Coca-Cola’s inclusive business model in Africa

For the business model work I do abroad, for instance in Africa, I often need to adapt the case material a bit to the local context, when introducing the business model canvas. A really interesting case for doing that is the Coca-Cola case for Eastern Africa (everybody enjoys Coke, right?). Have a look at the worked out canvas, and I’ll explain the intriguing aspects about this case below.

The first thing people come to realize when working on the case, is that it is not Coca-Cola itself that runs the show. In fact it is a joint venture between the Coca-Cola Company and the bottler & distributor Sabco. Together they serve the larger part of Eastern Africa as Coca-Cola Sabco (CCS). Coke supplies its secret ingredient from its secret ingredient syrup factory, which is then mixed and distributed by their partner. Also Coke is involved heavily in marketing the brand (of course!). The involvement of the Coca-Cola company in the model (yellow stickies) as a whole is actually fairly limited, most of the work is done by their partner (green stickies)! Tell-tale sign of a well thought through business model.

Things get really interesting when you look at the customer segments. There are two basic segments, larger retail outlets, and small shops and restaurants. Now, the latter actually represents the largest market, but there is an inherent distribution problem there. How do you reach this large, and fragmented market in congested urban areas?

As a solution, CCS started experimenting with a system of Manual Distribution Centers (MDC’s, marked with orange stickies). These centers are owned by independent entrepreneurs who coordinate distribution to the small shops and restaurants.  MDC owners invest up front in things like crates, bottles, push carts, and they hire the labor for distribution. CCS sales agents out in the field (called resident account developers) maintain relations with the customers, and try to get their orders out with sales price arrangements. The MDC’s then deliver the order, and receive the payment.

Under this system, prices are very much under control of CCS. They determine at what price they sell to the MDC’s. Also they determine what price levels are arranged at the end with the customers. What remains in between is for the MDC.

My take-away on the case
This MDC-system is heralded as a great success of inclusive innovation by the donor agencies who helped CCS set up the MDC systems. In 2010 it was reported that MDC’s represent often over 80% of distributed sales volume in East African countries, with over 2,200 MDC’s in operation. The model gives CCS full access to a fine-grained distribution network, and control over distribution, placement, and pricing, without having to do the physical work and coordination.  A fine example of business model adaption for serving emerging markets, and a really strong case in the use of partnerships in the model.

Although I really like the case for its business model, I’m still left with some missing insights on the relation between the MDC’s and the people who actually ship the product to the customer. The case has been documented by many organizations but I have yet to find out about the system by which laborers are remunerated for their work. With CCS having so much control over the pricing, I wonder what efficiencies are employed to maintain margins for the MDC’s…. any thoughts? I have a snippet of evidence on the arm’s-length coordination that takes place with the hawkers here.

A human-centered approach to private sector development.

Anyone would acknowledge that development aid is not as effective as we would want it to be. The shift in mindset from development as charity to development as business is by and large based on this recognition. Focus is now on supporting the development of emerging markets. If you are able to build stable business in those markets, then you will be set to profit from a large and upcoming cycle of growth.

This is a promising outlook, which is bound to bring refinement to the way development is practiced. However, from the work that I have been doing with Niti Bhan over the past month I have come to an important realization on the task which lies ahead for attainment of a business focus in development.

The focus in development has always been to addressing the needs of people; beneficiaries. Business, rather, attempts to create or latch on to aspirations and desires; those of its customers. It takes a broader perspective by also considering peoples’ wants. So, if we aim to bring a business focus to development, then we need to emphasize empathy, and broaden our perspective to addressing the full spectrum of both needs and wants. This is the actual shift, which needs, and is yet to take place.

There are two major benefits, which will come from more lateral thinking in development project design. Firstly, when you immerse yourself in a lateral view of what your intended target groups (your customers) want, then you will become naturally attuned to humility in your attempt of placement and adoption of your ideas in your customers’ pattern of living. Why would they care for your idea? Can you ask them for some of their time to listen to what you have to offer? If you offer your idea, would they buy it, and use it in the way you intended? These questions lead to better problem definition, and will most likely result in better formulation of solutions.

Secondly, your target groups are transformed from beneficiaries, who are recipients, to customers, who are active agents. The big difference is that customers give out signals about your activities. This type of engagement creates feedback loops during the course of a project, which weren’t there before. If they care for your idea, then they will compliment if it’s good, or complain if it isn’t; performance feedback you’ll never catch in a beneficiary survey.

We have lost touch with a human-centered focus in development in some way. It’s high time we regain that, and start approaching our beneficiaries as customers!

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Over the coming months Niti and I will be looking further into the processes by which private sector development is organized, and reflect on what place there could be for human centered design in this category of development projects.