Africa Consumer Goods Distribution Glossary
As a company focused on FMCG distribution management in Africa, we found it could be useful to gather on a single place the definition of the main terms related to it. This is a page that will be updated regularly to make it more comprehensive. Terms are ranked per alphabetical order. It is quite long, so it is best to use ctrl + F to search through. If you see anything missing, feel free to add it as a comment, and I will incorporate it. Enjoy the reading !
Can refer to an outlet or a customer. It can be defined as the process through which a brand on boards a new outlet, from identifying it, registering its key information, setting it up in the system, deploying the branding, training him, perform the first delivery, etc. Having simple and quick on boarding processes can be a differentiator for FMCG companies in their relationship with outlets.
Activating a customer is more applied in a Below The Line (BTL) context, where similarly field sales are in charge of engaging directly with consumers, and have them try or purchase products. In both cases, to be more efficient, activation need to follow a documented process, with data points to measure the productivity and efficiency around it.
Agent Network Management
The practice of creating and making work a network of agents. It has been mostly linked to the mobile money business but can be applied elsewhere. Read the report below for a good overview of new ways of doing it.
Digital Solutions for Analog Agents: New Technologies to Manage Agent Networks Mobile and financial technology might be advancing rapidly, but agent networks are still largely unchanged. Despite… bfa.works
Asset / Pushcart
In the FMCG distribution universe, an asset most likely refers to the equipment needed to sell, and refer to things like sales van, delivery trucks, motorbikes/pick ups for the sales rep, retailer fridges (for beverages for example) or pushcarts for mobile agents.
Providing the right means of circulation for the field staff is essential for their productivity and for territory development. A sales rep might argue understandably, that he cannot go off road, in the countryside, if he does not have a pick up. Distributors might be reluctant to perform this investment, providing motorbikes to their field staff, but they need to be controlled and pushed, as FMCG brands need to ensure there is adequate ressources allocated to distribution. Interestingly, distribution assets are sometimes built by the sales themselves. A good case in point is the mobile money kiosks, where agents would not wait for the mobile operators to give them one and do it themselves.
In West Africa, you can see everywhere the roving Nescafé vendors that Nestle has been successful in deploying. This page is a great profile of a daily life of a street vendor.
The challenges that come with assets are often the following:
Inability to measure their Return on Investment. How much sales each asset is contributing to ? This is due to the lack of reporting per asset.
Inability to track the movement of the asset during the day. Where are my puscharts selling ? Just like for the taxi apps, you need to ensure the density of roving sellers is right for the location and based on the time of the day
Inability to manage the repair. These assets can break, then need to be collected and repaired, which can make them idle for some time.
The assets are not given as per a rigorous methodology, based on sales performance or potential, but randomly.
All these challenges can be fixed by:
The tagging of each asset with a barcode
The identification of each asset with a series of attributes including the barcode, the picture, the type of asset, who it belongs to, etc
A daily reporting of the asset sales, with the reporting of morning and closing stock through a sales monitoring app. This can be done by the distributor where the seller picks the assets and loads stock.
The equipment of the seller with an app on his smartphone (if possible) to track the location during the day, be able to send notifications, etc.
A Fan Milk Pushcart
Nescafé street sellers
Availability / stock / out of stock
Availability is often measured at the outlet level, meaning a customer can access and purchase it. By contrast, a product is said to be out of stock (Oos) or stocked out, when it is not on the shelves.
Oos is a key source of concern for the FMCG companies, as there is an obvious correlation between sales and Oos, and it can damage the value proposition for the consumer. The availability of a product is indeed a key reason for choosing a brand. For example, for airtime or mobile money, there is no point in using a service, if you can hardly find an agent to buy new recharges or perform a transaction. Every company we work with would convene that at any given time, they miss some revenue opportunities because of Oos, meaning their inability to satisfy the market potential. FMCG products have now more and more substitutes, and are used for basic and urgent needs. So if the soap you want is not there, you will purchase the one of the competitor when you are in the shop, you will not postpone your purchase decision, as it would be the case for a larger item, like a fridge for example.
First, measuring it in real time is not possible in Africa, as they are obviously no such thing as an inventory system in the traditional trade. By definition, the picture also change on a daily basis, so it is a constant work. The sales rep might not have time to perform detailed retail audits regularly, as their commission targets are usually more focused on selling, and they rush from one outlet to the other. Hiring a market research firm to perform store checks is too expensive, and a lengthy process, from the scoping to the delivery of the results. And there is a lack of trust in the reliability of panels methodology like the ones Nielsen or TNS would propose. Some firms employ dedicated field staff to run Out of stock checks as often as possible, such as merchandisers, whose role is to ensure top SKUs are always available.
Second, solving it is also complex. It can have different causes: irregular supply/distribution, lack of working capital from the retailers that can’t stock enough of the product, sudden consumer purchase at specific times of the week or the year (seasonality), etc.
How do you measure inventory..? Credit: Adam Wiseman
Bottom of the Pyramid (BOP)
This term refers to the billion of customers with the lowest purchasing power, the top of the pyramid being the richest people.
Coined by VK in his book, it has become a popular concept, especially in the context of companies defining their social missions, with the underlying thesis being that it is a neglected market that present however vast commercial opportunities for companies that learn how to serve these customers.
Like the concept of middle class, it is hard to define precisely who is included in the BOP. From a marketing or distribution angle, the question is whether there are specific characteristics for these type of customers to take into account.
The first asset of a FMCG company, which brings immediate recognition from the customer and intention of purchase. An interesting trend in FMCGs in Africa is the emergence of new brands challenging the established ones due to lower barriers of entry. Brands are also becoming more vulnerable in an age of multitude where social media activity can damage a brand reputation quickly. A recent example can be found in the boycott that affected Danone products in Morocco which led to a 30% drop of sales and eventually a price reduction. Originating from the social media, with no clear leading entities, it spread like wildfire, and was difficult to tame.
