Posted by Servicing micro-retailers or informal retailers with low volume and limited space can pose challenges and often comes at a higher cost. However, these traditional outlets offer a unique understanding of local consumer preferences and provide value that is not always matched by large retailers. Despite the growth of modern trade, the demise of informal reteail shops will take some time due to their significant presence and influence in the retail landscape.
Micro-retailers, known by various names such as kirana, baqala, sari-sari, duka, spaza, souk, and tiendita, play a crucial role in emerging economies. According to the World Bank, there are nearly 400 million micro, small, and medium enterprises (MSMEs) in emerging economies, with India alone accounting for 12 million. These micro-retailers contribute to almost half of all grocery sales in Asia and India.
Micro-retailers are typically classified as enterprises with fewer than four employees and a monthly turnover of less than $2,000. They are often independent and stock a limited selection of products or stock-keeping units. Their businesses range from fixed locations such as shops to non-fixed locations like roaming street hawkers, with shop sizes typically ranging from 25 to 50 square meters.
Working with small retailers in emerging markets presents several difficulties. Here are some issues to consider when dealing with micro-retailers:
Limited purchasing power: Micro-retailers have limited cash flow and purchasing power. They often rely on personal savings or assistance from family members to manage their cash flow. Due to their limited resources, they prefer to buy smaller quantities and often fail to meet the minimum drop sizes set by delivery companies.
Poor product visibility and limited space: Shops operated by micro-retailers are often poorly lit and have limited shelf space to stock and display products. Placing equipment such as coolers and point-of-sale materials can be challenging in these cramped spaces.
Difficulty introducing new brands: Micro-retailers typically stock only a few brands per product category, usually two to three. Due to their limited purchasing power, they are cautious about investing in slow-moving products. Convincing shopkeepers to purchase additional brands, especially new and untested ones in the market, can be challenging.
Frequent need for delivery: Many small groceries frequently run out of stock and require high-frequency deliveries, sometimes even daily. However, the low volume drop sizes increase the cost per delivery, making it unprofitable for service providers to cater to these outlets.
Accessibility challenges: Micro-retailers are often located in hard-to-reach areas and congested urban centers. In some cases, vehicles cannot access narrow streets, leading to delays for sales teams who may need to reach these outlets on foot.
Unregistered outlets: Many shop owners do not register their businesses to avoid paying taxes. Additionally, the lack of street signage in emerging markets makes it difficult for companies to assign these outlets 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 rely on wholesalers or distributors to break bulk quantities into smaller, more affordable units. These wholesalers provide credit when needed, but smaller quantities result in higher prices. Micro-retailers often find themselves trapped with a limited choice of wholesalers, making it challenging to shop around for the best deals.
Lack of market insights: Not all mom-and-pop stores possess the market knowledge to make informed purchasing decisions regarding product categories and varieties. Poor purchase decisions frequently lead to low returns on investment, tying up their cash in slow-moving items.
The survivalist model: Circumstances and economic conditions sometimes drive individuals into entrepreneurship, leading to the establishment of mom-and-pop shops. These small businesses often operate within weak social networks and have limited opportunities for collaboration with other retailers. As a result, they face significant challenges in competing against more organized groups that can purchase large quantities and qualify for volume discounts. The high failure rate of these businesses has made companies hesitant to form partnerships with them.
Counterfeit products: The risk of counterfeit products is a pressing concern for traditional micro-retailers. Since they typically do not have direct dealings with manufacturers, they are more susceptible to unintentionally purchasing counterfeit or substandard goods. Additionally, they may lack the knowledge and resources to identify counterfeit or expired products, posing a health risk to consumers, especially those from lower-income backgrounds.
Criminal groups and harassment: Micro-retailers also encounter the issue of criminal groups and harassment. In Nigeria, for instance, criminal groups known as “Area Boys” exert control over certain areas and exploit micro-retailers by extorting money from them. Furthermore, hawkers, who often operate alongside micro-retailers, frequently face harassment from the police, including unwarranted confiscation of goods. In some cases, policemen may consume their products without making any payment. These forms of harassment and extortion create an environment of fear and insecurity for micro-retailers, impeding their ability to operate freely and hindering the overall business environment in the community.
