How to Start / Open A Fast Moving Customer Goods (FMCG) Business in Kenya

Fast Moving Customer Goods (FMCG) Business Plan (Kenya)



Overview

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This quick guide looks at small scale distribution of fast moving consumer goods (FMCG). FMCG are a very wide variety in terms of product categories; say bread, or brands say Festive. As much as this guide touches on a number of products due to the variety involved and local market dynamics it’s not possible to cover the specifics of each and every of the hundreds of items. Hence consider this as a quick guide which explains how to get into distribution at a small scale and what to expect.

Small scale distribution in this case means you are a sort of wholesaler selling to retailers but operating at a lower level either informally or formally. The former means that you are operating without premises, licenses or a mode of transport; a little jua kali you could say. In the latter case you are more ‘formally ‘ set up say with a premises, licenses , a mode of transport and such .

As you will see at a small scale level opportunities exist for both of these set ups. If low on capital you can start with an informal set up. Same if you are testing the market. You will find in this field a significant number who move from informal to formal operations, while there are also distributors who remain informal despite their financial success because of advantages that will become clear below.

The FCMG Distribution Channel

Before we position the small scale wholesaler lies in the supply chain it’s important to understand how FMCG companies get their products to the market.

Company A manufactures (or imports) product B a FMCG. The challenge then is how to get the product to the hands of consumers.

There are several paths that can be followed and the exact depends on the size of the company and the type of product.

Some companies will sell directly to retailers or even consumers; however this is very limiting for FMCG because of the thousands of retailers and the logistics required to reach them. Manufacturers are also without the skill, time and logistics to distribute their products directly to retailers. Distributor understands the local logistics.

Thus many FMCG companies prefer to use some sort of middle men. The middle men go by different names such as distributors, wholesalers or even brokers.

Having settled on middlemen a company then looks at how many will be involved in the chain before the product gets to the consumer. Considerations include what the middlemen cost the company , their efficiency, whether they interfere with the product , how to keep them motivated so as not to be tempted to prioritize the competitor’s products. The product too has to remain competitively priced even as it gets to the consumers.

Hence the very basic distribution channel that has middlemen takes the following form:

 

 

 

 

Manufacturer /

Importer

 

 

Wholesaler

Distributor

 

 

 

 

 

 

 

 

 

Small Distributor

/Small Wholesaler -

Retailer

Consumer

There could be slight variations to the above chain but this is the basic template.

Some companies sell to distributors who are sort of super wholesalers. The distributors then sell to wholesalers. In some other case the distributor is just a normal wholesaler. Distributors and wholesalers are either appointed by the manufacturers or simply are able to meet the minimum volumes and terms required to enjoy price advantages. Terms could touch on space required; presence of means of transport, security deposit and such other as the company may set.

This will be subject of another guide. For now let us focus on the small scale distributor.

 

 

 

 

From the diagram above you are the small wholesaler or small distributor. You are a wholesaler albeit at small scale level.

As can be seen you can buy from the manufacturer (as in the case of bread), from a distributor or wholesaler. The idea is you will be buying at a price lower than what the retailer will be selling to the consumer, but still at a price equal or agreeable than if the retailers would have bought directly from the major wholesaler or distributor.

Agreeable means that the price could be slightly higher but the value you offer worth it. Value could be simple attributes like breaking bulk or delivering to the shop.

It is important to note perishable products like bread and milk have fewer middlemen handling them compared to products with a longer shelf life. For such delicate products the manufacturer will try to shorten the chain as much as possible. The manufacturer in this case has no problem dealing directly with small distributors who cover a relatively small area.

Types of Small Scale Wholesale Set Ups

In the business of small scale wholesalers there are two main types of set ups:

a)Informal Set Up – This as we mentioned at the start means you are operating in a sort of freelance manner. A major feature being that you have no business premises. By virtue of being informal you also have not acquired licenses. In terms of operations you are not necessarily limited to a particular area.

Informal set ups do not necessarily have to do with capital. There are informal distributors who have stock worth as much as Kshs.100,000 in their vehicles or in their bags for those selling ‘small’ but valuable items like airtime scratch cards. On the other hand there are small distributors who at any one time will have stock worth as little as Kshs.2000.

The advantage of an informal set up is that you don’t have to worry about rent, licenses and related expenses. Your costs are comparatively low and the margins higher. You also have more drive to move around and conquer new markets rather than wait for customers to walk in.

The flip side is that it could hamper your growth. If a formal wholesaler comes into your local market, and offers the same items and terms as you but she is “always on” and easily accessible then she can gnaw into your customers. This is more so if the product you are offering is not unique, is consumed regularly and easy to source. The kind of product where if a retailer’s stock finishes he will opt to buy from the formal small

 

 

 

 

wholesaler in the neighbourhood rather than wait for you to do your rounds at a schedule time.

