Inclusive Distribution: The Secret to Securing a Route-to-Market
Fast-moving consumer goods (FMCG) companies are well aware that emerging and developing markets represent their greatest growth opportunity. 90 percent of Unilever’s global growth and Procter & Gamble’s only growth came from emerging markets during 2008-2014. Yet, with the majority of population growth over the next 35 years expected to be in today’s developing countries, consumer goods companies have only scratched the surface of the market potential.
One of the greatest obstacles to expanding access to goods and services for millions of potential low-income consumers in developing countries is securing a route-to-market. It requires navigating fragmented distribution networks of small mom-and-pop shops or in some cases, nonexistent retail, especially in remote villages. In the Philippines, for example, about 95 percent of the 1 million retailers are small sari-sari stores. Some of the stores sell as many as 200 different items, and it is estimated that they account for 36 percent of the country’s fast-moving consumer goods sales.
Over the last couple of years, many FMCG companies have employed new models of inclusive distribution that engage and expand opportunities for low-income entrepreneurs and micro-enterprises in downstream value chains to help increase sales and reach new markets. This includes for example, Danone Kiteiras that engages women from the poorest communities of Salvador de Bahia, Brazil, as door-to-door vendors distributing Danone products and providing health and nutrition information to communities. Other models like AB InBev’s 4e Path to Progress in Latin America and a similar retailer development program in 13 countries in Africa, seeks to strengthen thousands of small shops in their existing retail network. Despite the promise of inclusive distribution networks, very few have been able to reach scale. Without scale, they are considered a nice-to-have rather than a need-to-have for the business and run the risk of becoming a siloed CSR initiative.
Over the last six months, Business Fights Poverty has applied its Challenges model to the problem of scaling inclusive distribution with support from Citi Foundation and other key partners. The fast-paced open collaboration approach of Challenges helped bring together experts in the inclusive business field in various online and in-person formats to unpack the Challenge. At the end of 2016, Business Fights Poverty published a discussion paper featuring three models of inclusive distribution and eight enablers of scale.
We are now in the process of scoping a follow-up Challenge that is designed to identify concrete solutions, test these in practice, and build partnerships to bring these models to scale. Building on the findings in the paper, there are a few emerging areas of interest for a follow-up Challenge including:
Many micro-enterprises struggle to access finance to grow their businesses. As FMCG companies typically have better insight into an enterprise’s likelihood of repayment, there is significant potential for them to collaborate with micro-finance institutions to help secure loans and/or better credit terms for enterprises. Nestlé has developed a partnership with Banco ADOPEM, which specializes in microfinance, to create a special loan product for the vendors in their Plan Barrio program in the Dominican Republic. These loans are accompanied by savings accounts and insurance plans with coverage in case of accidental death or dismemberment and for funeral expenses. The partnership has not only helped relieve Nestlé of the risks but also allowed ADOPEM to build a new product portfolio and customer base.
Technology can help reduce costs while improving precision, standardization, and communication, especially given high rates of mobile phone penetration in many developing countries. Many different types of technology solutions are already being developed and used from geo-mapping software for identifying efficient delivery schedules to mobile-based tools to help entrepreneurs provide high quality customer service in an efficient and cost effective way. More collaboration is needed to reduce the time and money spent on creating new technology tools by each company.
Many companies struggle with turnover of direct salesforces due to low margins and high risks in some contexts. Unilever’s Shakti model seeks to augment Shakti Ammas’ incomes by engaging husband or male relatives to distribute products in surrounding villages by bicycle. Other models are experimenting with different payment terms ranging from consignment to upfront purchases at a discounted rate. Much more investigation is needed to identify models that maximize benefits to all actors in the distribution network.
We would like to harness the collective intelligence in the Business Fights Poverty network and wider inclusive business community to both design and implement a future Challenge. With that in mind, we invite you to share your views on the Challenge in this survey or directly with Jessica Davis Pluess. To sign up to the Inclusive Distribution Challenge click here.
This article first appeared on The Practitioner Hub and is reproduced with permission.