Advantages of micro-retailers
One of the key advantages of mom-and-pop shops is their ability to establish close relationships with their customers. Unlike impersonal supermarkets, these small retailers have known their customers for years and possess a deep understanding of their preferences and needs. This familiarity enables them to provide personalized service and even extend short-term credit without the concern of bad debt.
Micro-retailers also offer the convenience of door-to-door delivery. In many countries, customers can place phone orders with no minimum value requirement, and these small retailers are quick to deliver even the smallest item directly to the customer’s doorstep, free of charge. Such efficient delivery services enhance customer satisfaction and save them the hassle of transportation.
Another advantage of micro-retailers is their strategic and convenient locations. These shops are often situated along commuter routes and in close proximity to customers’ homes. This makes them ideal for small, frequent purchases, and even though their prices may be slightly higher, the convenience they offer saves customers on transportation costs, making them a cost-effective choice.
Successful micro-retailers are known for their well-stocked shelves and flexibility. They carry a high percentage of first-tier brands, ensuring a wide variety of products for customers to choose from. Shopkeepers are also accommodating to customer requests and are willing to stock specific products upon demand. Moreover, these shops operate seven days a week, including evenings, making it convenient for customers to top up on essential goods at their preferred time.
Micro-retailers have an inherent understanding of customer preferences, particularly those with more traditional values. They steer clear of modern retail practices that might conflict with customers’ preferences, such as artificial coloring of vegetables or in-store ripening of fruits. By aligning with their customers’ needs, these shops create a comfortable and familiar shopping experience.
Additionally, micro-retailers often offer affordable packaging options. They cater to cash-strapped shoppers by providing smaller pack sizes of essentials like rice or sugar, which are more affordable compared to standard manufacturer packaging. This affordability allows customers to purchase necessary items without straining their budgets.
In conclusion, micro-retailers play a crucial role in the retail landscape, particularly in emerging economies. Despite the challenges they face, such as limited resources and competition from larger retailers, their close relationships with customers, convenient services, and understanding of local preferences give them a unique advantage. The ability to adapt to customer needs, provide personalised service, and offer affordable options sets them apart from their larger counterparts. As we navigate an ever-changing retail landscape, it is essential to recognise and support the value of micro-retailers for inclusive and sustainable economic growth. By fostering partnerships and developing tailored solutions, we can empower these small businesses and ensure their continued contribution to local communities and economies.
Additional notes on traditional trade:
Retail trade is often divided into two categories: modern trade, comprising convenience stores, supermarkets, and hypermarkets; and traditional trade, including micro-retailers or mom-and-pop stores. At the Supply Chain Lab, we group emerging market countries into four categories, each representing a specific retail trade landscape:
- “Traditional Themba” – These markets predominantly rely on traditional trade, with modern trade contributing less than 10% of total sales. Countries in this category include lower-income countries in Asia, such as India, Cambodia, and a significant number of African countries, including Nigeria and the Democratic Republic of Congo.
- “Awakening Alice” – In this category, modern trade is beginning to gain traction, with local and international chains establishing a presence in the country. Modern trade’s market share ranges from 10% to 30%. Countries in this category include Indonesia, Angola, and Kenya.
- “Growing Gilma” – These markets are in a transitional phase, with modern trade accounting for 30% to 50% of total sales. Countries in this category include Argentina, Brazil, Venezuela, and Thailand.
- “Predominant Ping” – These markets have a well-established modern trade sector, representing more than 50% of retail sales. Countries in this category include Mexico, China, and South Africa.
By understanding the distinct characteristics of each category, we can develop tailored strategies and supply chain solutions to address the specific challenges and opportunities presented by different retail trade landscapes. This categorisation provides valuable insights into the evolving retail dynamics of emerging markets, enabling businesses to make informed decisions and thrive in these diverse environments.
The Supply Chain Lab 