Last year on this blog, I announced the GAIN Business Model Research (BMR) Project: funded by the Netherlands Ministry of Foreign Affairs, this project aims to identify promising business models to reach consumers on lower incomes with nutritious foods. Such approaches could help to improve the quality of diets—which currently are often lacking in food diversity and quality—if they can provide food that meets customers’ needs at an affordable price. But they must do so in ways that are profitable and sustainable for the company. How can they do this?
To find out, the BMR project undertook a systematic review of existing research and evidence. We screened about 8,000 documents before selecting 74 documents, and 99 case-study companies, that were eligible for inclusion. We included companies producing highly nutritious foods as well as those producing less nutritious alternatives—with the understanding that they might offer insights that could be applied to nutritious foods. We then analysed these documents to extract and synthesise 13 specific approaches used by firms to reach lower-income consumers with food and beverage products. Here, we discuss two of these approaches
Sell in flexible quantities, or as parts of a whole
Vending food products in flexible quantities (i.e., loose, as opposed to in packages) is commonly used worldwide in both traditional and formal retail outlets. While it has other advantages (e.g., reducing packaging materials), the main advantages from the affordability perspective are the ability to buy very small amounts (at lower cost) and to not have to pay the costs of packaging. It is estimated that such models can make products 30-50% cheaper than branded packaged goods, due to savings on packaging and transportation. It can also help consumers access perishable goods when they lack home refrigeration.
For example, Kenyan milk retailers Maziwa King and Tarakwo Dairies use ‘milk ATMs’ filled with pasteurised, refrigerated milk that allow customers to choose the amount of milk they want and pay accordingly; a cup of milk (80 mL) costs as little as 5 Kenyan Shillings (around 5 US cents). Such models have been highly popular in Kenya and elsewhere in East Africa, leading to a high level of competition in the market as new entrants ‘copycatted’ the original firm.
Similar flexible-quantity approaches can be used with other liquids (e.g., cooking oil), powders, and dry goods (e.g., flour), but become more complicated with more complex products. For example, one project attempted to launch a machine selling nutritious ready-to-eat foods, such as fortified porridges, but the cost of a machine with the needed functionalities proved too expensive. It has also been noted that such approaches can have difficulties scaling, due to high costs of ensuring consistent product quality (i.e., close management, remote monitoring) across the network. Finally, some customers do not trust unpackaged goods’ quality; for example, Malawian flour miller BGM deliberately chose to sell its flour in sealed packages, rather than loose, as customers needed to have increased confidence in its quality in a setting with many poor-quality options on the market.
A similar approach is to sell something normally sold as a ‘whole’ item in parts. For example, several firms covered in the BMR review made chicken available for purchase in parts, rather than the traditional approach of selling the whole chicken. This can enable customers to purchase some chicken, even a small amount, for about 0.50 USD, with research showing that consumers perceive these parts to be more affordable than the alternative whole chicken. Similar approaches were used for fish.
From a nutrition perspective, this model is likely to be particularly impactful for animal-source foods or other nutrient-dense foods, for which consuming only a small amount can have important nutritional benefits. However, it does not necessarily preserve the labelling information that would be available on a packaged product (e.g., safety certifications, information on fortification), which could lead to potential issues with product quality and consumer education. It is also important to educate consumers on which containers are appropriate for storing the product, and how to clean them. Finally, the infrastructure used to deliver the product (e.g., the milk ATM) often requires regular and careful cleaning to prevent contamination.
Using no or reusable packaging
While a lack of packaging or the use of reusable packaging can be a feature of flexible-quantity purchasing models, it can also be used independently. This cuts the costs of packaging, which can be a considerable share of the price in lower-income countries (particularly where packaging must be imported); it also has environmental benefits in terms of reducing packaging waste.
In addition to the ‘milk ATM’ model mentioned above, three firms covered in the BMR review used this approach. One of these was a dairy in Kenya that distributed its pasteurised milk to low-income neighbourhoods in large jugs, enabling consumers to bring their own reusable container to the store to fill up. In this case, the full cost of packaging (including cleaning it) is transferred to the user. The two other firms using this approach were large multinational drink producers, Coca Cola and its subsidiary Minute Maid, that used reusable bottles for their drinks, reducing the cost of single-use packaging. In that set-up (commonly used by many drink manufacturers in lower-income countries), the business retains the cost of the packaging (and cleaning it between uses), but this is reduced due to the reusable nature of it.
With the right structures in place for ensuring food safety, reusable packaging approaches can result in lower environmental impact as well as lower-cost foods – and when these are nutritious, customers’ diets could benefit.