We know that one of the biggest barriers to working effectively with Base of the Pyramid (BOP) communities is that in many cases, existing distribution systems simply do not reach them. These are real, physical gaps. For instance, a lack of paved roads makes it difficult for companies to deliver goods and services to rural villages or poor city neighborhoods, and make access to affordable or reliable transportation scarce. Such communities are also often literally disconnected from many basic services, including electrical grids, plumbing and waste water treatment or telephone wires. Companies willing and able to be creative about how to reach that “last mile” will find great opportunities in helping the BOP to gain access to quality products or services. An effective solution can be leveraging distribution platforms that are already engaging the BOP.
Several companies are already finding success by doing just that. On the surface, a privately held rural distribution company in Mexico (Mi Tienda), the third largest bank in Chile (Banco BCI), a utility company in Colombia (Empresas Publicas de Medellín, or EPM) and a wholesale company in Brazil (Tenda Atacado) might not seem to have much in common. Despite their differences in sector and country of operation, these companies all share one important common denominator: they have leveraged and enhanced existing distribution platforms to offer new goods and services to BOP communities. In cases such as BCI - which didn’t have an existing network of operations in lower-income neighborhoods - companies have also created collaborative partnerships with the right strategic allies who already have the knowledge and trust of the target groups, in order to deliver new services in a win-win value proposition. This has allowed them to scale up faster and increase their social impact. As part of the OMJ portfolio, these are companies that have developed sustainable and innovative business models which benefit low-income people in the countries they operate.
At a one-day OMJ workshop on Business at the Base of the Pyramid in Latin America and the Caribbean held this February at the IDB, Luiz Velasco (Chairman of Mi Tienda), Jose Pablo Arellano (Manager of Emerging Banking at Banco BCI), Ana Cristina Rendón (Manager of EPM Social Financing Program) and Marco Gorini (Executive Director of VoxCred S.A/ Tenda) talked about how their models were developed and the main obstacles they had encountered along the way. You can find their PowerPoint presentations from the day’s event here.
The Mi Tienda model offers delivery of non-perishable food and personal care products to mom-and-pop shops in villages with less than 5,000 inhabitants in Mexico. It also offers the retailers extended payment terms and business training so they can improve their sales. Mi Tienda has achieved financial sustainability and it is currently serving 1,300 stores with 2 distribution centers, and has plans to set up an additional 26 distribution centers (warehouses) to service 22,000 stores over the next 6 years. Click here to access a video in which Mi Tienda customers talk about the impact that the network is having already.
Banco BCI provides microcredits to previously unbanked small entrepreneurs through its“Alianzas” program. By building a mutually beneficial partnership with a number of local Chilean branches of major corporates which already service the BoP (e.g. Coca-Cola bottling company, Unilever, Pepsico, Arcor and Nestle), BCI uses the capillarity of their distribution networks to provide banking and other financial services to an entirely new market segment without the major infrastructure cost associated with building out a bricks and mortar branch network. For the partners’ clients – often small and informal family-owned stores – it is the first time they gain access to credit and working capital to help invest in and grow their businesses.
EPM is helping its low-income customers establish credit histories so they can eventually access the formal banking system in Colombia. By tapping into already available information regarding its customers’ bill payment history, they are able to offer micro-loans to its customers which are used to make improvements in their quality of life. EPM has partnered with Colombian retailer “Almacenes Éxito” and EPM’s telecommunications company UNE to provide more than 10,000 low-income clients microcredits to buy energy efficiency household appliances and/or internet services + laptop packages.
Finally, Tenda is giving “transformadores” in the Sao Paolo region (microentrepreneurs with small food services stalls and mobile vendors who represent 55% of its clients) working capital loans so they can save money and time in managing their inventory purchases. Tenda is also planning to partner with Care Brasil to provide these microentrepreneurs with basic education and training in such areas as financial literacy and business skills so that they are better prepared to grow and compete in the fast-paced food services market in Brazil.
At the end of the panel all managers agreed that the main obstacles encountered when they started developing their business models were: 1) lack of knowledge about low-income markets; 2) lack of customers’ trust; 3) lack of existing distributions platforms to reach the BoP and; 4) low profit margins. However, as these companies have shown, these are obstacles that can be overcome with the right partners and the right platforms to bridge the last mile in the quest for scale and proximity to the BoP.
This is the first post in a series that will highlight business models from the thematic panels presented at a one-day OMJ workshop that was held February 15, 2011 at the IDB. For more information on the event, click here to read a summary.
