Sales and Distribution — Average Sales per Store

The average sales per store can be calculated by dividing the total sales volume by the number of stores distributing the product. The number of stores distributing the product is determined by multiplying the numeric distribution by the number of stores in the market universe. $$\text{Average Sales per Store}=\frac{\text{Sales Volume}}{\text{Number of stores distributing the product}}$$ $$\text{Number of stores distributing product = Numeric Distribution × # of stores in Universe}$$

For example, if the sales volume is 10,000 kg, the numeric distribution is 50%, and the number of stores in the market breakdown is 800, the average sales per store would be:

While this measure is simple and easy to understand, it can be misleading as it does not consider the quality of distribution. To illustrate this point, let us examine the following hypothetical data for Nescafe and Maxwell House.

Nescafe:

• Sold in 2,000 outlets,
• Average sales per store = 200 kg/month

Maxwell House:

• Sold in 100 outlets,
• Average sales per store = 300 kg/month

Based on average sales per store alone, it may seem that Maxwell House is selling at a faster pace than Nescafe. Intuitively, this does not sound right. Maxwell House’s distribution is confined to only 100 outlets, suggesting that it is a relatively small brand.

Upon filtering the data and drilling down to the 100 stores handling Maxwell House, we find that Nescafe is actually selling 1,500 kg per month in those stores (Exhibit 30.6), which is far greater than the average sales per store for Maxwell House.

This demonstrates that the average sales per store metric fails to account for the size of stores. This is a significant omission because smaller brands tend to be distributed only in larger stores that carry a wide assortment. As a brand grows and its distribution expands, its average sales per store tends to decrease as it moves into smaller stores.