Remember to Study the Distribution Network of a Business!

According to Investopedia, supply chain refers to steps that need to be taken for a company to get the products or services to customers.

In our quest to understand a listed company which is involved in selling of tangible products, do not just analyse how the company procure raw materials to produce its products. 

Understanding the company's production process is important, but how the company market or distribute its products is also very important. This is where the concept of 'market reach' comes into picture. 

The key question to ask:

How widely distributed are the company's products and can the consumers purchase the products easily?

For example, Nestle produces Milo, Nescafe drink, Maggi and other products through its factories in Malaysia. Can we purchase Nestle's products easily?

When we crave for Maggi noodles or Nescafe drink, where can we purchase these products?

1) Sundry shop

2) 7-Eleven Stores- 7-11 carries wide range of Nestle's products, the higher the number of 7-11 stores nationwide, the better it is for Nestle because the products could reach larger number of the population. 711 has reached 2,000th store milestone in 3Q this year and the company will continue its rapid store expansion. This expansion will further strengthen the market reach of Nestle.

3) MyNews.com- A press and convenience store in Malaysia which is expanding aggressively with its new stores expansion at places with high footfalls. Mynews.com opened its 24 hours store in 2015 and has at least 250 stores at the moment and the company plans to open at least 70 stores per year. The expansion of Mynews.com is likely to strengthen the market reach of Nestle as well.

4) 99 Speedmart- started as a sundry shop in Klang and expanded overtime to around 600 stores nationwide. 99 speedmart is also carrying a lot of Nestle products.

5) Petrol Kiosk- Any expansion of petrol kiosks in Malaysia would also strengthen distribution network of Nestle Products. While you are travelling along highway and stop by R&R, you will notice a lot of people will stop by to freshen up and some may even end up buying Nescafe to boost energy & reduce sleepiness!

6) Online channel- Nestle Malaysia has also made some of its products available through Lazada and 11 street as online shopping platforms gain momentum. The opening up of this channel will be interesting to watch over time.

Apart from the above, there are also other channels such as Hypermarket (Tesco, Aeon Big, Giant and etc), Jaya Grocer, Village Grocer and many more.

On the other hand, even expansion of Nasi Kandar outlet would also improve the market reach of Nestle Products as people enjoy Maggi Goreng at these outlet.

When we study a company in the future, do study the whole ecosystem and supply chain of the company. The more confidence you have in the company, the higher is the probability of investment success.

Note: The company mentioned above is merely to illustrate the concept of 'market reach' and it is not an investment recommendation.