Helping spaza shops boost their buying power
When Arnaud Blanchet’s mother asked him to read and annotate a book called 80 Men Who Changed the World by Sylvain Darnil and Mathiew Le Roux, he had no idea that the request would change the path of his life. It would also influence his approach to changing the long-standing economic model for informal traders in South Africa.
At the time, Blanchet was chief financial officer for a social enterprise focused on promoting women at the upper end of the business environment. But he was restless and looking for an opportunity to make real social impact at grassroots level. Motivated by the inspirational stories he read in the book, Blanchet embarked on a year-long personal quest to find businesses whose simple ideas could directly address social problems.
He visited over 100 businesses in 20 different countries and began to see a clear pattern. Each organisation he met was grappling with the same problem: distribution.
Identifying the problem
“You can have the best solar light in the world,” explains Blanchet, “but if you can’t get it to a broad enough customer base, you can’t make an impact. At the same time, however, if a producer wants to distribute its product around the world, it would have to establish an entire distribution network that accommodates all the variables in each market’s supply chain. This changes their focus from developing a great product to creating distribution networks.”
With this realisation, Blanchet identified South Africa as one of three markets with a large low-income population and good infrastructure — and where he assessed his idea could make an impact.
Taking it to the majority market
Informal retailers, or spaza shops, in South Africa represent a significant portion of the market, and there is a great need for social products in low-income communities. But their buying and distribution costs are high. As a result, customers are penalised by the ‘poverty premium’: products sold at spaza shops can be as much as 30% more expensive than in more formal outlets.
Blanchet created Last Mile for BoP to help spaza shop owners operate more efficiently through a more cost-effective distribution system. This would enable owners to reduce costs and customers to access social products and basic household goods more reliably, for less money.
Social products include clean-cook stoves, sanitary pads, solar lights, water filters, fortified food and others.
Last Mile for BoP collates pricing information from wholesalers. Spaza shop owners compare the prices and place orders using a data-light web-based app. The entire system saves store owners both time and money, vastly improving their trading efficiency. The products are then collected and delivered by a fleet of owner-drivers. This is a job-creation system that enables drivers to earn an income when their cars would usually be out of use.
The startup has been through a rigorous process of testing ideas and changing its approach. It’s also learned some valuable lessons.
“You can’t make a full-time job out of selling the same social products to one community. You reach saturation point,” says Blanchet. In addition, “some products can be sold repeatedly, such as fortified food or sanitary products. They attract comparatively good margins, but cannot be sold in sufficiently high volumes to be a sole income source.” A third learning was the consumer’s financial standing. “Despite the long-term benefits of a solar light, many people don’t have the money to buy the light up-front. We needed to develop a credit facility,” he says.
One of their principal challenges was how to access the pricing databases for wholesalers. Collecting the prices manually wasn’t efficient and wholesalers wouldn’t hand over their data for free.
Last Mile for BoP is an alumni of the Solution Space Venture Incubation Programme, and has also been supported by other accelerators, mentors and innovation challenges. Blanchet explains: “We’ve always iterated, and the incubation programme helped us to develop the business model with mentors and advisors. After battling with the problem for about a year, we learned a big lesson about the exchange of value. If the buyer is able to attach value to a service, they are more willing to agree to it,” says Blanchet.
First steps to launch
With a more focused business model, the eight-month pilot programme has generated R1 million in turnover and shifted six tons of fortified food — both proof points that the initial single, simple idea could potentially change the retail landscape for shop-owners and consumers operating at the base of the consumer pyramid.
The Last Mile for BoP app launches to the public at the end of March.