Posted by The Coca-Cola Company is often lauded for its distribution in Africa. It’s easier to find a cold Coke than essential medicine; healthcare employees frequently complain. Having a world-class brand doesn’t hurt. But when you work with thousands of small businesses, building a distribution system is difficult and expensive.
The small shop challenge
Small retailers rule the African retail landscape. Modern trade, such as Shoprite and Carrefour, contributes a small percentage of sales in most African countries. South Africa’s well developed retail sector remains an exception on the continent. Even with the recent growth of modern retail, independent retailers will continue to dominate sales for the foreseeable future.
Product flow in the market
What are micro-businesses?
They are classified as enterprises employing fewer than 4 people. They are generally independent, stock a small selection of goods and work out of fixed locations. Traders such as hawkers are mostly on the move.
Why is it difficult to service micro-businesses?
Hard to reach outlets – They are mostly unregistered and are in hard to reach areas and congested urban centres. Large delivery vehicles struggle to reach these outlets. Distributors and wholesalers often service micro-enterprises, using pushcarts, motorbikes and three-wheelers. In many markets, these outlets remain largely undeserved.
Space constraints – Micro-businesses often have poor cash flow to stock products. Adequate space is both limited and expensive, as they trade in high-traffic and dense areas. Hawkers often struggle to find storage space for their goods. They cover large areas and frequently have to travel long distances to get to the markets where they do business.
Low sales outlets – Small businesses with low sales, often don’t qualify for service and delivery from companies. With smaller volumes, they often need wholesaler to break pallets or boxes into smaller more affordable units.
Need regular delivery – Due to their cash flow and inventory limitations, they require more frequent delivery services – in some instances daily. For distribution companies, it is mostly unprofitable to service these outlets.
Coca-Cola’s approach to service micro businesses
Coca-Cola’s key bottling partner in Africa, Coca-Cola Beverages Africa (CCBA), has been at the forefront of developing distribution models in Africa. The Micro Distribution Centre (MDC) model was first launched in Ethiopia in 1999, when the operation was still part of the Coca-Cola Sabco system. The distribution model has been implemented in more than 19 countries in Africa and Asia. The MDC system is an integral part of the business – accounting for a large percentage of sales in East Africa.
How does the micro-distribution centre work?
An MDC is an independent exclusive distributor and only sells Coca-Cola products. The average MDC covers between 250-600 micro retailers within a 3-10 kilometre radius. A salesman services micro outlets including restaurants, small supermarkets, street vendors and kiosks. Deliveries are made with pushcarts, motorbikes and three-wheelers.
Who are MDC owners?
An MDC owner is on average a lower-middle-income person with a high school education. The ideal entrepreneur is actively involved in the day-to-day operation. The candidate needs some business experience, but it’s not essential for success, as training and coaching are provided. In countries such as Ethiopia, a large percentage of owners are new entrepreneurs.
Capital required
Entrepreneurs must have the ability to raise the capital – mostly done through savings, friends and family. In rare cases, financial institutions assist. Start-up costs range from US$6,000 to US$15,000 in Ethiopia and Tanzania. The company also provide loans or make credit arrangements from creditworthy owners.
Turnkey business
Coca-Cola bottlers are responsible for the research, design and implementation of the distribution system. They provide training and coaching to owners and employees, ranging from management training, basic business skills, warehouse, distribution management, account development, merchandising and customer service.
Why is the MDC model successful?
Entrepreneurial spirit –The MDC model taps into the entrepreneurial spirit of small businesses. They are more flexible in responding to customer needs and trade long hours. They understand the communities they work with and are in a much better position to extend credit to customers in their neighbourhood.
Find the right entrepreneur – Selecting the right type of individual with local market knowledge is one of the most critical success factors. Coca-Cola has spent significant time to identify the right hands-on individual, willing to work for the profit margin on offer. The average MDC generates $2,000 a month, thus a large distributor would not be suitable for the role.
Role definition – Coca-Cola takes responsibility for account development and training – a key driver of success. The MDC owner focuses on order collection, warehousing and delivery.
Size of the model – The small distribution radius and limited customer base, enable entrepreneurs to build good relationships with shoppers. It allows them to service their customers frequently – in some cases daily. Outlets don’t need to carry a lot of stock –addressing some financial and space limitations a micro distribution might face.
Training and coaching – Skills development is a key factor of the success of the model. MDC roll-outs are bundled together with training and one-one-one coaching sessions. More recently, the Coca-Cola Company piloted an experiential training curriculum, delivered by local independent professionals.
Financial support– Coca-Cola works closely with owners to ensure they have the required financial skills to manage their business. They assist MDC owners to access capital to grow their businesses. In East Africa, they provide no-interest financing for delivery motorcycles.
Well defined standard process – Coca-Cola develops processes for ordering, delivery, cash collection, warehousing, and reverse flow of glass and product returns. Processes are standardised and scalable to other MDCs.
Supervision – Likely the most important success factor is the regular supervision, coaching, and mentoring that the MDC receives. Resident Account Developers (RADs) and Area Sales Managers (ASMs), visit the MDCs daily. They check inventory levels, ensure optimal routing, address warehouse and distribution issues, and assist with customer service. They provide face-to-face coaching, mentoring and on-the-job training, and monitor company standards and performance targets.
Challenges with replicating Coca-Cola’s MDC model
Exclusivity – Coca-Cola has one of the most powerful brands in the world. Their sales volume and value are unmatched by most consumer goods companies in Africa. It allows them to operate an exclusive micro distribution model – controlling all aspects of the business.
Deep pockets – The Coca-Cola system has spent significant time and resources to design, implement and refine the MDC model. Coca-Cola’s bottling partner plays a critical role in the development and support provided. Their boots-on-the-ground approach is a key component of success, difficult to replicate for organisations with limited local resources.
Collaboration options
Working with micro-enterprises requires patience, time and resources. Organisations need to invest in local people, study market conditions, and design a scalable system. Micro-distributors have a high failure rate, even with established companies such as Coca-Cola.
For most companies, partnering with other manufacturers remains the best option. They can jointly develop a distribution system, share resources, and offer a large basket of goods to increase profitability. But companies are highly suspicious of partnerships, careful not to reveal trade secrets. Even with non-competing category players, building a long term transparent relationship can be a challenge.
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