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Field Force Management & Distribution Inefficiencies “The Kiosk Diaries” — Part 2
We have had three very busy weeks at Optimetriks, meeting potential clients and figuring out the main challenges they face, and how our technological solution can be leveraged to overcome these barriers. Now, it is time to continue our dialogue about how kiosk owners across Nairobi organise their operations. In our last blog post we introduced Gilbert, Ann and Francis. Today, we discuss how these kiosk owners access products, and how this influences the overall success of inclusive business models targeting the BoP.
How do kiosk-owners access products?
With the objective of reaching the so called “bottom of the pyramid”, in the past few years, FMCG companies across Africa have tried and tested many different distribution models. However, although there is indeed a significant amount of variation amongst these distribution models (see these links 1 & 2 for more information), they can all be summed up in one word: field sales officers. Every day, millions of sales representatives set off on foot along their predefined routes visiting outlets one by one to (a) promote new products and give promotions, (b) get orders from these outlets, © delivery previously ordered products, and/or (d) provide shops with merchandising materials. Companies like Unilever and Coca-Cola tend to have a tight control and oversight regarding these field operations. Whereas other FMCG companies, such as Unga Group, rely on their subcontracted distributors to do the work. However, at the most basic level, the approach is similar amongst companies.
Although theoretically exhaustive, this approach has several shortcomings which have a significant negative repercussion on both the kiosk owners and the FMCG companies.
The presence of a plethora of middle-men between the manufacturer and the point of sale drives up the price at which kiosk owners buy stock.
Once a week, sales reps from companies such as Unilever, GSK and Coca Cola pass by Ann, Francis and Gilbert’s kiosks. Nevertheless, every third day, these shop owners organise a trip to their local warehouse run by Samrose Enterprise. Amongst other things, when they are there, they buy some of the same products which the sales reps offer when they visit their kiosks. Although this is relatively counterintuitive, the factor driving their decision-making is simple; buying stock directly from the warehouse is significantly cheaper than buying from the company sales reps.
For instance, Francis explains to us “this Fanta Orange 500ml, if you look here, it is meant to be sold to consumers at 55 KSh. However, the Coca Cola guys who come with their tuk tuks sell a pack of 24 for 1280 KSh, so 53.3 KSh per bottle. At this price, my profit would be very low, only be 1.7 KSh. However, at Samrose Enterprise, I buy a pack of 24 for 1150 KSh. This allows me to make a profit of 7 KSh per bottle. This profit is almost four times higher than buying from the tuk tuk guys!”
Sales reps spend 80% of their time attending to the needs of shops which represent merely 20% of their sales.
A wide variety of products are sold in kiosks. Buying stock at a low price is critical for business success.
Let’s say that, in a country like Nigeria, a medium sized FMCG company has half a million outlets selling its products. Since these outlets need to be visited at least once a week to ensure they maintain adequate stock levels across outlets, the company’s sales reps (or their distributors) have to carry out 0.5 M retail visits weekly. 1 sales rep can visit 20 outlets in 1 day, and each sales rep is paid about $15 a day. This means that per year, the FMCG company (or associated distributors) spend $19.5M paying its 5000 sales reps. However, the system is inefficient because most of its sales occur in a limited number of outlets. If visits by sales reps were targeted to when shops are actually out of stock and thus willing to buy, the number of weekly visits to outlets and the annual expenditure on sales reps would half to 0.25M and $9.75M, respectively. This would not only translated into a significant reduction in annual cost for the FMCG company, it would also fundamentally drive down the price for the kiosk owner and end consumer.
Shortages of stock are a common problem among kiosks.
Together, these two phenomena have a huge repercussion on the overall success of inclusive business strategies that target the BoP. In fact, Gilbert went as far as saying that “the success of a shop depends on where they get their products from, and how this compares to their neighbours. For example, on this street, if you go to that big shop at the end of the road, a pack of detergent costs 95 KSh. However, here, I have to sell it at 100 KSh since I am only able to source it at 95 KSH. For this reason, I know that I only sell this this product at night, when the bigger shop down the road is closed.”
However, how many people are able to afford detergent at 100 KSh a packet? And how many consumers have access to a shop large enough to have enough bargaining power to source detergents at a lower price?
In our next blog post, we will discuss what solutions kiosks owners and entrepreneurs are coming up with to tackle these issues, watch this spot.
Is there anything in particular you would like to know more about regarding the day-to-day operations of kiosk owners across Africa? Please contact us!