UPDATE 1-Moroccan consumer boycott pushes Centrale Danone dairy... (Adds details, background) By Ahmed Eljechtimi RABAT, June 4 (Reuters) - A consumer boycott of some of Morocco's top… www.reuters.com
Boycott au Maroc : Centrale Danone s'apprête à baisser son prix du lait - JeuneAfrique.com Quatre mois après le lancement de la campagne de boycott qui a visé trois marques au Maroc, Centrale Danone s'apprête à… www.jeuneafrique.com
ATL / BTL Marketing / Door to door/ Street activities
A classic distinction in marketing. ATL means Above the Line and refers to advertising like TV, Radio, billboards, etc, while BTL, Bottom the Line, are activities in direct contact with the consumers, like roadshows, door to door engagements. Both match different objectives, and while there is still an on going debate on their respective effectiveness, we can try to single out their characteristics.
ATL is relevant to build general brand or product awareness, pushing a message to a large number of people. But it can be expensive, and as audience measurement is also not so reliable in Africa, it can be an investment difficult to justify. Among ATL, radio is often the preferred channel.
BTL is cheaper. It typically takes the form of a tent with a few sales agent around, branded, and going to talk to customers, a sound system, and some freebies given. Deployed on market days, or on crowded places. It has the benefit of a direct engagement with the customer and a concrete show of the product. It enables a brand to build penetration in sometimes neglected areas, like smaller towns, or the countryside. BTL can be bigger theme with full scale roadshows, or caravans, with big concert trucks, which then becomes a memorable event.
Call / Visit
The action for a sales rep of visiting an outlet. A call here does mean a physical visit, not a phone call..
Sales rep report their visits through a call card. It used to be a paper one, but is now digitised through a mobile app, which brings several key benefits:
avoid time wasted in data entry, captured data automatically fill the reports
capture pictures and GPS coordinates
make the data capture quicker, with list and buttons to press compared to writing
enable more interactivity, such as visualising past visit information, when inputting the agent ID
The number of calls done in a day can form a KPIs for the sales rep.
A good practice by FMCG brands is to ensure sales rep visit all their shops portfolio over a defined cycle, say 3 months. Frequency of visits can be defined based on the segmentation of the outlet, a top selling one would need to be visited more often than smaller ones. Different weights can feed the route planning
Census / Mapping
It is the process of identifying all the stores selling the product categories the brand is involved in. Typically information collected would be:
outlet characteristics (name, contact details, floor area, type of shop, and any dimension that can be used for a segmentation)
product categories, brands, products sold, etc.
source of purchases, satisfaction, etc
Any other relevant information
Questionnaires are often shorter than for a fully fledged retail audit, below 15 minutes, as retailers are often busy selling and not so available to answer all questions. Another thing to bear in mind is the reluctance of shop owners to accept the interviewer to take a picture. They might see this as intrusive, as they might not be fully compliant with their tax obligations...
The typical methodology to perform a census would be the following:
Definition of the census questionnaire
Definition of the area to cover
Deployment of the field force and monitoring their movement to ensure all the streets have been surveyed
Aggregation, cleaning and visualisation of the results
Data collection is now more and more digitised through a dedicated mobile app (like what we do), to enable for GPS and picture capture, and an automated data management process.
A census can be done either internally, leveraging the existing field staff, or through an independent market research. While the internal option is cheaper, it might conflict with the work routine and the commission model of the sales, which will not be so focused on the task. It will be more something they do when they have the opportunity, rather than a full day focus. The external option is to best way to make sure an area is mapped scientifically, street by street, as the interviewers are fully focused on that.
On top of the fixed project management cost, there main cost component is a variable one, in function of :
the kilometers covered
the number of outlets identified
Sample of our census conducted in Nairobi
Performing a census is the basis of any rigorous distribution strategy. Often an expensive exercice, it has to be done to understand what the situation in the market is. It lays out the foundation on which you can afterward perform a segmentation of the outlets, define the territories, the sales infrastructure required to cover this territory, in terms of distributors, sales rep, etc. Traditional trade in Africa is made up of small shops that operate on small capitalisation, and can therefore go bankrupt, or close because of seasonality effect (agents closing to go harvesting for example). Therefore, shops open and close, and the risk is that the census becomes outdated. A constant refresh needs to be done, through the use of a Sales Force Automation system.
In the context of distribution, the path or pipeline through which goods and services flow, from the FMCG manufacturer to the end customer. It can of variable length, depending on whether the brands does direct or indirect distribution, and the number of intermediaries. The longer it gets, the higher the end prices for the consumer, as each middle man takes his margin.
Commission / Margin. Front / Back
The difference between the price at which the product is bought and is sold. Each actor of the distribution value chain gets a commission, that pays for the costs of stocking the product (capital consumed), the logistics and the costs associated with selling the product (a teller salary for example). The more a product “moves”, i.e. is sold, like airtime, the lower the commission. For example, airtime is something that is sold on a daily basis, and has commission of around 5% for retailers, while a product that will stay longer on the shelves, will need to give more commission as an incentive for the retailer to keep it stocked.
Commission can be also understood as a margin. It comes either as a discount, purchasing a product worth 100 for the end customer, at 90 (10% commission), or as a bonus, an additional financial flow.
In distribution, it is important to differentiate between front and back margins. Front margins are usually discounts a distributor or a retailer would get when purchasing the product, while back margins are associated to performance objective and qualitative criteria. How a brand sets the mix between front and back margin is a key aspect of a distribution strategy, as it needs to be both attractive for its distributors and aligned to everyone’s interest. We will devote a specific post on the topic, but a best practice is usually to have 40% front margin, and 60% back margin.
