Products do not sell, benefits do and the informal market looks for value more than any other. As Wally Olins has made clear, it is not what brands look like so much as if they deliver on their promise that counts. To achieve a clear value proposition for the informal market, brands have to answer key questions:

 

*      Awareness: With many sections of the informal market in remote rural areas that may be media dark or, in crowded urban areas working long hours; brands have to engineer innovation ways to communicate with their consumers. For example, Hindustan Lever deploy their representatives to give neighbourhood gatherings on hygiene and wellness to promote their cleaning brands.

*      Affordability: The price point is critical and to reach it design may have to explore mini sizes such as sachets, lite formulae or, to address the credit issues, develop micro financing approaches.

*      Acceptability: Is the brand delivering value or, just life style benefits that are inappropriate to the locale. The brand must offer:

 

1.      Quality. This means performance more than anything and, with the potential for fakes in and out of the informal market this needs to be backed up with:

2.     Authenticity. It is key that the brand can demonstrate that it is the real thing.

3.      Consistency. The best way to represent authenticity is to ensure that the product is the same everywhere.

 

*      Availability: Using developed country strategies to reach the consumer will not work and so innovative delivery systems are a must.

*      Adaptability: This is key. To be a success, brands must be capable of responding to circumstances.

 

This is where Logistics comes into play.

 

Brands matter in the informal market and branded goods companies are increasing their efforts to win market share and generate profitable business.

 

*      Electrolux Kelvinator launched a refrigerator that keeps ice frozen for up to six hours after a power cut.

*      ICICI Bank of India built an ATM to serve micro savers in remote areas. It can process small denominations and can process old notes. It is priced at $800 per unit.

*      Nokia 1100 is advertised in the informal sector as a dust resistant unit that doubles as a flash light where power supplies are not reliable.

 

Brands go one step beyond relevance to the informal market itself. The informal market can use brand techniques to drive much needed growth. For example, the Fair Trade brand. The Fair Trade Movement has developed brands for flowers, chocolate, coffee, vegetables, fruits and local produce. The same techniques are at work to communicate values and deliver consistency. By 2006, Fair Trade brands had captured 20% of the coffee market in the UK and, Café Direct had become the 6th largest coffee company in the country.

 

The role Fair Trade brands have played in convincing consumers of consistency is something that traditional FMCG brands have sometimes failed to achieve the other way. Take Nestle and the launch of powdered milk for babies in several developing markets. Very quickly, it was discovered that the product was flawed and breast feeding was, in fact, the best way. Fatalities brought the message home and there remains a bad feeling about Nestle in some markets.

 

The impact of word of mouth feedback on products is especially powerful amongst the crowded shanty towns as the penetration of mobile telephony kicks in. The spread of bargains as well as bad news can be very rapid. The spread of wireless devices within the informal market is staggering. For example, by 2003 China had an installed base of 250 million and India had 30 million. By now, India is adding 1.5 million handsets per month to the figure. India now has well over 100 million in place and Brasil already has 35 to 40 million.[i]

 

Brand attributes will play an increasingly important role for Logistics within the informal sector as authenticity and consistency become key success factors for anything produced in the informal sector seeking global or, more formal, markets. Without this, there can be no global market. For example, it is said that 40% of fruit and vegetable product rots on its way to the market. The efficiency and consistency of logistics will play a major role in tackling this issue. 

 

In terms of Logistics, the brand has two operational elements. First, it has to respond to, or stimulate, specific needs. This is demand. And, the second element – which is often seen as more important – is supply. Here, we start with demand management and this means an understanding of the point of purchase. 

 

 

Title: Informal Economy: Market Access

 

 

 

Inputs

Production

Distribution

 

Retail

Innovation & Transformation

 

Figure 2.

 

 

Demand and the point of purchase

 

Over 80% of the worlds developing population do not shop in Shopping Malls. They rely on mom-and-pop stores. These can be roadside kiosks or small stores. For the sale of impulse goods, cigarettes, soft drinks, beer and confectionery these stores are key. They offer credit and in many locations can be the place you make a phone call. For many years in the west the dominant logic of trade concentration meant that these outlets became less important than the major supermarket chains. This logic does not go far in places like India where only 1 to 4% of retail turnover moves through the organised trade and the rest through all sorts of channels and mom and pop  or Kirana type outlets.

 

Also, as the Economist pointed out, “Globalisation often seems unstoppable; but the determined parochialism of shoppers tastes has turned out to be one of the strongest forces standing in its way.[ii] The point is that this is not a manifesto to ignore the potential within the informal market so much as a call to make sure that we understand it first. This means reaching out into areas of the marketplace that concentration of trade in the mature markets has long taught us to ignore.

