Taking the guesswork out of informal trade

by | Sep 3, 2018 | Article, Blog, Lifestyle, News

5M2T (5 Minutes 2 Town) addresses the pitfalls of planning sales and distributions around traditional wholesale strategies and is taking the guesswork out of informal trade analysis and data.

By its very nature, the informal trade is geared around guessing. Assuming. And in many instances, hoping. The lack of definitive data and market research means that once your formalized sales and distribution data reaches the wholesale level, the rest remains a total mystery. And yet, month after month, major brands continue stockpiling into wholesalers, hoping that at some point it reaches an end consumer at a reasonable price, in a reasonable format and most importantly, at a reasonable quality level.

Every quarter we read articles showing the exponential growth of this channel given tough economic times and changing consumer purchasing habits, but yet, we are reluctant to pull back the curtain and ascertain, for sure, where our product lands up and at what price.  Perhaps then, the fear of knowing a disappointing truth becomes too hard for some to handle. Instead, we’ll happily spend hours sitting around boardroom tables – mere kilometers away from an untapped opportunity – scratching our heads and hypothesizing about our stagnant growth in formal retail channels.

The informal trade can fundamentally alter the fortunes of brands in South Africa, and yet the investment into market research remains limited to anecdotal evidence and assumptions which couldn’t be further from the actual truth happening on the ground. In an age with so much technology at our finger tips, why are we simply ‘hoping’ for the best and still planning sales and distribution around theories and hearsay?

What started as a pure distribution model into the informal trade, 5M2T has diversified its model to now offer in-market audit capabilities. Within a fraction of the time and with far greater reach and penetration than any formal market research offering. Need to know your tabletops from your caged-in’s? Which spazas in Soweto have refrigeration units (+ 4700 outlets by the way)? Stock replenishment cycles, buying habits, purchase frequencies, most brand-loyal categories? The auditing of informal channels is now not only possible, but cost-effective, quick and a critical step in sales and distribution planning.

Covering 60,000+ spaza, salons, barbers and other informal trade outlets, 5M2T is able to offer this in-depth research and audit capability off their current mobile application and using their existing network of agents who already have established relationships, networks and routes on the ground. No more standing around with clipboards, facilitating promoter training and months of fieldwork. Most importantly, no more guessing where your product lands up once it reaches the wholesale distribution level. A full audit at the nearly 5000 spaza outlets in Soweto takes a maximum of one month from commencement to delivery of results, including a GPS heatmap of outlets visited as well as in-depth data about stock availability, shelf-space, pricing variations, replenishing cycles and whatever other information the client has opted to include on their custom-built wireframe. Because the entire system is instantaneously scaleable, extending to broader geographical areas can be achieved in comparable timeframes. Data is uploaded in real-time via mobile, so there is even further opportunity to track promotions, product launches or sales rep activity on the ground.

“We’ve sat around many boardroom tables listening to brand owners, sales managers and even executive level management suggest what they believe or know their informal market penetration to be; what brands they compete with and which areas they are strongest in,” says Stuart Smith, Operations Director at 5M2T. “Once we deploy on the ground, we discover huge gaps and some incredibly rich insights and are then able to accurately shape a distribution model aligned to the brand’s specific needs. Not everyone likes the results of the research, but it’s a critical step towards moving a brand forward and addressing the informal channel thoroughly.”

Five myths worth debunking about the spaza market:

  1. Spaza store owners do not do their own restocking. 90% of stock replenishing is done by runners, buying groups, bulk breakers etc. Runners’ lists are prescriptive and buying groups and bulk-breakers buy only what they know they can on sell and earn their commissions on. So what’s the point of running wholesale promotions as an avenue to reach spazas?
  2. Spaza stores are often not the cheapest place to buy your product. In fact, a product can cost more at a spaza than it does at your favourite high-end retailer in Hyde Park. This is because that product has changed hands up to 5 times before reaching a spaza shelf… each iteration adding on an additional margin. Everyone on the route-to-market is profiteering and brands have absolutely no control or idea of the level that is happening on the ground.
  3. Spaza store owners are just looking for the cheapest option: In fact, spaza owners are highly reliant on consumer demand. Price isn’t everything and brand loyalty is critically important. If the customers don’t want it, the spaza will not stock it. Dumping stock into wholesale will not land up on a shelf unless there is a consumer demand and regular purchase of it. The informal channel is not immune to the basic principles of supply and demand.
  4. What works in Soweto, will not work in Soshanguve: The truth is there is no ‘one size fits all ‘approach. Even within huge categories like carbonated soft drinks, the purchasing, consumption and brand-loyalty behaviors differ hugely from one area to another and are amplified even greater when you look regionally. You cannot assume that what works in Soweto, will work in Diepsloot or Mamelodi. The patterns are incredibly diverse.
  5. The spaza market is too unpredictable to execute a long-term distribution strategy.  On the contrary, political upheaval and acts-of-God aside, the spaza network is highly reliable and stable and many outlets have been open for decades and a part of the very fibre of the communities they service, even offering informal credit opportunities to regular customers.

The 5M2T Audit capability is available nationally, as well as in neighbouring SADC territories and soon further afield into key markets on the continent. “Our aim has always been to lift the veil of guesswork on the informal trade market and provide transparent and accurate information to clients in a fraction of the time and cost they are used to,” adds Smith. “Our audits done to date, which includes major FMCG players, soft drinks and telecoms, have given incredible value and insight to the market and have helped shaped business strategy at the highest level at our clients. Most importantly, we’ve managed to do this without trying to formalize the informal sector, by leveraging on our deep relationships with our networks of spaza owners. There are very few spaza owners we know that would trust a person standing there with an iPad or a clipboard trying to audit their stores. This is a highly cynical, tight network of savvy businessmen and women, and they simply wanted to be treated with respect and understanding.”

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