Around the world, retail is a brutal game. From Walmart to mini-marts, brands face a constant struggle to stand out, amidst ever-increasing competition and shifting customer loyalties.
The battle doesn’t end after supply agreements have been reached with distributors and retailers, with numerous complex sub-agreements around merchandising. How prominently should this product be displayed in-store? How much shelf space or floor space is required for this product to help drive greater sales?
People generally visit shops when they want to buy something – brands have a captive audience. Product visibility is therefore crucial. Availability of product boils down to the same point: visibility; with brand loyalty harder than ever to maintain, one bad product experience (such as a stock-out or difficulty in finding a product) unnecessarily drives a wedge between brand and customer.
But in-store prominence doesn’t come cheap. Securing a prime spot for your product, such as next to the counter or at the end of an aisle, incurs a premium rate. Where do brands draw the line between prominence and cost? Finding that balance to drive interest and encourage sales is crucial.
Urban Africa experiences the same commercial retail dynamics as anywhere else in the world. The fight for the best shelf-space can be intense. Retailers are constantly thinking about how much retail space their stock will take up, adjusting their margin demands accordingly. The greater the space requirements, the greater the retailer margin, since there is an implied opportunity cost to the retailer when not using that space to sell higher-value products.
This fight for shelf space is particularly intense in the small stores that are responsible for 80% of the FMCG sales volumes in urban Africa. If you are wholesaling an FMCG product that experiences high turnover and requires a lot of shelf space to avoid stockouts (eg soft drinks, vegetable oil, milk), then you will need to provide very strong FMCG margins to retailers to compensate them for the overhead and opportunity cost involved in providing that shelf space.
KOKO’s founders observed this dynamic at play in the “V1.0 Centralised Bottling” cooking fuel venture in Mozambique. Because of the sheer volume of bottles being moved, and the amount of shelf and floor space that this required, retailers quite rightly demanded competitive FMCG margins of 15% – 25%.
The fuels industry is not like the soft drink industry however. Margins are very tight, and competition is high. Petrol station “dealers” – the entrepreneurs who own and retail transportation fuel at petrol stations to drivers – are usually earning below 2.5% gross margin on that fuel.
FMCG margins are simply not possible in the fuels industry, if the objective is to undercut dirty fuels. The traditional “V1.0 Centralised Bottling” approach to ethanol cooking fuel runs up against the reality that holding 200 – 300 litres of fuel in bottled form creates a major demand for shelf and floor space, and can often “elbow out” other FMCG products that earn FMCG margins. Those margin expectations are then transferred onto the bottled ethanol cooking fuel.
These insights helped inform the design of the KOKOpoint “Fuel ATM”, which occupies only 65cm x 65cm in floor space to hold 250L of fuel, which is approximately 1/3rd of the space that the same volume of fuel in bottles requires. This small footprint also enables the KOKOpoint to be placed in premium locations within shops – near the entrance, for example.
KOKO’s “V2.0 Smart ATM Network” approach is all about using technology to reduce the cost of fuel to customers. Not only are the physical KOKOpoints visible and accessible, so too are the interactive touchscreens built into them. This creates an attractive opportunity for our advertising partners: guaranteed eyeballs as mass-market shoppers enter KOKO Agents, and interactive targeted video ad during the fuel dispense process.
Agent retailers add a new line of business, requiring minimal space, and attracting additional footfall to retail shops, with the opportunity to upsell other products to customers that visit for fuel refills. With more KOKO products in the pipeline, our ambition is to empower small retailers to grow their business and stand out from the crowd.