Credit / Finance
FMCG distribution is closely related to credit. It is essential to understand how it can make or break distribution.
Brands often provide their products to distributors on credit, with a backing from the bank. At the time of the distributor selection tender, their financial strength, i.e. the capital they can leverage to purchase and distribute, is one of the highest ranking dimension. That is why FMCG distribution can be sometimes associated with money laundering by the way, as it recycles high amount of cash..
From distributors to retailers, things get more complicated. It all depends on the level of trust and knowledge that exist. Distributors might be comfortable pushing products to relatives and collecting the payments later. That is why distribution is often done better by specific ethnic groups, that have trust mechanisms in place to strengthen this process. A good case in point is the Lebanese in West Africa, or the Indians in East Africa. But a distributor is responsible for an entire territory and has to serve everyone within it, so when he does not particularly a shop or feels he will struggle to recover his money, he will demand an upfront payment.
Finally, from retailers to the end customers, there can be credit. FIBR did a research and found 90% of them doing some sort of credit (on a small sample). It makes sense, as retailers all sell the same SKUs, that they differentiate with top service to their customers and some arrangement on the payment conditions, like buy tonight, pay tomorrow. Retailers hold messy records of debt due (as you can see on the picture below), but might end up losing money on it..
How reliable is this manual credit ledger ?
Closing Africa's MSME finance gap - African Business Magazine Africa's micro, small and medium enterprises (MSMEs) have traditionally found it hard to acquire bank credit, but the… africanbusinessmagazine.com
Credit to retailer/merchants is a hot space currently, with multiple initiatives in that field to make it more digitised. Micro Finance Institutions have for long provided credit to them, but under a manual, costly and expensive processes. The issue is the lack of Know your customer information and reliable historic sales data.
To go further on credit and the financial cycles of the stores, we recommend these FIBR researches.
Customer service / Back Office
The function to assist customers or agents in the use of their services or products. As FMCG brands operate more and more in a competitive space, they are under pressure to provide to their downstream distribution chain, and to the retailers that sell their products a better support.
Typical use cases for shopkeepers would be issues around providing training, quality of product, deploying visibility and tools of trade (repairing a fridge, having up to date marketing material), and if relevant, technical issues, for example for mobile agents (PIN reset, SIM blocked, etc).
Direct / Indirect Distribution
Direct distribution means the process of the brand directly supplying all its retailers. It gives the benefits of better controlling the relationship with the retailers, but the drawback of becoming like a logistic company. A few FMCGs have adopted that model, like Danone in Morocco or Castel. Most companies however have adopted the indirect distribution model, where distributors are commissioned to push the products downstream.
Distribution / Route to Market / Go to Market / Road to Market
Distribution is one of the four aspects of a marketing mix. For a strategic framework on how to build a route to market roadmap in Africa, we recommend this BCG report.
The article below is a case study on Unilever distribution.
Distributor / Wholesaler / Stockist / Aggregator / Channel Partner / Agent
All these terms refer to the middle men in charge of taking the products from one stage to the other, downstream. At the top is the FMCG brand, and at the end is the end customer. The number and exact organisation of these middle men greatly varies from one sector and one country to the other. There can be up to 5 or 7 intermediaries. The more you have, the higher the end price. The question is whether they add value. It can be argued that for last mile distribution, you need more intermediates.
Distributor Sales Rep (DSR) / Runner boy
Salesmen employed by the distributor to take the SKUs to the retailers. They can move around by foot, on tricycle or on motorbike.
It is expected from the distributors to invest in the means of transport of his sales rep so that they are more efficient. It should be part of the business case of the distributor when designing the commission model to make sure he has sufficient margin to make these expenditure. It is also worth to understand how they are paid by the distributors, it should be a minimum fixed salary and variable based on sales or visits.
For brands, it is useful to spend time at the distributors and discussing with the sales rep to check these two parameters to make sure the interests are aligned, and the sales rep well incentivised. Distributors can be tempted to overpromise to get a distribution mandate, and then save on costs by squeezing on their sales force later on.
District / Territory / Area / Zone / Region / Cluster
This is the geographical definition of the area. There are various terms, but it also boils down to splitting a country into multiple parts. It is usually aligned to the administrative splitting to make it easier for the sales organisation to understand.
Dumping happens when a distributor sells products outside its assigned territory/area. It is usually to reach its primary sales target, and to get the corresponding bonus. Dumping means he is ready to sell even at a loss, or at lower margins, to reach this volume threshold. That is damaging for the distribution ecosystem, as it leads to revenue cannibalisation, where it destroys the value proposition for the distributor in the territory, meaning he will sell less. Of course, all distributors want to sell in the city centers, but brands need to make the delimitations respected and terminate any distributor with dumping behavior. While it can be easily monitored in real time for electronic products, such as airtime, it is much harder for physical goods. It can still be done by scanning bar codes of the products though.
The actual individual buying goods at a retailer. To distinguish from the customer that for an FMCG brand means the shop, buying products.
Enterprise Resource Planning (ERP)
The software that a brand uses to track his financial flows. When it comes to distribution specifically, it is used to generate the invoices for the primary/direct sales. It is sometimes linked to the SFA system, when sales rep need to book their sales and generate an invoice to give to the retailer.
Fast Moving Consumer Goods (FMCG) / Consumer Packaged Goods (CPG)
By that denomination, we refer to consumer products that are purchased frequently, quickly moving in and out the shelves (“a short shelf life”). They are at low cost, are sold at a low margin, but on high volumes. Examples of FMCG are products such as cold drinks, soap, processed food, toiletries, cosmetics, telecommunication, airtime tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. It can be extended to pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars.
