NextBillion Post: Awakening a Sleeping Giant

This is part I of a two-part post that appears on NextBillion today.  I will post part II tomorrow.

If you’ve ever been to the Philippines, you’ve no doubt seen a row of identical tiny stores selling Coca-Cola and laundry detergent. In fact, there are about 630,000 of these sari-sari storesserving the 90 million Filipinos across the country (a little less than one per 100 people), and each one may record less than $10 per day in sales. Each store sells the same single-use household and food products, but buys its inventory from grocery stores in the cities. As a result, the BoP end up paying even more for products and services.

Mark Ruiz and Bam Aquino of MicroVentures recognized the opportunity to consolidate this supply chain by centralizing sourcing and reducing distribution inefficiencies. The result isHapinoy, a franchise that has reached nearly 10,000 sari-sari stores in a few short years.

Hapinoy is an example of a conversion franchising model, which “transforms pre-existing, independently-owned businesses into members of a standardized network.” The company manages its operations and negotiates supplier contracts with NestleUnilever and others from its headquarters in the capital city of Manila.  Products are purchased in bulk and distributed via Hapidelivery to a network of community stores, each of which serves between 50 and 100 “suki” stores (Hapinoy sari-sari stores). The suki stores buy from the community store at a lower cost and sell at a higher margin.

Ruiz, one of the co-founders of Hapinoy, is a former marketing manager with Unilever, where he handled channel strategy development and category management. He explains the principle underlying the company: “These sari-sari stores have been largely untapped because they’ve mushroomed independently and thus have no unifying system or organization to unleash that inherent power. And so what MicroVentures/Hapinoy is doing is merely awakening a sleeping giant – a human network of microentrepreneurs at the BoP that can band together and realize their strength. And as we organize these sari-sari stores together, we then create a vibrant alternative channel to bridge the gap to the BoP. There’s no more need for costly set-up of infrastructure. It sounds funny but the best way to reach the BoP (the people), is actually through the BoP (the sari-sari stores) itself. It’s a distribution platform made up of the poor, in order to help the poor.”

As part of the Hapinoy package, store owners have access to microloans through partnership with CARD Bank, the largest microfinance institution in the Philippines. Hapinoy offers capacity-building and training on pricing, inventory management, and other business principles, alongside leadership and personal development. And store owners have access to Hapinoy’s low-cost inventory and new business offerings.

While Hapinoy would like to systematize each microfranchise, it will never look like McDonalds or 7-11. According to Ruiz, “In the BoP, we have to change our notion of the term microfranchising. Many consider it as just scaling down franchising models as we know it. But there are huge differences in the model once it is scaled down. With Hapinoy, the introduction of franchising in terms of systematization will come progressively, and then cap off at around 50% (as opposed to McDonald’s, which is 100%). We start with financing systems, then add assortment / inventory systems, then supply systems, then merchandising systems, and so and on so forth. There’s a phase-in. It’s actually a lot messier than a traditional franchise, but that’s the reality of working in the BoP sector.”

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