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Thursday, 29 May 2014

Testing Distribution Strategies To Reach End Users in the Last Mile Across Uganda

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