Africa’s retail challenges – distribution issues to consider

Servicing mom-and-pop stores or micro retailers in Africa is no easy undertaking. Whether you’re importing products or have a local manufacturing operation, it can be an expensive and painful experience. Below are some issues to consider before rolling out your distribution strategy:

Lead times – Importing products in Africa remain challenging with numerous delays and increased lead times. Landlocked countries are particularly affected, and Africa is the continent with the most landlocked countries. For example, in Burundi, it can sometimes take up to 60 days to import goods from other East African countries.

Regulatory issues – Companies need to assess the regulatory impact, including distribution regulations and transport bands. For example in some countries; companies are not permitted to distribute products directly to their outlet base, if they don’t have a manufacturing facility.

Product flow & reasons for purchase – Organisations need to have a good understanding of how products flow in the market. Often small groceries purchase products directly from the wholesale channel near their outlets. Wholesalers provide a basket of goods and in some cases, credit if they have a good relationship with the small grocery.

Markets – Open markets in Africa play an important role. Sometimes, products flow from agents, who sell products directly to wholesalers based in markets. Markets are important trading spaces, especially in category-specific markets with a wide selection of brands.

Large fragmented outlet base – Modern trade is in most African countries, is still in the early stages of development. Low volume per outlet traditional trade is the biggest segment of the market. An increased mom-and-pop outlet base adds complexity to the distribution system.

Fluid outlet base – The outlet base is unstable with new shops opening and closing. Seasonality also plays a part, as some shops might stop selling ice cream and cold beverages during the rainy season. In addition, not all selling points are permanent structures and some are hawkers, and table tops  – sometimes on the move.

Channel focus – Serving mom-and-pop shops is not a one size fits all distribution solution, and further segmentation can be an important driver for growth and improved service. Small groceries have a range of customers – from the very rich, to the very poor. Often neighbourhood income will determine the type of products retailers need to stock.

Alternative channels – Beyond traditional outlets, companies also need to understand alternative channels. For example, in Nigeria, the table top and go-slow channels are important contributors of sales in the informal market. Table tops are tables, set-up as temporary sales points to sell a limited number of items such as mobile phone cards. The go-slow channel or hawking channel sells various types of merchandise that are normally easy to carry or transport. A recent Nielsen study of sub-Saharan countries found that 80% of consumers shopped from table tops.

Infrastructure – Often small groceries are situated in congested areas, with narrow gravel roads, where trucks can’t enter. In these markets, you might find pushcarts, trolleys or motorbikes. Tapping into these low-cost distribution methods, can lower cost and increase product availability. Some consumer goods companies, such as Coca-Cola and Unilever, have successfully managed to implement traditional distribution models and increase sales in traditional outlets.

Break bulk – Small groceries frequently require an intermediary, such as a wholesaler, to break packages into more affordable quantities. In market areas, break bulk, as it is commonly known, is one of the most important value drivers for wholesalers.

Poor execution and stock out – In African markets, customers often experience stock-outs because of poor planning and limited capital. As small groceries have limited space and cash flow, they often require more frequent deliveries, in some cases daily.

Wholesale structure – Tapping into the wholesale structure can be a sound strategy, but for many brand owners, the wholesale channel is also a barrier. Wholesalers limit the number of brands and stock-keeping units and only stock high turnover products. For brand owners, additional wholesale support and account development can go a long way to create demand. However, product portfolio and margins will determine if this is always a viable strategy.

Shared resources – Profit margins are normally thin, and it is important to determine if there are any opportunities to share resources, such as warehousing and transportation with other non-competitive manufacturers and distributors. This can significantly reduce cost and make the distribution model cost effective.

Information flow dilemma – Supply chains often lack visibility in African markets, and hard-copy paper flow will probably coexist with information technology systems. Often organisations lack the required information technology to keep track of stock levels and share information with distribution partners. However, mobile technology has changed the dynamics, and has become an essential tool for companies working with informal retailers.

Supply chain impact – When working with mom-and-pop shops, companies must assess what impact the distribution model will have on the rest of the supply chain. Drop sizes will be much smaller and the increased outlet base could put additional pressure on warehousing and transportation.

Organised Route-to-Market – As African markets become more attractive, companies are moving away from trading, such as export agents and predominantly wholesalers. Many are adopting a more organised Route-to-Market system, such as distributors to service their outlet base directly.

Increased personnel count – Managing, controlling and monitoring an increased outlet base will require additional human resources. Employee turnover tends to be higher when dealing directly with mom-and-pop outlets. Market conditions are tougher and specialised training will be required.

Development stage – Each company needs to determine its optimal strategy to service small grocery outlets. Margins, development stages, and volume potential will ultimately determine how much attention and support companies can provide to these hard to reach small groceries.

Benefits of servicing mom-and-pop shops

Companies can benefit immensely by expanding their retail base to smaller outlets. For companies to succeed, market development and training activities must be at the forefront of Route-to-Market strategy. Such strategies will require a major rethink and redesign.

Improved retail and consumer insights – By removing the supply chain layers, consumer goods companies gain a better understanding of retailers and ultimately the end consumer. This grassroots approach could improve communication between the various parties and provide the company with valuable insight into their consumer base.

Better merchandising – Even though merchandising space is quite limited in these traditional outlets, companies could find it easier to negotiate merchandising space compared to modern trade. Multi-nationals have more leverage with mom-and-pop retailers and can negotiate better space allocation. They can also control their in-outlet message better. Innovative merchandising designs, such as hanging racks to maximise space, could further support this strategy.

Opportunity for trial packages – A Route-to-Market strategy focused on traditional outlets, is designed to sell “trial” products or smaller products to consumers. Smaller more affordable packages, allow consumers to test products and expand the customer base.

Improved profitability – Servicing traditional outlets, could be complex and expensive. But a well-designed Route-to-Market strategy can improve margins, and reduce discounts normally being paid to modern retailers.

A Route-to-Market strategy in Africa that includes smaller mom-and-pop outlets will affect all aspects of the business, including supply chain, sales, marketing and human resources. A strategic shift should not be taken on lightly. However, for the winners, the rewards could be big.

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