Such products have low shelf lives, and are supposed to move quickly to generate profit for the value chain. A retailer is concerned about only ordering goods that will consume some of its limited resources, shelves space and capital, for as little time as possible.
A list of top 50 FMCGs in Africa
This podcast also offers a view into a local Kenyan champion, called Chandariah.
Tissue Paper: expanding one of East Africa’s top manufacturing groups with Darshan Chandaria of… Manufacturing is one of the major value drivers in an economy. In this episode I speak with Darshan Chandaria, Group… www.samfloy.com
Field Force Productivity KPIs
Deploying field force for a manufacturer is often a key contributor in the Operational Expenditure but essential to drive the relationship with the distributors and customers (retailers). The first step in measuring their return on investment / their productivity is to calculate the following KPIs:
Start time. First visit logged on the app
End time. Last visit logged on the app
Working time. End time - Start time
% of staff who did their visit before 9am.
Visit duration. Check out - Check in time. To measure the time spent at the outlet
Visit time. Sum of the visit duration during the day
Transport time. Total working time -Total visit time. This can be expressed as a visit or transport ratio. What is the % of time the field staff spends actually engaging with the retailer/agent ? You want to ensure the transport time is minimum with good route planning.
Number of visits per day
Number of unique shops visited. As ascertained with the geo check-in/check-out feature that we have in our solution for example, whereby the start and end of the visit can only be reported if the GPS shows that you are at the shop location.
% of the shops / agents in the portfolio visited (outlet coverage). This is a fundamental KPI to ensure the sales rep / TDR visits everyone in his portfolio and not always the same / easy agents / shops. This KPI is relevant if you look at a longer period, like 30 days. A fair assumption is that the sales rep / TDR should be able to visit at least 50% of his portfolio in a month.
Man days. Number of unique days worked
Active sales reps. Sales rep with at least 1 sales during the day
Calls = Number of sales done
Strike rate = Number of sales / Number of visits
Drop size = Sales value / Number of calls
Average quantity sold
Other KPIs can be added as per the specifics of the activity. What matters is that targets are defined for each KPI and a variable commission scheme to ensure there is a motivation from the field user in reaching these objectives. It might sound obvious but we see many situations where the field force is not incentivised, usually because the FMCG company lacks the ability the measure their activity precisely because of a lack of field force automation system.
As the FMCG business moves significant amounts of cash, it is greatly exposed to fraud cases. Sales team are in the front line, with the risk of colluding with the distributors. A good way to address that is to do regular rotation of staff between territories, say every six months, to have fresh eyes on the business and avoid complacency.
Most frequent fraud cases are the following:
Incorrect commissions calculation by an insider in the brand to increase the commissions sales rep or distributors get. That is why commissions are usually calculated twice, first by the sales team, then by Finance / Revenue Assurance.
Biased distributor appointment tenders. Assessment of distributor can favour one distributor with the help of insiders. That is why it needs to be done collegially with representatives from various departments, precisely documented and based on factual evidence
Dumping. Distributors selling outside their territories, sometimes even at a loss, to reach their targets.
Fake / counterfeit products. Distributors or shop might sell products that are not genuine. Lubricants is for example very exposed, empty bottles are sold and then filled with fake oil, making it difficult for consumer to know what is genuine.
As an example, Guinness Cameroon had to fire a large part of his executive committee after a fraud linked to sales was discovered.
Cameroon-Info.Net:: Cameroun — Enrichissement illicite: Des Cadres de Guinness Cameroun licenciés… Cameroun — Enrichissement illicite: Des Cadres de Guinness Cameroun licenciés pour fraude aux résultats. www.cameroon-info.net
According to one liquor company, over 30% of spirits sold in Cameroon are counterfeit or smuggled into the country.
Freelancer / Field Sales / Mobile Agent / Roving agent / Foot soldier
An individual that sell products in the street, without being attached to a particular physical location, like a store. Typically students, they would have a basic branding, like a jacket, and walk through the streets in crowded areas to find customers. The best example of such a powerful field force is FanMilk, which sell mainly through their field force of thousands of field agents. They are usually not contractually related to the brands, and gets paid on front margin. Below is a good recap of the best practices in terms of compensation and recognition to reduce the churn of these field sales force.
A merchandising item to display low units of consumer goods. It is particularly relevant for the African traditional trade shops, where space is limited, and crowded, to make a brand / products stand out. Typically it is given by a brand to display its products only, but the reality might differ, with the owner putting competitor products also..Again a key dimension of in store execution compliance that field force need to check.
A Nestlé hanger with their top SKUs
The ability to detect automatically products present in a shelf or branding is becoming a key technological component that many FMCGs are trying to include in their operations to increase the merchandising check efficiency. The value addition is clear: instead of requesting the sales rep to input data for 30 SKUs and count them one by one, taking a 1 or 2 pictures is enough.
While this had traditionally been used for the modern trade environment, with well structured shelves, the algorithms are now sufficiently robust to be used in the traditional trade universe.
What is required to implement it is :
A trained algorithm
A cloud hosted storage and computation engine
A phase of picture labelling where the algorithm is trained with a large number of pictures where each SKU to detect is tagged,
We believe this technology is now mature and well tested and should be part of each sales operations monitoring.
A kiosk is a convenient unit of distribution in Africa, as it can be deployed everywhere. It is usually a small structure with one teller inside. As the shelf space, it is more relevant to sell electronic or small products like airtime credit, tickets, candies, etc.
It is either in wooden structure, plastic fiber or metal. It is either provided by the brand that build them in series or done by the agent himself.
