[Techbuild.africa] Corner Stores – An Essential Sales Channel Across – Are Evolving With Digital Tools

Originally posted on Techbuild.africa

In many African countries, corner shops are woven into the fabric of local communities. Their role in the economy is often underestimated.

Globally, small and informal retailers make up a $900 billion industry. They are even more indispensable in Africa, representing 70% of all grocery sales in Kenya, 90% in Egypt and up to 98% in Nigeria and Cameroon.

Corner stores are often the only source of groceries and household staples in African communities. They are also a significant source of jobs. Across Sub-Saharan Africa, 70% of employment is in the informal economy.

Even during the COVID-19 pandemic, with lockdowns in place and big supply chains breaking down, 40% of consumers actually increased their shopping at corner stores.

Despite repeated predictions of their demise, 94% of the consumers in the countries we surveyed globally plan to buy as much or more at their local corner shop over the next year. The data is clear, corner stores are here to stay.

The competitive advantage of corner stores

With 60 Decibels and Bain & Company, Flourish Ventures surveyed more than 800 corner store owners and 800 of their customers in four countries, including Egypt. Our research found that people not only rely on local shops – the love them. Across these countries (including Brazil, India, and Indonesia), 75% of consumers said informal retailers are important.

While competition is heating up from big box stores and ecommerce, the relationship consumers have with corner stores cannot be easily replicated. Corner stores have two competitive advantages: proximity and trust.

Proximity leads to repeat business. There are about 400,000 corner stores in Egypt, making them the most frequent and easily accessible touchpoint for many, and offering a more personal connection. In our research, 45% of consumers cite good customer service as a reason they shop at corner stores.

They are often places where people will gather to have tea, watching sporting events, and read the news.

Because of this personal contact, there is a high degree of trust between shopkeepers and their customers, and corner stores can offer additional services, such as a credit tab.

In Egypt, 33% of customers have a credit tab at their local shop, that they pay on a weekly or monthly basis.

As a result of these advantages, 98% of consumers go to their corner shop at least once a week.

Even with a vital role, corner shops still need to evolve

Just as ecommerce has not replaced in-person shopping in developed countries, rather leading to an omnichannel distribution model, local retail will remain essential in Africa. And yet, because they operate in the informal economy, corner shops face several challenges, making it harder to compete with big box chains and ecommerce giants.

Small and fragmented, corner stores have little bargaining power with wholesalers and suppliers. Many shopkeepers have to travel miles to wholesale outlets to restock, paying big markups over the bulk prices negotiated by big box stores.

Shopkeepers’ recordkeeping is often paper-based and outdated. In Nairobi, more than half of duka owners do not record any sales, and another 40% only record sales manually. That makes it hard to track customer credit tabs for repayment, as well as inventory.

Without inventory tracking, working capital gets tied up in goods sitting on the shelf. At the average duka, half the products do not sell within a month.

Access to finance is even rarer. According to Bangladesh-based ShopUp, only 1 out of 10 shops uses a bank.

Digital tools can help corner stores better serve their communities

From our research, we know that shopkeepers are already using basic digital tools, such as messaging apps, in the course of business.

With corner stores becoming even more important in local economies, but facing a pressing need to run more efficiently as competition picks up, we see an opportunity for digital platforms built for shopkeepers.

New digital business platforms could help corner stores reduce prices for consumers while increasing their profitability.

At Flourish, we have invested in several of these platforms globally, including ShopUp, Mercê do Bairro in Brazil, TaniHub in Indonesia, ApnaKlub in India and MaxAB in Egypt.

Based on our investments and research with shopkeepers and their customers, we see four areas where digital platforms could help corner shops become more efficient, improve profitability, and compete:

• Buy: Digital platforms can reduce operating expenses in how shopkeepers source inventory and trade with suppliers.
• Manage: There are many opportunities to help stores manage inventory and improve how they keep their records and track inventory.
• Sell: Better tracking consumer tastes and trends would help corner shops meet consumers where they are, with text-based offers and home delivery services.
• Finance: Providing embedded finance to shopkeepers would reduce the cost of credit and improve profitability.

For example, MaxAB, a digital company we have invested in, started on the ‘Buy’ side in Egypt. Their online marketplace aggregates demand among shops to reduce costs and simplifies how corners stores order goods. The service evolved to help shopkeepers manage inventory. Now MaxAB offers corner stores POS devices and business credit.

In Kenya, Wasoko also started on the ‘Buy’ side, helping shopkeepers restock via a mobile app. We have no stake in Wasoko, but we admire how they have expanded into offering shopkeepers lines of credit for working capital and data analytics on prices and products.

Digital platforms for corner shops are already taking off

By our estimates, digitization through these apps and services could double shopkeeper earnings by increasing shop sales, reducing inventory and logistics costs, providing more visibility into store operations, and unlocking access to finance. Of those shopkeepers who have tried a digital platform, 75% have saved time, and 70% have increased earnings.

Digital tools for corner stores are some of the fastest-growing technology startups in Africa. We are excited by the fast-paced activity in the space and will continue to seek out and back startups digitizing the corner shop.

As we do, we encourage technology entrepreneurs to position their entry product strategically around the Buy, Manage, Sell, and Finance needs of shopkeepers.

We are proud to support the entrepreneurs and fellow investors driving the evolution of the corner shop. This evolution will benefit not just shopkeepers but also the communities they serve.