Peter Kimeu had a job working in hotels around Nairobi, Kenya, but his wages weren’t enough to support his family. After looking for an opportunity to improve his earnings, he decided to use his savings to open a duka—a small, neighborhood store selling basic consumer goods. The only problem was that Peter had never run a shop before, and even with the help of his wife, he struggled to turn it into a success. The first day, his sales totaled just $9. In the early days of his business, Peter couldn’t help but wonder if opening the store had been a mistake.
It might not have seemed like it to him at the time, but Peter was working in one of the most important sectors in Africa’s economies. Small, mostly informal retail outlets like Peter’s are vital to many communities. Small stores can be an important source of employment across Africa, with more than half of all new jobs in the region created at firms with 20 or fewer workers. But just as importantly, mom-and-pop shops also have an important role to play in supplying food and essential household products to customers–especially those at the base of the pyramid. In Nairobi, for example, 87 percent of consumer good are sold at dukas. In Nigeria, meanwhile, 90 percent of the retail sector is informal, composed primarily of small shops.
But for all of their potential to benefit workers and consumers, many of these shops struggle to turn a profit. One of the most significant obstacles to profitability and growth is the absence of good management practices: in many cases, such as Peter’s, shop owners have little business training or experience.
The Mom and Pop Shops Project–a partnership between TechnoServe, the Citi Foundation’s Pathways to Progress initiative, the elea Foundation, and others–aimed to address that skills gap for micro retailers around Nairobi, Kenya and Abuja, Nigeria. The two-year program worked with nearly 1,000 owners and employees to improve the operations of small stores, and consequently improve their profitability and spur growth. Here are three insights from the project about how to help micro-retailers become engines for local growth:
Small changes can make a big difference
It doesn’t take complicated changes, or big investments, to turn a store around. Entrepreneurs can significantly improve their earnings by making simple adjustments. With the guidance of the project’s advisors and mentors, store owners and managers started to conduct basic market research on what consumers in their communities needed and organize and display their products in a more customer-centric way. Entrepreneurs also started to keep basic records about their inventory and sales; in many cases, they realized that certain products would go weeks without being sold even once, eating up their working capital. After Peter began participating in the program, he changed the organization of his store to make the highest-priority items more visible, repainted the shop to make it more inviting, and adopted basic recordkeeping. None of these changes required access to finance or significant increases in labor—just a new mindset.
Working together for better results
One of the problems Peter identified was finding suppliers who could offer him products at fair prices. He was not alone: because the stores are small, they have little bargaining power with manufacturers and wholesalers. The Mom-and-Pop Shops program worked to help business owners band together to form business groups that could negotiate bulk sales with suppliers. This was found to reduce the price of goods by as much as 9 percent. In many cases, these groups also provide rotating credit to members. Peter is now the chairman of his local group. “I look forward to working with many partners in the retail industry to invest in lower prices to achieve higher profit margins and consequently lower prices for consumers,” he said.
Digital solutions for smarter shops
The diffusion of mobile technologies in Africa can help to solve many of the challenges that shop owners face, making it easier to track inventory, record sales, monitor cash flow, and supervise customers’ credit. The commercial market, however, had not launched a successful product that delivered these services to shop owners. TechnoServe staff worked with Buymore, a tech startup, to pilot a mobile platform with these features.
The pilot worked with 31 shop owners in Nairobi, and it found that the digital solution helped them to record a higher proportion of their sales, better track cashflow and profit margins, and recover more money from customers who had purchased goods on credit. It also improved transparency in shops with multiple owners or managers. The shop owners also expressed a willingness to pay a small fee for such a service in the future, suggesting that it has long-term commercial viability.
Through these simple changes, small businesses participating in the Mom-and-Pop Shops program experienced significant growth. In Kenya, participating businesses saw their profits grow by an average of 28 percent, while their counterparts in Nigeria grew by an average of 41 percent.
The growth of Peter’s store was even more dramatic. Peter’s average monthly sales quintupled, from $300 to $1,500. “I cannot believe that I make this much money in my shop nowadays” he said. He is better able to care for his family, including paying for his son’s fees at a private school. He also hopes to expand his business and become a mobile-money agent.
Peter’s initial worries are a thing of the past: now, his store has become an engine for growth in his community. With the right tools and information, there are thousands of similar shops around the region that can do the same.
Photo credit: James Kendi/TechnoServe