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 one of these approaches.
One of the simplest ways to alter affordability is simply to sell products in small package sizes. This is probably the most common strategy used for reaching lower-income consumers across product types and contexts. It is also used for non-food products: as of 2002, for example, 30% of personal care products and similar consumable goods in India (e.g., perfume, makeup, shampoo) were sold in single-serve packaging, and this included low-cost as well as premium brands. A 2018 survey of Kenyan fast-moving-consumer-goods companies found that 97% used small-size packaging to attract lower-income consumers: this small-volume trade even has its own nickname, commonly referred to as the 'kadogo [small] economy'.
This strategy is simple: it responds to the limited cash on hand (and, in some cases, storage space) of lower-income consumers by providing a small quantity of the product at a lower price than the normal package size. It thus helps manage very low or variable levels of income. It also has other advantages for consumers: allowing for experimentation, enabling purchase of a greater variety of products, enabling purchase and immediate consumption of products otherwise requiring a fridge or freezer, improving convenience, helping limit household consumption, and taking less storage space in the household. For firms, single-serve packages can expand reach to a new demographic group, lure new consumers and enable brand-switching, help promote the brand, avoiding losing consumers who suffer a decrease in spending power, avoid increasing prices when the price of raw materials increases, and allow for making a lower-cost version available without diluting the brand’s image.
Examples of this strategy can be found for firms of all sizes. In the late 2000s, consumer-products giant Nestlé launched a series of 'popularly positioned products' to reach lower-income consumers, described as ‘affordably priced, nutritionally enhanced, appropriately formatted and easily accessible for emerging consumers.' Many are fortified and locally produced, and typically sold in single-serve packaging. For example, as of 2014 its single-serve dried milk sachets (26 grams) were sold for 30 cents USD in Cameroon, and a single-use sachet of Maggi tomato bouillon was sold for 5 cents. The product line enjoyed large sales growth and, as of 2009, accounted for 8% of annual global sales. Unilever has a similar 'Africa Popular Foods' initiative that worked with local manufacturers to produce and market affordable fortified foods, many with small-sized packaging.
One of the successes from this initiative was Annapurna salt in Ghana, which helped lead to an increase in coverage of iodised salt from 28% to 51% in two years (as of 2007). DSM recently launched a line of fortified products/supplements in India packaged in 5-20g servings and costing 0.03-0.14 USD.
In addition to these large multinationals, this strategy is used by smaller firms, such as dairies in Ethiopia, Tanzania, Kenya, and Mali; an edible oil refiner in Uganda; and a peanut butter producer in Kenya. This strategy is also deployed in informal settings: for example, shopkeepers repackaging sugar or flour purchased in bulk into small plastic bags or folded paper envelopes.
There are, however, several drawbacks to this approach:
- Informal repackaging can lead to contamination or adulteration, often fail to transmit the information (e.g., on nutrition and food safety) included on the original packaging, and tend to be less popular with manufacturers.
- From the consumer perspective, single-serve packages often entail higher per-unit costs, as more labour, packaging, and handling are needed per unit. Lower-income consumers buying single-serve packages for regular use thus end up spending more over time than if they had bought a larger package. Small packages also require more frequent purchasing and may lead to wastage or inefficient use, since the consumer must use a fixed amount each time.
- They can also come with a large environmental impact, particularly for single-use plastic packages in countries without a strong recycling and waste management system. Aiming to use more sustainable packaging (e.g., reusable or biodegradable materials) can be an option. Unilever, for example, recently developed a new technology to recycle sachets and pledged to make 100% of packaging recyclable, reusable, or compostable by 2025. But adding an environmental objective can make it harder for a nutrition-oriented lower-income-consumer-focused initiative to succeed. For example, the original model for Grameen Danone’s fortified yoghurt attempted to use bio-degradable packaging, but the plan was abandoned in favour of traditional polystyrene packaging as it increased the cost and complexity of the project.
- From a nutrition perspective, one consequence of reducing the package size is that it reduces the nutrients available per unit sold; it is thus important to ensure the package size is large enough to make an adequate nutritional contribution to the diet. Such models are particularly useful from a nutrition perspective for products that are nutrient-dense, as only a small amount needs to be consumed to have a nutritional benefit.
Such approaches (like all others) must also be aligned to customer needs. In some settings, like Caracas, Venezuela, many lower-income people are salaried employees and thus have sufficient income soon after receiving their salary to buy planned purchases (like basic foods) in bulk, saving money per-unit. Single-serve packages for basic goods are thus not as popular there as they would be in a setting where many people are on variable, non-salaried incomes. Consumers may also prefer larger packages as they see this as a sign of value-for-money. There may also be other benefits that consumers seek from product packaging: research in South Africa found that some consumers do not prefer small 'sachet' packaging as they like to re-use reusable packaging for other purposes, making products that use it a 'two in one' deal.
Thus, while small package sizes have many drawbacks, in some contexts and for some products, they can be a simple way to make a nutritious product affordable or accessible to customers who wouldn’t otherwise be able to buy it.