Breaking bulk and profiting at the margins

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Photo Credit: Michael Kimani

Michael sent me this information from Nairobi last week. He’d spotted informal retail within the context of a mini-supermarket – known as traditional trade in the jargon of consumer product distribution and retail. He adds,

“So 500 ml of Rina cooking oil retails for 120KES, 1 litre for 195 KES. What the owner of this store found out is buying a 20 litre (which she retails for 2700 KES) and repackaging it into 1 litre  plastic bags in red basket), is more profitable according to attendant doing this – Each bag retails for 135 KES”

Quick math informs us that she’s not giving her customers an out – the retail price for the 20 litre jerry can works out to 135 KES per litre. On the other hand, purchasing an informally packaged plastic bag over the formal product packaging offers you savings of 60 KES and helps stretch the grocery budget a little more.

A search online shows me an e-tail website whose prices for Rina are even higher – 500 ml at 121 KES, 1 litre at 214 KES and the 20 litre at 3,300 KES.

This behaviour isn’t just seen in Kenya or the African continent – I’ve documented it in The Philippines, and in rural India.  Its the natural outcome of the purchasing patterns influenced by cash transactions and irregular incomes – of the retailer as well as their customers.

Without contextual knowledge of the operating environment of the vast majority of trade and services in the informal sector, implicit assumptions left unquestioned pose their own barriers to sustainable growth.

For Mama Biashara, it’s these margins that provide a little wriggle room for profit, while offering some added value to her customers.

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