The challenges of servicing mom-and-pop shops – and why they still matter

Servicing mom-and-pop shops with low volume and limited space is difficult and often expensive. But traditional outlets also have a unique understanding of local consumer preferences, and they provide value not always matched by large retailers. Their demise will take some time, even with the growth of modern trade.

Mom-and-pops or micro retailers are known by many names: kirana in India, baqala in the Gulf, sari-sari in the Philippines, duka in East Africa, spaza in South Africa, souk in Ethiopia, and tiendita in Mexico.

The World Bank estimates that there are close to 400 million micro, small and medium enterprises (MSME) in emerging economies – 12 million in India alone. They account for almost half of all grocery sales in Asia and India.

What are micro retailers? They are often classified as enterprises employing fewer than four people, with a monthly turnover of less than $2,000 a month. They are generally independent and stock a small selection of products or stock-keeping units. They trade out of fixed locations such as shops, to non-fixed locations such as roaming street hawkers. Shops are generally small, ranging from 25 sq. meters to 50 sq. meters.

Working with small retailers in emerging markets presents some difficulties. Below are some issues to consider when dealing with micro retailers:

Limited purchasing power – They have limited cash flow and purchasing power. For cash flow, they often tap into personal savings or reach out to family members. To manage cash flow, they prefer to buy smaller quantities and often don’t qualify for minimum drop sizes set by delivery companies.

Poor product visibility and limited space – Shops tend to be poorly lit and have limited shelf space to stock and display products. Placing equipment such as coolers and point of sales material can be challenging.

Hard to introduce brands – Micro retailers stock limited brands per product category – often two to three. With limited purchasing power, they fear to tie up cash into slow-moving products. Convincing shopkeepers to purchase additional brands is difficult – especially new and untested products in the market.

Need frequent delivery – Many small groceries run out of stock regularly. They often need high-frequency delivery – in some cases daily. Low volume drop sizes increase the cost per delivery, resulting in unprofitable outlets to service.

Hard to reach – Many micro retailers are in hard to reach areas and congested urban centres. In some cases, vehicles can’t enter small narrow streets – delaying sales teams which sometimes need to travel on foot to reach outlets.

Unregistered outlets – Many owners don’t register shops to avoid paying taxes. Furthermore, the lack of street signage in emerging markets makes it difficult for companies to assign them to delivery routes. As a result, micro retailers often remain underserved – leaving the retail base to informal distributors and wholesalers.

Reliance on wholesalers – Micro retailers often make use of wholesalers or distributors to break bulk into smaller more affordable quantities. These wholesalers and distributors provide credit when required. Smaller quantities are more economical, but they end up paying higher prices. They are often stuck in a credit-trap with one of two wholesalers – making shopping around for the best deals difficult.

Lacks of market insights – Not all mom-and-pop stores are created equal. New shop owners, often don’t have the market knowledge to purchase the right product categories and varieties. Poor purchase decisions frequently lead to a low return on investment – tying up cash into slow-moving items.

Survivalist model – Circumstances and economic conditions, sometimes push people into entrepreneurship. They frequently operate in weak social networks, with limited collaboration with other retailers. Mom-and-pop shops struggle to compete against more organised groups which can purchase large quantities and qualify for volume discounts. Many businesses fail, making companies reluctant to work with them.

Risk of counterfeit products – Traditional traders are susceptible to purchase counterfeit and substandard products, as they often don’t deal with manufacturers directly. They sometimes lack the knowledge to identify counterfeit and expired products – creating a health risk for consumers at the bottom of the income ladder.

Criminal groups and harassment – Micro retailers also face harassment by criminal groups such as the “Area Boys” in Nigeria. These groups control certain areas and extort money from micro retailers. Furthermore, hawkers often complain about police harassment including the confiscation of goods. In some cases, policemen might consume their products, without payment.

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Even considering all the challenges and cost implications, companies are looking at the traditional trade with renewed interest. Modern trade has been growing steadily, but mom-and-pop shops still have a lot to offer, and they remain the largest share of grocery sales. Micro retailers provide a unique value proposition for their customers. They mostly can’t compete on price against modern retailers, but there are many areas where they are very competitive.

Close relationship – Shoppers often complain about the “cold service” they receive from supermarkets. In contrast, mom-and-pop shops typically have known their customers for years and have a good understanding of their needs and preferred products. Their customer knowledge also makes it easier to extend short term credit without risking bad debt.

Delivery to your door – In many countries, shoppers can order by phone, and there is no minimum value for phone-in orders. They can deliver the smallest item swiftly to the customers’ door – at no extra charge.

Location location – Micro retailers are well-positioned for small top-up occasions – in some cases daily. They are situated on commuter routes and close to shoppers’ homes. Even at higher prices, they provide value, as customers can save on transport costs.

Well stocked and flexible – Successful stores are often well-stocked, and there is a high percentage of first-tier brands available. Shopkeepers are flexible to customer needs, and will happily stock products upon request. As they trade seven days a week, including evenings, it makes it ideal for customers topping up on essential goods.

In tune with customer preferences – Modern retail practices, such as artificial colouring of vegetables or in-store ripening of fruits, are often at odds with the preferences of more traditional customers. Small groceries are sensitive to customers needs, avoiding “unconventional” retail practices.

Affordable packaging – They often offer more affordable small pack sizes to their cash-strapped shoppers, such as small plastic bags of rice or sugar, rather than a standard manufacturer packaging.

In emerging markets, companies such as Coca-Cola and Unilever, have built their distribution systems around micro retailers, and an increasing number of organisations are developing distribution models to service traditional traders. It can be a competitive advantage to develop a successful business model to service mom-and-pop shops – and a major contributor to growth.

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Additional notes on traditional trade:

Retail trade is often divided into two categories, modern trade such as convenience stores, supermarkets and hypermarkets; and traditional trade such as micro retailers or mom-and-pop stores. At the Supply Chain Lab we group emerging market countries into four categories:

“Traditional Themba”– Predominantly traditional trade markets with less than 10% sales contribution from modern. Countries in this category include lower-income countries in Asia, such as India, Cambodia, and a large percentage of African countries, such as Nigeria and the Democratic Republic of Congo.

“Awakening Alice”– In this category modern trade is starting to increase its share, with local and international chains gaining a foothold in the country. Modern trade’s share is ranging from 10%-30% share. Countries include Indonesia, Angola and Kenya.

“Growing Gilma”– Are markets where retail is in transition, with modern trade’s share ranging between 30% to 50%. Countries include Argentina, Brazil, Venezuela and Thailand.

“Predominant Ping”- Are markets where modern trade is well established and larger than 50% share of retail sales. Countries include Mexico, China and South Africa.

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