Ten years ago I was living in a small village in southern Nepal. It was one of those many small rural villages filled with patches of fertile land showing hard-working farmers against a backdrop of magnificent Himalaya mountains. In this village, there was only one tiny shop, managed by Dilip. I visited Dilip on a daily basis to practice my Nepali and buy some biscuits or a Coke. Back then, I never really thought about Dilip’s business. When I fast-forward to today I realise now that understanding Dilip’s business is essential when businesses want to reach the BoP.
As part of the Inclusive Business Accelerator program, a multi-disciplinary team researched the topic of last-mile distribution. It is one of the most recurring marketing challenges for entrepreneurs that want to reach the BoP and I would like to share three trends and three strategies on BoP distribution.
1. Growth of formal markets. Certainly informal markets take up the largest share of grocery retailing, but formal trading places and shops such as supermarkets, are increasingly gaining share. To illustrate this, South-African Shoprite currently has eight outlets in Nigeria and plans to open another 44 in the next four years. And yes, also the BoP buys at these outlets and they specifically hunt for value offers on commodity products.
2. Connect directly with retailers. Small retail shops, like Dilip’s, often have little working capital, don’t want to stock too much (risk of theft and lack of capital) and need fast-rotating products to generate cash flow. Why sell a one-off solar light if you can regularly sell kerosene to your customers? Additionally, these retailers often depend on a limited number of very powerful wholesalers that are mostly interested in proper margins and fast rotating products. Therefore, we see an increasing number of businesses connecting directly with retailers to increase control and better position their products and brands.
3. Information revolution. The market penetration of Internet and mobile solutions results in a mushrooming number of new retailing models. Ranging from new ‘Amazon-style shops’ like Jumia to catalogues creating demand for products without claiming the precious shelf space.
So how to deal with these trends and in what ways can you get your product distributed? While analyzing hundreds of BoP cases, we noticed that three strategic distribution models emerged for BoP products.
1. Piggyback on existing dealer networks or (rural) retail networks.
Hapinoy in the Philippines builds on a network of more than a million Sari-Sari stores and provides them with education, access to capital and new business opportunities. Hapinoy already connected 1300 stores and provides a powerful distribution and marketing service to businesses seeking to reach these target groups.
2. Create hybrid partnerships with NGOs, Micro-finance institutions and cooperatives. E’pap is a South-African company that produces affordable, instant porridge fortified with 29 micronutrients to fight malnutrition. The main share of their distribution goes through an extensive network of NGOs (such as CARE). These relationships are crucial for e’Pap’s growth on the African continent. E’pap now plans to expand through direct sales by leveraging on their brand awareness.
3. Distribution through micro-entrepreneurs. Everyone that ever wandered around cities in West-Africa, must have encountered them: Fanmilk sales agents. After a long journey that started in Ghana in the 1960s, the dairy company built up a network of 31.000 sales agents throughout West-Africa, making distribution one of their key success factors. Danone, realizing the tremendous value of this network, recently teamed up with Abraaj group to acquire Fanmilk.
Companies often choose a combination of the above-described strategies, depending on the region and existing structures available. Regardless of the strategy you choose, please keep one thing in mind: make sure that you offer a strong value proposition to the retailer, like Dilip. If you can make them successful, you’ll be successful.
PS. The Inclusive Business Accelerator is developing an Inclusive Business Distribution Canvas to support businesses in developing the right, tailored distribution strategy depending on their product, market, brand, partners etc. To be continued…