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.
Last Mile for BoP, an app that aims to help spaza shop owners operate more efficiently through a more cost-effective distribution system. Launched at the end of March, the app enables owners to reduce costs, and customers to access social products and basic household goods more reliably, for less money.
The app collates pricing information from wholesalers. Spaza shop owners compare the prices and place orders using a data-light web-based app. 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.
Founder of the app, Arnaud 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.
“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 MTN 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.