sell to big eating outlets like Mc Donald’s, Dominos, KFCs and 5 Star Hotels.

Under B2C selling chicks produced by Venky’s are transported to franchisee in various locations in India by transporting agency within two days. These transporting agency are paid double to make delivery on time and all losses made if any are bear by Venky’s which accounts almost 1% of sales in a year.

Processed chick are transported to farmer by franchisee on the same norms of Venky’s and farmer after growing chicks into chicken sell them to retailer through commission agents in mandi which is further sold for consumption purpose by retailers.

Venky’s India Ltd.

(Franchiser)

Facilitating Agent

Franchisee

(Mansarovar Hatcheries)

Facilitating Agency

Farmers

Commission Agent

Retailers

End Consumer

Demand and supply of eggs and chicks

Venky’s sell eggs according to the demand made by the franchisee and more they target the batches of eggs more discount they get which increases their margins.

Sale by Venky’s is on FOR(freight on rail) basis which means any damage caused to product will be accounted by supplier this loss is not bear by receiver.

Chicks produced by franchisee they send their salesman in the market where they get orders from farmers of that particular area giving quantity discount and sell on contract basis where price is agreed first according to mandi of that area.

Indians still have less demand for chicken as compare to other countries so supply is more than demand which opens export prospect for Indian hatcheries to outside countries.

BROILER TRADE AT DELHI

In Delhi Gazipur Mandi is playing a vital role in trade of live birds. Farmers bring Broiler and Layer both type of birds here.

Gazipur Mandi is the ultimate market where farmers bring their birds in trucks sell their birds through commission agent.

After coming at Mandi farmer gives authority of selling birds to any of commission agent according to their choice and past experience.

At Mandi Retailers, intermediaries come and purchase birds according to their requirement.

Every buyer has to pay Rs. 1 as Mandi tax per Rs. 100. It means a buyer purchases birds of worth Rs. 1000 than he has to pay Rs. 10.

In Gazipur there are many commission agents who take commission from farmer for selling their birds which is 3.12% of total transaction.

A big commission agent generally sells 2-3 trucks combination of small truck (capacity of 112-124 carats) and big truck (capacity of 200-220 carats).

A big commission agent sells 4000-7000 birds daily which depends upon market demand.

At Gazipur Mandi daily arrival of trucks are between 150-160.

At Gazipur Mandi there are near about 90 shops.

If we assume that among 150 trucks, there are 90 big trucks of 200 carat capacity and 60 small sized trucks of 112 carat capacity. Than total birds come in the Mandi is near about 250000 birds if one carat has 10 birds.

Farmers of Haryana, Punjab, U.P., Rajasthan, M.P. brings their birds at Gazipur Mandi.

At Gazipur Mandi, from last 10 years, trading of birds happens through weighing of birds.

At Gazipur Mandi there is facility of dressing of birds is available.

Pricing and margin in supply chain of chicken

Per chick cost to franchisee is Rs 160 which they get from Venky’s. Chick cost is more because these chicks have fertility. And one chick after growing gives 160-200eggs.

Production cost includes vaccination and feeding cost which adds to total cost affecting the price of the product.

End product to franchisee i.e. chick which is sold to farmer cost them Rs 20.

Keeping 2% - 5% margin on the cost it is sold to farmer on FOR basis.

Facilitating agency (transportation) is paid double (motivation) to make delivery within two days.

These farmers sell to retailer on the basis of mandi pricing which keeps on changing day to day on the basis of demand.

Average cost per week is Rs 50/kg which increases to Rs 80/kg on Wednesday and goes up to Rs 100/kg on Sunday.

Retailers also sell at per kg rate. But what was 1kg when it came from mandi reduces to 800gms after peeling off and price increases.

1kg of chicken costs Rs 90 is sold for Rs 150 to customer.

Channel conflicts and coordination

Whole B2C supply chain of chicken is based on livestock so it requires Just-in-time purchase. JIT purchase reduces their physical distribution cost especially storing and handling cost.

There is no backup inventory, there is no security blanket if suppliers delivery truck gets stuck in traffic, there is an error in what’s shipped or there is an quality problem.

Physical distribution decision interacts with other place decisions, the rest of the marketing mix, and the whole marketing strategy. A coordinated effort reduces conflict

Hence there is no channel conflict because the ruler of this market is Venky’s India ltd. And channel members are solely dependent on them. But there is intertype channel competition between different hatcheries in particular area. They keep on changing their pricing strategy by lowering their margin to attract more and more farmers. Emphasis is more on prices rather innovation because Indian farmer are poor and cannot afford high price material or good.

Channel information system

Venky’s give all information regarding technological changes introduced in the production of chickens and assist them regarding diseases and their vaccination to be given to hens.

As JIT purchase is there then it calls for proper information system regarding demand in market.

As production and sale is on daily basis so it has to coordinate with demand of market and as a result there is information available from customers who passes information to retailers and further they demand accordingly from farmers who finally goes to hatchery.

Critical analysis

Our critical analysis on supply chain of chicken concerns to:

Supply chain elements Supply chain costs Current asset management

One of the leading exporter of poultry products from IndiaVenky’s is the one of the largest exporter of poultry products from India with strong global presence. The company has its production plants in Switzerland, Bangladesh and Vietnam, also its overseas offices located in UAE, South Africa, Brazil, Singapore and Philippines etc.

Key export destinations for Venky’s are- Ghana, Nigeria, UAE, Saudi Arabia, Iran, Europe, Malaysia, Sri Lanka, Singapore and Japan etc. Major products exported by the company are- Soya Extraction, Egg Powder, Specific Pathogen Free Eggs, Poultry Vaccines, Animal Health Products, Venky’s Atta and Biscuits and Breeding Stock – Layers and Broilers etc.

KEY RISKS

Foreign exchange fluctuation as it is amongst the largest exporters of poultry products from India

Competition from unorganized market players.

Out break of diseases like bird flu can adversely effect the sales

Under supply chain of chicken run elements included are:

Transportation Material handling Inventory control Warehousing Order processing Packaging

Supply chain cost is low because cost of inventory and warehousing is not there because supply chain is based on livestock which calls for JIT purchases.

Material handling needs improvement because nature of good is highly perishable.

Current Asset Management

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As current assets and investments are increasing, net sales/turnover has also increased which shows the growth of 23.9%.

Collection Period = (Avg. monthly bills receivables / Avg. Monthly Turnover) x 30

= 43.5 / 531 x30 = 2.78 days

This shows that their collection efforts are effective and their current assets are managed effectively which overall is reducing the supply chain cost.

Although the sales are on credit basis but as collection period is 2.78 days which makes channel participants more effective.

Interest paid by Venky’s has reduced to Rs 50.4 millions in 2010 from Rs 78.8 millions in 2009 which again is reducing the supply chain cost.

Overall the supply chain of chicken is well managed which is leading to reduced supply chain cost but Venky’s should emphasize on raising demands by having the proper mix of 4 Ps of marketing, specially PROMOTIONS.

References;

http://www.ldi.wur.nl/NR/rdonlyres/B75DC197-FC52-4CD8-9282-3B80BC9B921A/ 26755/4_ChickenRun.pdf

http://www.venkys.com/group-profile/venkys-india-limited/

http://www.nseindia.com/content/corporate/eq_VENKEYS_base.pdf

http://www.citehr.com/research.php?q=importance--of-physical-distribution

Authors: Rosenbloom Coughlan Mr Shivchand Garg( owner of mansarover hatcheries, safidoo )