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 Nestle, Unilever 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.
The following is the full transcript of an interview with Mark Ruiz, the founder of Hapinoy, a franchise of sari-sari stores in the Philippines. It is a companion piece to an article published on NextBillion.
Develop Economies: How did Hapinoy start? What, in your opinion, was the problem? Why is Hapinoy the right innovation for solving this problem?
Mark Ruiz: Hapinoy started as a fusion of paradigms, ideas, and people. In terms of paradigms, we wanted to fuse social development with the discipline of business. It started a combination of people from social development and the business sector. We wanted representation from a diverse set of relevant backgrounds, including microfinance, NGO’s, government, as well as corporate experience in distribution/marketing/sales/advertising, and entrepreneurship.
There were three fundamental problems we were looking at:
- The products and services needed by the bottom of the pyramid (BoP) don’t reach them. The operative word is needed – for example, medicine, water, and electricity.
- The products and services that do reach the BoP end up becoming more expensive due to distribution inefficiency. The poor end up paying more for noodles and shampoo than those who have money!
- The BoP doesn’t have access to market opportunities, whether it is sari-sari stores looking for financing, new businesses, etc. or microproducers looking for a distribution/market for their products.
There’s a fundamental gap to the BoP. So we ask ourselves – how do we bridge this gap? How do we enable the last mile and bring products, services, and opportunities to where they’re needed the most?
Here in the Philippines, the most common use for a microloan is a sari-sari store – otherwise known as a general or convenience store. There are an estimated 700,000 of them here, and you can find one on just about every block in the country. In 2007, an organization called Microventures Incorporated introduced its Hapinoy program, which is a coop of sari sari stores across the country. By joining together, these stores can get leverage economies of scale to get volume discounts, competitive pricing, and more favorable terms for microloans. The organization purchases products in bulk from Procter & Gamble and other large manufacturers, and distributes them to each Hapinoy store via a community store. It is a hub-and-spoke model with a wholesale store serving different regions. Here is a program that operates within the existing framework of the country, improving what exists, rather than trying to change it altogether. Continue reading