Written by the GDC partners
Co-written / endorsed by leading last mile distribution companies
This week sees the launch of the Global Distributors Collective (GDC), a new initiative to support last mile distributors in Africa, Asia and Latin America. This article from the founding partners – Practical Action, Hystra and BoP Innovation Center – explains why the GDC seeks to make last mile distribution the first priority.
Last mile distributors are on the frontline of the fight to ensure no-one gets left behind. Sometimes they sell one kind of product but often they sell a range that can include solar lights, cookstoves, water purifiers, nutrition products and productive assets such as water pumps. Most companies selling these kinds of products focus on wealthier or more densely populated areas. For example despite the high risk appetite of leading impact investor Acumen, just 38% of their off-grid energy companies’ customers live in poverty (below $3.10 per day). In contrast, last mile distributors are often the only companies selling to the poorest customer segments, in risky and remote areas. There are thousands of them operating across the globe. No-one knows exactly how many exist or how many customers they are reaching. Understanding and shining a light on the sector is one of our key goals and we will be publishing a State of the Sector report in 2019.
Last mile distributors have unique strengths, but face unique challenges. They know their communities better than anyone, and have strong local networks. This makes them exceptional salespeople and service providers. Distributors also create income generation opportunities not only through the products they sell, but also by recruiting and training local sales agents and retailers. However, they have to do far more than just sell products: they must raise awareness, change behaviour, generate demand, build routes to market, figure out logistics, train their salesforce, offer in-house consumer financing, and provide after-sales service. They particularly struggle to build capacity and to access finance.
Last mile distributors have been largely excluded from the financing schemes that have driven the growth of larger companies. Donors and investors have tended to focus more on technology innovation than supply chain innovation, and to focus on one product category, rather than working across a range[i]. The more basic products that distributors sell, such as solar lights, are often not considered to have a ‘big enough’ impact,[ii] despite the fact that they are often the only products that poorer customers can afford, and deliver profound cost savings. There is a perception that the unit economics of last mile distribution ‘don’t work’, but leading last mile distributors such as Essmart and Pollinate Energy have proven break even at a local operation level. Continued innovation – exemplified by the unbundling of the pay-as-you-go sector and the emergence of more and more specialist intermediaries that seek to help distributors succeed – is addressing capacity constraints, enhancing access to finance and improving the unit economics of last mile distribution[iii].
Even when donors and investors have wanted to support last mile distribution, they have lacked the tools to do so. Grant funds and concessional financing facilities in the sector are designed to ‘pick winners’ and minimise risk. Last mile distributors are less likely to have the strong track record, or collateral, that most funders are looking for[iv]. Funders are put off by the higher transaction costs involved in doing a larger number of smaller deals, and by the sector’s relatively high risk profile. In off-grid solar, for example, funding is concentrated in the hands of a tiny elite of international, vertically integrated companies. From 2012 to 2017, just 10 companies attracted 87% of the investment coming into the off-grid solar sector[v].
Last mile distributors are finally starting to get the support they need at firm level. With the right support, they have the potential to increase efficiency, build capacity and boost overall performance – selling more products, providing better service, and increasing impact. Companies such as Angaza Design recognised this early on and are building specialised technology and logistics solutions for distributors. Pioneering investors such as VentureBuilder, SIMA Funds, Persistent Energy, Shell Foundation and the DFID-Unilever Transform initiative are finding new ways to invest in, and build the capacity of, last mile distributors. Increasingly there is interest in supporting an emerging ‘2nd wave’ of African and Asian-owned companies that focus on sales and distribution whilst outsourcing design, manufacturing, software and financing[vi].
There is also a huge opportunity to enhance performance across the last mile distribution sector, through collective approaches that improve the visibility, interconnectedness and strength of the sector. Distributors often work in silos, reinventing the wheel with limited opportunities to learn from each other and collaborate. Collective approaches can address this by providing support to the sector as a whole, rather than to a small number of pre-selected firms. Through helping distributors unlock economies of scale, access information, share best practices and learnings, build capacity and test new ideas, we will help last mile distributors save time and money, adopt new business practices and form new business partnerships. We will pilot a centralised purchasing platform, run learning and collaboration events, and conduct open-source innovation pilots. We will shine a light on the sector by generating and sharing insight through a State of the Sector report, and build its collective voice through enhancing distributor representation at key events and forums.
Practical Action, Hystra and BoP Innovation Center are proud to officially launch the Global Distributors Collective. The GDC is a collective of last mile distributors, which has been designed and built by last mile distributors. We are dedicated to helping our members reach more underserved customers, so that life-changing products can be made affordable and available to all. With the support of partners and funders, including DFID and P4G, we are committed to building a thriving last mile distribution ecosystem and welcome partnerships with those who share our goal. We invite last mile distribution companies to sign up as members to access GDC’s support services and funding opportunities. Contact us for more information at GDC@practicalaction.org.uk.
[i] Last Mile Solutions for Low-Income Customers, Shell Foundation, October 2018
[ii] In the case of energy, for example, the development community is increasingly focused on Tier 2 energy access and above, which excludes basic lighting and cell phone charging.
[iii] Last Mile Solutions for Low-Income Customers, Shell Foundation, October 2018
[iv] Last Mile Solutions for Low-Income Customers, Shell Foundation, October 2018
[v] Off-Grid Solar Market Trends Report, Dalberg Advisors and Lighting Global, January 2018
[vi] Last Mile Solutions for Low-Income Customers, Shell Foundation, October 2018; Off-Grid Solar Market Trends Report 2018, Dalberg and Lighting Global, 2018