 

The Metro organisation are working hard to mould their Cash and Carry format in India can serve the Kirana stores. As the Managing Director, James Scott has stressed, “we see ourselves as dedicated to create new programmes for the kiranawallas so that they can face competition in the future.” The same idea is being developed by Vishal Mega Mart who have 108 stores in 65 cities. Their new brand strategy is to partner the Kirana stores and manage their supply chain by equipping them with new technology and providing help with visual merchandising.[iii] In fact, these initiatives were launched by the Mars Group in the UK and other markets in the 1980s. A team of part time merchandisers would visit CTNs (Confectionary, Tobacco and Newspapers) outlets and manage the merchandising of impulse products. The idea was to make sure that products were always visible, accessible and grouped correctly and the impact was to reduce out-of-stocks and, increase sales whilst “professionalizing” the mom and pop format.    

 

Unilever’s project Shakti was born in December 2000 in a district called Nalgonda in Southern India state of Andhra Pradesh. The idea was to extend Hindustan Lever’s reach into the untapped and highly inaccessible markets of rural India. The focus was on the full range of Unilever products such as Detergents, Personal Care Products, Beverages and Foods. In addition, a social objective was to provide sustainable livelihood opportunities for underprivileged rural women. In many Indian languages Shakti means strength or empowerment.[iv]

 

Over 70% of India’s 1 billion population live in rural villages where per capita income is 44% of that in urban India. Hindustan Lever think that this will reach urban levels in 10 years. [v]Shakti faced three major challenges. First, whilst the aggregate rural potential in India is massive the target market is scattered over a vast area and the per capita consumption levels are low. Second, the 637,000 villages and townships are not connected to urban centre by air or rail and road connectivity is very poor. And third, the products needed to be affordable. This latter meant not just the price point itself but even the unit size itself. This is an issue that CavinCare of Chennai tackled with their sachet size products which Unilever copied fast.

 

Project Shakti built momentum with a number of innovations centred on building the network and brand awareness. For example, Shakti Vani. Vani is Hindi for “voice” and  the idea was to appoint, train and position local women as experts on matters relating to personal and community health and hygiene. Working to an organised journey plan the Vani would cover a group of villages, organising school visits and village get togethers and use other social means to get the message across. By February 2005, 500 Vanis covered 20,000 villages and their pay was between $60 to $150 per month. By 2008 this had grown to 44,000 rural women reaching around 3 million homes daily in 500,000 villages. The plan is to move to 600 million consumers through 10,000 entrepreneurs by 2010.

 

The salary of the Shakti team has a tremendous impact on the capacity to consume of the districts where they operate. This is part of the root of what Kishore Biyani of the Future Group has identified as key to sustainable development – consumption.[vi] And this is where organised retail and FMCG companies can make significant contributions within the informal economy, to the connectivity with the formal market and, to innovation within the formal economy itself.

 

iShakti, the portal was set up to strengthen project Shakti through extending the benefits of information technology to rural India. A computer was set up in the home of a Shakti entrepreneur and this is to be available to the community as a means of empowerment. This initiative has the potential of bringing the internet to villages that had never seen a computer or even a television. This part of the project has far to go.

 

Investment in project Shakti was significant reaching 15% of sales by 2004. And the cost of iShakti added another 3 to 5% of sales. However, the project broke even by 2004. In terms of understanding the informal market and how to reach it and engage with it there have been many learnings.

 

India may well be the worlds biggest democracy but it is far from being homogenous. In fact, diversity is its greatest strength but also its greatest challenge. Project Shakti, and any project tackling the informal markets of the world has to understand the territory. Five of India’s States were enthusiastic supporters of Shakti but others were even hostile. Closely linked to the prosperity of the State was the level of infrastructure and that impacted accessibility and viability of the project. Cultural issues varied in strength. For example, the status of women in rural society differed across states. In some places the idea of a woman venturing out of her home to sell products in other homes was anathema. And the language issue cannot be underestimated in a country with 27 official languages. Project Shakti operated in 12 languages and then dialects made even this level of communication difficult. Above all, the challenge of building up the self confidence and motivation of these underprivileged women as they came to terms with their Shakti status cannot be underestimated.

 

Project Shakti operated in media dark areas where television advertising could never reach. It moved the marketplace frontline away from local outlets who would champion other products into the homes of families in the remotest of areas. And the overall objective is to generate 15% of revenues through reaching 250 million additional consumers in the informal rural market through 100,000 Shakti entrepreneurs by 2010.   

 

There are other examples of informal market access projects to Project Shakti.

 

In Latin America, 5.6 million people, 80% women, work in direct sales which, in combination with informal outlets generate 50% of all retail sales. This is 38% of GDP. In Mexico City alone there is one street vendor for every 85 citizens! With project Shakti, Hindustan Lever operate a system that it is transparent and works well with government agencies. In Latin America this trust hardly exists. Small wonder that the main way FMCG companies enter the informal market is through the back door. They sell into the Cash and Carry Wholesalers which vendors from the informal sector use as their version of regional distribution centres. This is part of the blurred frontier between the informal and formal sector. More work needs to be done to understand the logistics “as is” and the learnings from it.