When it is funded and deployed by the brand, the key aspect to monitor is that competitors would not benefit from it and sell their products, at least not in an obvious manner. This is something the sales reps must fight against when visiting the outlets. In the picture below, you can see an example with the mobile operator MTN being visible on an Airtel kiosk..
A fiber plastic mobile money kiosk
Last mile (distribution)
A term used to refer to the most remote shop or place to service. Being able to distribute to the last mile means having the capabilities to go everywhere in the country where you have a shop or a customer to serve.
It is to be understood in a logistic perspective. Last mile distribution entails major costs in terms of transport and staff. The last mile is often the most expensive one to cover.
The last mile is also linked to being present in rural areas, to the poorest customers, at the Bottom of the Pyramid, while richer customers are assumed to be living in city centers. Therefore it is a term that can be found in the context of products with a clear social impact, such as solar batteries, cookstoves, water filters, etc.
An interesting initiative in that field is the Global Distributor Collective, which aims at gathering last mile distributors of such products around knowledge sharing and experiments.
Retailers are not exclusive to brands and distributors. Therefore, if they feel mistreated or dissatisfied with the commission level, they can stop purchasing brands or do not give the products the right level of consideration.
To keep the best spots and ensure shopkeepers are loyal, brands come up with a series of incentives such as:
Convention / Agent Forums where you share best practices / give goodies / provide recognition , reward the best sellers. It can be difficult to organise logistically, but it is well appreciated as it gives the sense of belonging to the same “family”
Run sales challenges with prizes to win, such as motorbikes, generators, cash, etc
Discount based on volume purchased
Additional visibility /equipment given (like banner light, fridge, etc)
For brands to do so, that requires first to have an up to date and reliable database of their customers.
Manufacturers / Brands
The companies producing the consumer goods. It can be multinationals, like Nestlé, Danone, Coca Cola, or local entities.
This BCG report draws lessons from the top succeeding companies on the African continent.
Here is a list of the top 500 companies operating in Africa.
And a report on Coca Cola success factors in Africa.
As well as one on an emerging FMCG brand based in Senegal, Patisen
Manufacturing vs Import
Companies switching from manufacturing locally to an import model. It happens with Nestle in DRC shutting down operations or Unilever in Cameroon.
Manufacturing becomes costly because of unreliable power, labour cost, tax pressure, etc. and in the end it is cheaper for companies to import from regional hubs
Market Share (Volume/Revenue)
The dream metric every FMCG brand wants to know but notoriously difficult to measure in Africa, due to the high predominance of unreported sales in the traditional trade.
Established players such as Nielsen or TNS put together a supposedly representative panel (max 1,000) of shops in which they will try to report as much as they can all sales by SKUs. This method is not said to be very working well and FMCG brands are desperate about finding alternative sources of data to know how they are doing compared to the market.
Volume means considering the products, how many units of product A were sold among its product category. Revenue or value market share takes into account the actual product price: out of the total value spent on this product category, how much went to product A?
Market size / potential in Africa
How big is the opportunity for FMCG players? Is the market growing? It is of course very difficult to assess precisely. For McKinsey as detailed in the report below, private household consumption amounts to 1,4 trillion$ and will be growing at 3% per year until 2025.
Lions on the move II: Realizing the potential of Africa's economies Africa's economic fundamentals remain strong, but governments and companies will need to work even harder to keep the… www.mckinsey.com
Another source of data from KPMG
Merchandising / Branding / Visibility
It refers to all the physical material / signs that would show to a customer that a brand or a product is sold at this outlet, or communicate on a promotion, on how to use a specific product/service (such as the price chart or customer care line for mobile money).
It can come in many formats, from sticky posters, to road signs, light boxes, etc. The first thing that stands out when walking past traditional trade shops in Africa is the wealth of colourful posters and brands signs. While it can lead to creative artistic painting by the store owners themselves, announcing what they sell, it usually leads to brands competing for space, and overlapping on the others.
Again, having the right field force on the ground to engage with the retailers is the only way to ensure the branding gets deployed correctly.
The common challenges associated with the branding are:
outdated ones still being displayed. It is not uncommon to see 2 years old promotions still being advertised..
they easily wear out. With pollution, dust and harsh climatic condition, well looking branding can quickly becomes deteriorated and colors fade away..When planning for such an investment, ensure it is robust
stolen or resold. That is the issue with umbrella or street tables for examples, which can be used for a different purpose..
Nestlé house in a shop
Middle Class (Africa’s)
A thorny question is about the size of the Middle Class. This article is interesting on that question.
How big is the opportunity?
Much has been said and written about the dramatic growth of mobile connections on the African continent. Mobile connectivity and mobile money have become vital infrastructures that FMCG actors need to tap into in their business strategies. For a comprehensive report on the state of the mobile industry in Sub Saharan Africa, reference numbers on the number of subscribers, and an overview of the landscape in terms of innovations and outlook, this report from the GSM Association is what you need.
Comprehensive GSMA Report:
Mystery visit / shopper
Usually done by market research agencies, it refers to the process of pretending to be a customer to assess the quality of the user experience.
While close to the concept of an external Retail Audit, a mystery visit will help measure more subtle things, like a customer journey in a service center. Was the customer well informed? Was he told about promotion X or Y?
Numerical distribution / Weighted Distribution
The number or percentage of shops stocking a particular brand or product on the total relevant universe of stores. It measures the ability for a brand to push its product on the stores that should be stocking it. It enables to understand how many physical locations have to be served. To have this KPI on a comprehensive universe, it has to be done through a census.
Weighted distribution takes into account the sales per outlet. It measures the % of sales coming from a particular outlet. It might be that a brand is present among multiple small outlets but with little sales.
Numeric gives an indication on the reach while weighted tells about the quality of distribution.
