Why inefficiencies in distribution translate into more expensive prices for African consumers
In Nairobi, a capital city in a country where agriculture employs over 50% of the population, a litre of milk or a kg of potatoes at the local shop, or duka, will cost you 100 KSh, or about 1$. Similarly, a kg of rice will cost you 170KSh (1.7$). In Madrid, the capital city of Spain, which is amongst the 20 richest countries in Europe, the price of milk, potatoes and rice is on average 20% lower than in Nairobi.
But this is not an isolated example. Every year, the World Bank publishes rough estimates of price levels in different countries, showing how far a dollar would stretch if converted into local currency. On this measure, Kenya is often more expensive than Poland. Similarly, prices in Chad are comparable to those in Malaysia, where incomes are 14 times higher. Even in agriculture, smallholder farmers pay soaring prices for essential inputs (seeds, fertilizers and herbicides). Why is this?
Of course, the drivers behind these perplexing facts are complicated, and thus warrant extensive analysis. However, in this article, we delve further into the role that efficient distribution can play in bringing down these daily costs to low-income consumers across Africa.
Despite recent efforts by large multinational, such as Procter & Gamble, Unilever and Nestle, to reach the so called “bottom of the pyramid” – referring to those people living under $5 a day -, the logistical challenges of reaching the low-income consumers in these BoP markets have remained. For instance, since many large FMCG companies have been caught blindsided by the intricate functioning of the informal economy (see our previous blog post on this), they have seen distribution costs go up, and profit margins go down. Fundamentally, this translates into steep prices which remain unattainable to the average consumer. Thus, it is essential to recognise that prices will go down when distribution costs are reduced, and organisations can further benefit from the vast economies of scale available in the African market.
For this reason, more and more, senior executives at FMCG companies, agricultural organisations, and even development organisations, have called upon a “distribution revolution”. For instance, with the objective of triggering global dialogue on the importance of leveraging distribution solutions for development, the Global Distribution Fund recently launched D-Prize – a grant awarded to “distribution entrepreneurs” piloting life enhancing technologies in the developing world. In particular, given the extensive network coverage, high degree of mobile phone ownership and digital literacy across Africa, leveraging the benefits of ICT enabled technologies is essential to reduce the transaction costs associated to reaching the bottom of the pyramid.
At Optimetriks we have built an agile Field Force Management technology toolkit that is specifically tailored to help organisations across Africa overcome the various last mile distribution, and organisational, challenges they face whilst managing complex field operations. Thus far, 15 tier one FMCG companies have benefited from our technology tools, and seen distribution costs reduce by an average of 40%. Most importantly, this increased efficiency and transparency has optimised their distribution enabling higher penetration in the hardest to reach pockets of society.
Optimetriks’ technology toolkit translates into enhanced transparency, efficiency and bottom line impact of the resources mobilised for the field operations that managing distribution in Africa requires. By doing so, Optimetriks enables organisations to overcome the distinctive “last mile distribution” challenges of reaching the bottom-of-the-pyramid. If you are interested in knowing how our solution and expertise could benefit your organisation (or how we can help drive down the price of basic commodities for low-income consumers across Africa) please reach out to us!