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. Numerous complex sub-agreements around merchandising ensure: 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 visit shops when they want to buy something, giving brands a captive audience. Product visibility is therefore crucial. Product availability boils down to visibility: with brand loyalty harder than ever to maintain, one bad product experience (such as a stockout or difficulty in finding a product) unnecessarily drives a wedge between brand and customer.
But in-store prominence doesn’t come cheap. Prime spots, such as next to the counter or at the end of an aisle, incur a premium rate. Where do brands draw the line between prominence and cost?
Cities in emerging markets experience the same dynamics as anywhere else. The fight for the best shelf-space can be intense, with retailers constantly considering how much shelf space their stock will take up and adjusting their margin demands accordingly (due to an implied opportunity cost when not using that required space to sell higher-value products).
This fight for shelf space is particularly intense in the small stores that are responsible for 80% of FMCG sales volumes in cities across Africa. Wholesaling an FMCG product that experiences high turnover and requires a lot of shelf space to avoid stockouts (e.g. soft drinks, vegetable oil, milk), requires you need to offer strong 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 understandably demanded competitive FMCG margins of 15-25%.
The fuels industry is not like the soft drinks industry, however. Margins are very tight, and competition is high. Petrol station “dealers” (the entrepreneurs who own and retail transportation fuel at petrol stations) usually earn 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 higher margins. Those margin expectations are then transferred onto the bottled bioethanol cooking fuel.
These insights helped inform the design of the KOKOpoint “Fuel ATM”, which occupies only 65cm x 65cm in floor space to hold 300 litres of fuel, approximately one quarter 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, such as near the entrance.
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 their interactive touchscreens. This creates an attractive opportunity for other brands to advertise: guaranteed eyeballs as mass-market shoppers enter KOKO Agents, and interactive targeted video messages 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.
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