Refers to open air market, with table sellers and very limited retail infrastructure
Outlet / Store / Retailer / Duka / Kiosk / Table / Point Of Sales / Point of Consumption / Merchant
The backbone of Africa distribution. It is estimated that there are 5 millions of them across the continent. They can come in different terms and different types.
They are considered by the FMCG brands as their consumers, while the shoppers are the end consumers. They are the final intermediaries between the brand and the end consumers, in charge of purchasing, stocking and selling the product. As they are the interface, they are a key link in the distribution value chain. Brands engage significant investments to own the relationships with them, building loyalty programs, visiting them, etc.
Brands have a hard time standardising the definition of the outlets, especially from countries to countries, as there can be country specific denominations. In East Africa, dukas is a common word for example, but in Angola, it will be cantina, etc.
From a mobile money angle, retailers can be both agents, offering cash in and cash out services, and merchants, accepting payments for the goods in mobile money.
To have a first hand experience of what a duka looks like, I recommend this great VR experience by the FIBR project.
To read further on shopkeeper, this post is interesting
In what form are consumer goods are distributed and sold. In Africa, brands have broken up their product in very small pieces to make them more affordable for consumers with low purchasing power. Not that they make it cheaper, quite the contrary if you extrapolate their prices on larger sizes, but in absolute terms, it makes it possible for someone to buy them on a daily basis.
Payment / Merchant Payment / Mobile Money / Finance
Shops capture significant financial flows as part of their daily activities, receiving cash from clients and paying their suppliers, making a tiny margin in the middle.
Here is an overview of the payment methods:
Credit Cards. Not so present.
Cash. Used predominantly, 90% of cases. It is instant, is not tracable for the ownership which enables to under report sales to tax authorities. A drawback that is often found in West Africa is the lack of small change (notes or coins), just because of a shortage of currency. This leads to being given change in the form of sweet or vouchers.
Mobile Money. An African success, each mobile number gives access to a wallet which holds “digital money” that can be exchanged in cash, or the other way around at agents. Other main operations are Peer to Peer transfers, bill payments. Merchant payment in that sense refers to the ability to pay by his mobile at a shop. There are 2 main types of payments: Near Field Communication, where you type an NFC reader and a manual process through USSD / STK Menu, sending money to the agent till number. In here, Kenya leads the way, with the the Lipa Mpesa service from Safaricom. Most shops would now accept tp be paid by MPesa, either as a P2P or on their merchant line.
Of course, many players, such as cards operators and mobile operators have been pushing hard for the adoption of their modern, digitised means of payment. Card payment have remained at a low level, because credit cards are not a mass market product and because it requires the deployment of expensive and clumsy card processing terminals at shops. In other countries, merchant payment has been slower to take off, for several reasons: poor user experience (long and error prone) compared to cash, additional fee (either to the customer or the merchant), need for the merchant to be able to liquidate, i.e. convert, quickly the mobile money in cash, lack of critical mass of subscribers leading to merchants non bothering with this additional process, poor operational set up for the merchant (who keeps the phone that accepts payments? what can the shop assistant do with it? etc), cultural resistance to not having cash available for traditional shopkeepers (despite the security benefits), etc.
Being able to capture digitally the payments of all shops has a lot of value in an area where reliable data is scarce. Three applications are:
digitizing value chains, being able for a shopkeeper to pay his suppliers through mobile money
credit scoring by having real data on actual sales dones
retail analysis to see categories of products sold, market share among brands, etc
For a great ad on merchant payment, and how it is promoted, watch this one from MTN Uganda.
The penetration rate is the % of retailers stocking a product category or a specific SKU out of the total universe of the relevant retailer universe.
Point of Sales
It either refers to the device deployed at a shop to perform a transaction, like a credit card terminal or an airtime sales, or a shop itself.
For the device, usually banks would deploy them at stores that have sufficient volume in card payments like supermarket. As each device is linked to a bank, you can find crowded counters with multiple credit card POS, which is inefficient.
The Selcom machines that are widely spread in Tanzania
A key pain point for shopkeepers to hold multiple wallets for airtime or float, for each mobile operator, bank, etc. So actors have emerged that propose to have everything on one device. A good case in point is Selkom in Tanzania, whose POS is shown below. They are distributors providing to some shops affiliated to them their devices. With a simple menu, the shopkeeper can sell airtime from all the MNOs, perform mobile money transactions (cash in, cash out, pay utility bills, etc), etc. A benefit of the POS device is that it can print a device which gives trusts to the customer that the transaction has been successful.
Another actor in East Africa is PayWay, which deploys booths where a user can perform those transactions by himself, rather than having to go to an agent.
Pre sales / Orders / Deliveries
Pre sales is the step where a shop would order goods / request a delivery. It lists the goods to purchase and leads to an invoice being generated. This is done by a specific sales. Pre Sales are then passed on to the delivery teams, which move typically in trucks. They will load their inventory as per the pre sales to fulfill. Upon delivering, the shop will settle the amount of the invoice and sign a receipt.
This two step process is used when the sales rep does not have the products with him to directly deliver the products. For this purpose, there are also direct van sales, which move around to supply shop directly.
Primary / Secondary / Tertiary Sales / Billing
Primary sales are the sales that are done from the FMCG company to the distributors, i.e. the amount purchased by the distributors to the company. Secondary, from the distributors to the retailers, and tertiary from the retailers to the end customers. Sales are also called billing sometimes.
How the commission model is structured can lead to discrepancies between these figures. Distributors might be incentivised on the primary billing with a high front margin, and will therefore purchase a lot of products, but failing to push it downwards, to shops or to customers. In that case, secondary and tertiary billing will be lower.
