High distribution
costs in remote rural markets are a significant barrier for companies trying to
reach populations at the base of the pyramid. Gaining access to end-consumers,
often living in remote areas with little infrastructure, is costly and challenging.
A pilot project is seeking to address this issue by building on existing
distribution infrastructures across various channels.
98% of improved
cookstove producers in Uganda are concentrated around the country’s major
cities, with less than three businesses running their operations in rural
areas. One of the barriers to growth is their inability to reach out to those
customers who don’t have access to sales outlets, conventionally located in the
urban and periurban areas of the country.
Distribution, as it is currently being undertaken, simply
involves loading a truck with stoves and driving through major towns and along
highways until all stoves are sold, or nearly so. Being limited to major roads
and towns, distributors fail to reach customers in the last mile.
Building a distribution network that covers the last mile
to poor and under-served communities is crucial to business development.
However, this is a challenge for most companies.
“Few companies are
likely to have their own ready-made distribution infrastructure that reaches
the BOP market – explains Joel Essien, GVEP’s ESME Advisor. Assuming they
don’t, there are three options available to them: a) build their own
infrastructure, at a considerable expense; b) harness an existing
infrastructure; c) co-create one by setting up a franchisee system. Given the
investment that the first and third options require, using existing networks –
even if they are not known as ‘distribution’ networks is often the most viable
avenue for small businesses.”
GVEP’s ESME programme in Uganda, which aims at supporting
the development of Energy SMEs in sub-Saharan Africa, is working with three
high preforming companies, engaged in the production of domestic improved
cookstoves, to set up a distribution chain. Each entrepreneur – International
Lifeline Fund, Africa Energy and Environment Saving Stoves and Solar Ltd and
Energy Uganda Foundation – is responsible for a geographic area: respectively,
the Northern, Eastern and Western region.
The distribution chain will be one where an entrepreneur
linking to a distributor, a transporter serving as an intermediary and a
network of five and six retailers serving the last mile distribution.
“We kept the distribution model simple because it is a
pilot that needs to be proven before it can be replicated amongst the thirty
plus cookstove entrepreneurs we work with in Uganda, most of who will also
require production support in order to reach enough scale before distribution
support can kick in,” explains Mr. Essien.
Harnessing
existing networks that reach the base of the pyramid
The distribution channels were identified as a result of
a market assessment study undertaken by GVEP for the Global Alliance for Clean
Cookstoves in 2012. The distributors that are being considered are those who
stock supermarkets throughout the country with a range of non-perishable goods
including toothpaste, cereal, pasteurised milk, soap, sugar etc. Other
identified potential transporters are those dealing in dry commodities such as
beans, maize, groundnuts. Given the fragile nature of the cookstoves,
transporters of fragile materials, such as sheet glass, are also being
considered. In terms of retailers, the preferred outlets are the supermarkets
and hardware stores dotting the main streets of rural towns.
It is expected that this approach will generate a 50%
increase in cookstoves sales within the next six months, resulting in
approximately 36,000 improved cookstoves sold. In addition to the financial
benefits for the companies involved, there are considerable social and
environmental benefits derived from an improved distribution network of energy
efficient cookstoves.
“Given an average of four occupants per households, we
estimate that the number of beneficiaries will be in the range of 50,000. These
are mostly poor families that will be able to halve the cost of cooking fuel
from the adoption of an energy efficient stove. As for the environmental
benefits, the sales of 36,000 stoves will translate in an average of 36,000
tons of CO2 saved,” points out Mr. Essien.
Posted By Meghan Smith
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