 

In Peru, with over 250,000 mom and pop stores to cover, Coca Cola partners their bottling partner, the Lindley Group. Recently, a local discount competitor was cutting price dramatically and this put Coca Colas costs under close scrutiny. The Lindley Group outsourced its entire distribution function to 70 wholesalers with their lower cost base and a detailed understanding of micro market conditions. This move required close supervision, significant investment in IT applications and continuous training and support. For example, Lindley defined the sales routes, coached sales management techniques and assisted in the use of technology.

 

The Lindley Group has grown sales in the Peruvian mom and pop channel by an average of 10% per year since 2005 and has reduced distribution costs by more than 60%. Sales and distribution are no longer fixed costs for the company as payment is linked to results. [vii]  It was the second time that Lindley had transformed the business model. The first time was when Coca Cola had arrived in the market and failed to beat Lindley at the distribution game into the informal market. Finally, in 1999, Coca Cola had to buy 50% of the Lindley Group for a reputed $300 million largely due to its understanding of the local market and especially how to access informal opportunities. The symbol of this success throughout has been their Inca Cola, a bright yellow concoction based on hierba luisa, lemon verbena. [viii]

 

It is not all about soft drinks.

 

Food Services

 

Florida has an ideal climate to retire to and, with tourist magnets like Disney World at Orlando, to chill out in. This makes for high demand on the hospitality and service sector in general and this in turn drives a demand for labour mainly in the informal market. Originally, Black Americans worked the restaurants, bars and tourist attractions but by the 1970s, Haitians and Hispanics (mostly Cubans) started to enter the service sector especially behind the scenes in food preparation and as dishwashers. The contrast with the pleasing environment front of house can be stark as corners on operating costs and hygiene standards are cut. These same issues are apparent in many of the restaurants run in China towns (or other ethnic theme restaurants) all over the world. In fact, small ethnically based restaurants, staffed by immigrants, dominate many urban centres.

 

For this discussion, we will leave aside the labour issues of the black economy and focus the hygiene actors that need to be addressed since many of these informal establishments are located in tourist areas. Take Thailand.

 

In Thailand, restaurants and street vendors can easily be found along the streets of Bangkok and many tourist attractions. More and more Thais eat out rather than at home and tourists eat often on the move. The food looks great but is it safe?

 

Since 1989, the department of Health together with the Tourism Authority of Thailand have been working on a project to assure the good sanitation of all restaurants and street vendors. The “Clean Food Good Taste” Project directly benefits people in this food service sector and the tourists who know that the food they eat looks and taste goods but alos meets the highest hygiene standards. After 2 years 5,377 restaurants (of 11,731 applied) and 3,045 vendors (of 6,843 applied) have passed the criteria. Thirty percent are randomly assessed twice a year. If good sanitation is not found, the award and logo are revoked. [ix]

 

This project is focussed on three objectives:

 

  1. To reduce the risk of foodborne disease
  2. To promote clean and good sanitary food service in tourist areas and around the country
  3. To support and encourage local authorities in managing safe food for consumers and tourists in their areas

 

Similar projects were run in Qatar during the Asia Games 2006 and the concept could be of immense value in India. In fact, the value in India could be beyond the tourist areas and play a major role in supply chain efficiency if such a programme was run in those establishments that are located by the side of the road. Here, the thinking relates to the life of a truck driver as they drive thousands of miles eating and sleeping in some of the worst facilities known. This does and will have a major impact upon the efficiency of the many supply chains / demand networks that are being developed all over India.

 

And given the poor quality of hostelries and food available on the road – not to mention security and corruption – is it any wonder that there is a shortfall currently of 500,000 truck drivers in India? A project such as the Thai example would make a major contribution to the standards of driving. It would even make a serious impact upon traffic accidents.

 


 

[i] C K Prahalad, Fortune at the Bottom of the Pyramid (2006)

[ii] Economist Study on Global Retail (2006)

[iii] Business India (May 2008)

[iv] V.Kasturi Rangan & Rohithari Rangan, Harvard Business School Business Case, Unilever in India – Project Shakti (June 2007)

[v] Outlook Magazine, India (March 2008). Section on Agri Stocks.

[vi] Kishore Biyani, It happened in India (2007)

[vii] Forethought Section, Harvard Business Review, South Asia. (April 2008)

[viii] Inca Cola: The curious Peruvian Cola or the story of the little cola that could. (September 2006)

[ix] Food Sanitation Standard for Street Foods, Thailand. 2001.

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