The issue is that FMCG brands usually only know their primary sales and hardly know about secondary sales, if the distributors do not use a system to track their sales and capture stock at outlet levels. Knowing the stock levels in the market helps to forecast demand and what quantity need to be purchased by distributors to meet.
A metal structure used by street vendors to supply/move products
Retail Audit / Store Check / External / Internal
The process of measuring what is in a store.
If done internally, there is a high potential of collusion, where the sales rep will be judge and party, reporting only the good news and filtering the bad ones like out of stocks, poor satisfaction levels from the retailers, irregular distributor service, lack of branding, etc…
So it is usually done externally, to have independent data, by a market research firm.
Main dimensions of a retail audit are:
Availability / Stock reporting, at the level of product categories / brands / SKUs
Presence of branding / visibility / merchandising
Tools of trade présence / compliance (is the fridge working ? Are there competition products in the brand hanger?)
Quality of distribution service (how often does the sales rep / the distributor visit you?)
Satisfaction / Recommendation of the shopkeeper
Awareness / Skills of the shopkeeper on promotions, product characteristics (back office number, specific features to explain to client, etc)
Retail Audits are best done through a specific form in a mobile app to ensure data reliability, with results displayed in a web analytical interface to be able to play with the variables.
The price of a Retail Audit survey is mostly driven by the number of stores to visit. The sample of shops visited should be as representative as possible, using random selection mechanisms.
Retail Audits are the most data driven way to get unbiased feedback from the trade, hearing what your shopkeepers have to say about the brand. As such, they are a very precious and important exercice, not to be neglected.
According to our experience, here are some best practices:
Conduct them regularly, every month or every quarter, as the situation can change quickly in the FMCG space, to detect early any emerging trend that needs to be addressed
Define a scoring matrix for each dimension of the sales execution, like availability, pricing compliance, visibility presence, etc.
Interview a random sample, like 10%, of the territory portofolio the sales rep is in charge of.
Incorporate the results / score into the commission scheme of the sales teams.
Route / circuit / journey
A route in the FMCG wording is the specific path the sales rep need to follow during his day. Rather than a specific list of streets to take, it takes the form of a list of customers/outlets that he has to visit. Best practices are to define routes for each day of the week, or even on a monthly planning.
Defining a route helps the sales rep get organised and ensure he visits the top customers to generate sales. Without a route, he might move around his territory in an inefficient way, or in function of received calls from customers, in a passive, rather than a proactive mode.
The route planning needs to rely on the analytics of CRM data, allocating stronger visits frequency to the top customer in sales, checking which stores have not been ordering for a period of time, etc.
Monitoring route compliance is tricky, and requires the use of digital Field Force Management systems (such as our solution). Essentially it means providing the sales rep with an app, with a constant GPS tracking, where he needs to log in each visit at a store. The sales manager can afterwards allocate a specific bonus based on route compliance achievement.
Sales Force Automation / Distribution Management System / Customer Relationship Management
All these are terms that refer to Information Technology systems used by FMCG brands to manage their distribution. There are some overlaps in their scope, and it is not clear which stops where. Same could apply for retailer as well
Success on Every Corner: How Mom-and-Pop Shops Can Drive Growth in Africa — Business Fights Poverty Peter Kimeu had a job working in hotels around Nairobi, Kenya, but his wages weren’t enough to support his family… businessfightspoverty.org
Sales Representatives / Trade Developpement Representative / District / Territory / Regional / Area / Zonal Manager
Field staff managed by the brands directly are called either sales representatives (sales rep) or Trade Development Representative (TDRs). Climbing up the hierarchy, and depending on the terminology used, you can find Territory / Regional, etc..managers. It has to be aligned with the territory delimitation.
Managing a large field force can be a tedious job, which involve some admin work, from payroll to contract and recruiting. That is why an emerging trend is to outsource this to third parties.
Best practices to manage the field sales force are:
Ensure they go through a consistent training
Salary should be ⅓ fixed and ⅔ variable, depending on the KPIs that matter for the business, either outlet recruitment/opening, sales, visits, branding deployment, BTL activities overseen, etc
Use a mobile app to record their movements and activities during the day. Ensure all KPIs can be tracked through the app and will serve as the basic for the commission payment
Provide the right means of transport, bike, motorbikes or cars
Give recognition and enable to grow on the career path
Sell in / Sell out (Offtakes or Tertiary sales)
Sell in refers to the sales that are made from the manufacturer to the distributor, whereas sell out means the sales made from the distributor to the retailers or from the retailers to the end customers, depending on how it is measured. There can be actually a discrepancy between both, if the commission model is flawed or there are opportunistic behaviours by the distributors. Typically, if distributors have targets on ordering (primary sales), they will purchase a lot from the brand, but might struggle to then push the products downstream, keep the products stocked, or do dumping to get rid of the products outside its territory at a loss, or have no capital to buy in the next period. Ideally brands should reconcile both measures, but while they know what goes out of their warehouse, they hardly know what is sold to the end customers. Challenges in matching sell out figures, measured through market research data like Nielsen panels, and sells in are a well known and common challenge in Africa..
Shelf (Share of shelves)
A shelf is obviously the supporting structure where products are displayed. In Africa, where 90% of sales are done in the traditional trade, ie in a large number of small shops where space is very limited and products displayed in not a so structured environment, it is critical for brands to have top display locations. As per the phrase “What you see, is what there is”, a consumer would think of purchasing a product if he can see it on front display, not if it is hidden in a dim spot. That is why brands maintain expensive field force to regularly visit shops, build a strong relationship with the owners/tellers and eventually ensure their products are well displayed, as well as having an up to date and clean branding to influence the consumer when makes his purchasing decision.
