The Distributor's Offer at ₹85 a Jar
Sunita makes mango and lemon pickle at home in Amritsar under the name 'Sunita's Achaar'. Her maximum capacity is 40 jars a day. She currently sells 25 jars a day directly to neighbours and at two school fairs at ₹120 a jar. Her variable cost is ₹70 a jar (fruit, oil, masala, jar, label, gas). A distributor from Jalandhar offers to lift 30 jars a day, but wants to buy at ₹85 a jar with 45 days' credit. Retailers who buy from the distributor will resell at ₹120 and expect a 25% margin on the selling price. The distributor will not take back unsold stock, and Sunita will also have to pay ₹1,500 for a batch test and print batch codes. She has ₹40,000 in savings and no working capital line.
1. Calculate the retailer's purchase price, the distributor's margin, and Sunita's contribution per jar on each channel. Which channel earns her more per day at her current capacity?
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Channel maths
| Step | Calculation | Amount |
|---|---|---|
| Retail selling price (MRP) | given | ₹120 |
| Retailer's margin, 25% of selling price | 0.25 × 120 | ₹30 |
| Retailer buys at | 120 − 30 | ₹90 |
| Distributor buys at | given | ₹85 |
| Distributor's margin | 90 − 85 | ₹5 (about 5.6% of his selling price) |
| Sunita's contribution, direct sale | 120 − 70 | ₹50/jar |
| Sunita's contribution, distributor sale | 85 − 70 | ₹15/jar |
Per day at 40-jar capacity:
- All direct: 40 × 50 = ₹2,000 (she currently sells 25, giving ₹1,250).
- All to distributor: 40 × 15 = ₹600.
- Mixed, which is what the offer actually means: 30 to the distributor at ₹15 + 10 direct at ₹50 = 450 + 500 = ₹950.
So the distributor offer reduces her daily contribution from ₹1,250 to ₹950 even before the ₹1,500 test cost and the risk of unsold stock. To earn the same ₹1,250 at ₹15 a jar she would need to sell about 84 jars a day, more than double her capacity. The distributor's ₹5 margin is thin, which means there is little room for him to absorb returns - the risk sits with Sunita.
2. Look at the credit terms and Sunita's cash position. Is the offer financially safe to accept, apart from the per-jar margin?
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Receivables locked up: 30 jars a day × 45 days × ₹85 = ₹1,14,750 outstanding at any time. Her entire savings are ₹40,000.
Cash out before any cash in: she pays ₹70 a jar every day (30 × 70 = ₹2,100 a day), plus ₹1,500 for the batch test. In the first 45 days she will spend roughly ₹2,100 × 45 ≈ ₹94,500 on raw material for the distributor's jars alone, with zero receipt against it. Her ₹40,000 would run out in about 18–19 days.
Conclusion: the offer is not safe. It converts a profitable, cash-selling ₹1,250-a-day business into one with a 45-day funding gap, an untested product return risk, and lower contribution per jar. Sunita would be financing the distributor's business with her own savings.
What she should check before answering: the distributor's payment record with other suppliers, whether the ₹85 price holds if fruit prices rise, and whether the batch test must be repeated for every batch (a recurring cost, not one-time).
Counter-offer: supply only the surplus capacity she cannot sell directly - say 10 jars a day - at ₹95 a jar, payment within 7 days for the first month, rising to 15 days only after two clean cycles; the ₹1,500 test cost to be shared or recovered in the price. If the distributor refuses, she keeps the direct channel and grows it with two more fair stalls, which needs no working capital.
3. Suggest how Sunita could grow sales without taking on the distributor's terms, using the marketing mix.
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Product: keep the two proven pickles and add one small 250 g jar at about ₹65 for trial buyers; a smaller pack lowers the buyer's risk and increases the number of first purchases. Batch code and test report become a selling point printed on the label ('tested batch, home-made in small lots').
Price: hold ₹120 for the 500 g jar; do not discount, because the direct channel's strength is the ₹50 contribution. Instead offer 'buy 3, get 1 small jar free', which moves volume without cutting the unit price.
Place: two school fairs already work; add weekend stalls at a gurdwara bazaar, a ladies' club and two kirana shops on a cash-and-carry basis (shopkeeper pays on delivery, no credit). Keep the distributor offer on the table only as a later, surplus-capacity option.
Promotion: a WhatsApp broadcast list of existing customers, a simple label with her phone number, and free tasting at stalls. Ask every buyer to refer two neighbours - referral works well in a residential market where trust is the main barrier.
Capacity check: keep the 40-jar ceiling honest. Growth should come from higher-value packs and repeat buyers, not from accepting orders she cannot make without breaking quality.