Share of shelves is the KPI that measures the part of the linear selling the product category (say, soap) dedicated to a product (say, Soap A). It is a good indication for the brand to know how well it is performing against its competitors. In fact, as the market share is so hard to get in Africa for the traditional trade, apart from not so reliable panels, the share of shelves and the numerical distribution are often good proxies to assess a brand/product strength in the market.
Servicing / supplying
The action of providing the goods to a distribution actor, the distributor or the retailer.
On the macro data to assess Africa’s market size, and economic dynamics, books from Morten Jerven are worth reading.
Africa: Why economists get it wrong. Morten Jerven and revisionism. Macroeconomists working on Africa have got their analysis very wrong, argues Morten Jerven. In his new book, Africa… blogs.lse.ac.uk
Stock Keeping Unit (SKU)
The lowest unit of a product. If the same product has different sizes or tastes, it will count as different SKUs. It has been estimated that a typical small shop in Sub Saharan Africa sells around 200 SKUs.
% of successful sales calls, i.e. visits which led to a sale, out of the total calls made by a sales. Usually measured on a daily basis
Teller / Cashier / Agent / Shopkeeper
A teller is the individual who “mans” the store, i.e. in charge of serving the customer and receiving the payments. Note that in most instances, it is not the same person as the owner of the shop. Many small stores are indeed side businesses funded by people with a bit more money, like formal employees, and putting a relative to run the business. That is why when running an outlet census, it is key to ask for both the teller and the owner contacts. Being a teller or an agent is a poorly paid job, leading to fraud cases and high turn over, which is a challenge for brands that invest in training them, like mobile money agents. The agent line might be the same, but it is a different person managing it. In the case of mobile money, we rather talk of agents.
Tools of trade
This refers to all the tools that need to be given for a retailer or a sales rep to perform his job. For a mobile money agent, it can mean the agent sign, a log book, etc. For a field sales, a branded t shirt and a cap so that customers can see him.
Following the movement through the GPS signals sent by a tracker or an app. Tracking can apply to assets such as trucks, vans, motorbikes and sales, to know where they are going, and ensure they move efficiently during the day, as per the routes defined.
Traditional /Modern Trade / Retail
This is fundamental differenciation in the retail universe. Let’s try to highlight the main characteristics of each type.
Shops in the traditional trade are usually small, independent, supplied by distributors, where you will find no price tag and no formal cash tills. As they are scattered across the cities (in Nairobi alone, they are estimated to be 80,000), with each purchasing small amounts, supplying them is expensive and unreliable. Which is why brands would delegate that to distributors, in the same time losing control on the quality of the distribution..
On the opposite, modern trade refer to large stores, part of retail chains, and more formal retail practices, like price tags and cash tills. Customers also buy themselves and do not get served by a shopkeeper. As they have high sales level and a joint purchasing, brands usually distribute to them directly and appoint a dedicated account manager to manage the relationship, and activate the outlets, through merchandisers, promotions, etc., in a level of control they cannot find in the traditional trade.
While it varies per country, it can be grossly estimated that the shares of sales value between each channel goes as 10% modern trade and 90% traditional trade. Modern Trade can be summed up as a few supermarkets and proxies, while traditional trade gathers all the small kiosks and shops, which thanks to their capillarity capture the lion share of the sales.
Top Modern Trade retail chains in Africa can be categorised as :
South African: Shoprite, Game, PicknPay, Woolworths
Others: Carrefour, Casino, Auchan, Spar and Dia
Local champions: Prosuma (Côte d’Ivoire), Uchumi, Nakumatt (bankrupted)
While International retailers have stronger financial muscle, they can sometimes struggle to adapt their products to local customer tastes and source products locally, sticking to imported products and high end customers only. Local retailers on their side can face difficulties in scaling up their business operations, and over leveraging their growth, straining their finances, as it is also family owned business that want to retain control, and are reluctant to open up to large investors. The spectacular bankruptcy of Nakumatt , a former poster child of the modern trade growth in Kenya, is a good case in point the challenges that come with an uncontrolled growth.
For a more in depth understanding of a modern trade success story, I advise you to listen to this podcast with the CEO of the Uchumi chain, a large retailer chain in East Africa.
Supermarkets: formalising retail in East Africa, with Daniel Githua of Tuskys Some of the biggest and most visible players in any country are the supermarkets. They employ thousands of people, have… www.samfloy.com
USSD / Sim Tool Kit (STK)
USSD stands for Unstructured Supplementary Service Data. It is an old protocol which enables some basic menu navigation on feature phone. It does not rely on Internet/data, and is used daily by millions of users to check their airtime account, purchase bundles, send money, etc. For a longer description of it, read this article
It would typically come in shortcodes like *100#, #123#, etc. The other term is Sim Tool Kit (STK) where the menu is actually embedded in the SIM card, it is more secure than USSD and faster to navigate. The drawback is that it is much more complicated to change the menu compared to a USSD menu. M-Pesa in Kenya uses STK but it is an exception. As a reminder, in Sub Saharan Africa, all mobile phone is prepaid
A key concept in the understanding of FMCG distribution from an FMCG angle. It is the amount of cash available for the distributor / retailer to purchase goods.
Retailers often operate on low working capitals, which pose a challenge to distributors and brands, as they order little, and become often out of stocks. At the same time, the logistic costs of visiting them often are expensive.
That is why brands or distributors can be tempted to put in place credit schemes to help shops purchase more. It is risky though, and requires to have in place the right recovery capabilities.
On the challenge of accessing to credit and leveraging the capital when it is perceived as informal, the book from Hernando de Soto is a very insightful read.
The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else A renowned economist's classic book on capitalism in the developing world, showing how property rights are the key to… www.amazon.com
If you arrived until the end, well done ! Feedbacks are welcome to improve it!