Another disadvantage of informal wholesalers is that some retailers tend to treat them casually. They will, for instance, insist on paying later even in situations where they can pay immediately. This same retailer has no problem paying cash if he goes to a formal wholesaler.

At times companies hit the ground looking to sign up exclusive distribution agreements with wholesalers in a particular area. If you are an informal wholesaler the chances of getting such an opportunity reduce one because the company’s representative cannot easily locate you and secondly companies tend to prefer formal set ups as their partners. They portray an image of ‘serious ‘and ‘trustworthy’.

Informal set ups are a good way to start particularly when you are low on capital, experimenting with a new product, and unsure of your market or covering a wide area. And for some products like ‘small’ products consumed irregularly a formal set up is unnecessary, no need to incur costs you can do without. At other times growth in terms of volume of sales and variety of products will force you to have a formal set up.

An informal set up does not mean you are not as profitable as the formal small wholesaler; you could even be making more. They are many small wholesalers who are highly profitable and opt to remain informal. It has to do with business strategy.

b)Formal Set Up – In this case you have a premise, required licenses, possibly a bigger inventory and extra manpower. Formal set up require more capital to cover rent, renovation, perhaps security, labour and stock.

A formal set up will require you to maximize on space and hence you might have to deal with more than one product.

The main advantage of a formal set up is that it gives you immediate presence and visibility. Retailers know that there is a wholesaler in their midst, so if they want a particular product they will go to her.

Another advantage is that retailers treat you with much more respect. They have no problem paying you cash on delivery unlike the case with informal retailers. It’s also easier to form the kind of partnerships that see you grow from a small wholesaler to a fully fledged wholesaler.

The disadvantages are the extra costs that you incur when starting and those like rent which recur on a monthly basis. You are also under more scrutiny as a formal wholesaler; think health, standards and at times tax.

 

 

 

 

A formal set up could also make you ‘lazy’; you just wait for the customers to walk in rather than going to look out for them. This could reduce your profits or stunt growth.

Formal set ups are good as the next step in growth. However they require making more sales to meet the extra costs. There are times when formal set ups are the best way to enter a market and stamp your authority in it. For instance if a location does not have a formal wholesaler within a reasonable radius, then a formal set up will give you a head start and actually help you sell more than an informal operation.

Decide on the set up to go for based on the market first, products and capital at hand. Remember with a formal set up you will require working capital to run you at least two months before break even.

Becoming A Distributor

Identify Location

Identify Product

Identify Suppliers

Price

Work out the logistics

You could also start with the product first then zero in on the location.

Let us look in detail at major steps in becoming a small scale distributor:

Choice of Products to Distribute

The choice of products to distribute will determine your success. This is more so if you are limited in terms of capital. Wrong choice of product will lead to losses and low margins. The checklist below should help you in decide the products to distribute:

Look for product gaps which exist in some markets. Such gaps are a result of demographic changes, knowledge gaps, trends, innovation or such other factor.

To give some anecdotal evidence an area of Nairobi, off Thika road has attracted a rather high population of Congolese citizens. For reasons of culture the Congolese use a lot of tomato paste in their cooking. This is unlike the case with Kenyans who are not accustomed to tomato paste.

A small distributor simply overheard the Congolese asking for tomato paste several times and the shopkeepers having no clue what it was or lacking consistent supply. He started sourcing for the paste first from processors in Industrial Area then a cheaper option from an importer in Eastleigh then supplying to the retailers in the area. He is now the most established tomato paste supplier in the area. And from the relationships he has built supplying the paste he has expanded to other products.

 

 

 

 

Gaps are at times not so obvious and you have to be on the lookout or have conversations with retailers. An advantage of the above kind of niche product is that it gives you an assailable lead in the market so that even if a competitor comes in then it will be difficult to steal your customers.

Then are the knowledge gaps. These exist when the consumer and retailer are not aware of functional products that already exist and are doing well in other markets. This is always an opportunity to introduce the new product in the market, and because it has been successful in similar areas there is a high chance it will make it there.

To illustrate is the spread of KDF cakes from bakers in Kariobangi to many major towns in the country. The cakes were first popular in low income areas of Nairobi before making their way to other income and geographical areas. A distributor reasoned if it can work in Nairobi why not in similar estates in Nakuru and so he started taking the cakes to the county. Of course introducing a product is not always a walk in the park, but we will come back to that later.

Supply gaps exit when the product is actually needed but for a reason or another is no longer supplied. The supplier who was there before could have quit the market, shifted to more profitable products, could not source efficiently or booted out. The latter especially happens with perishable products like milk and bread where if a supplier does not meet targets or is dishonest the manufacturer cancels his contract.

How then do you know there are supply gaps? There is no fool proof way but observation and conversations with retailers are good start. Often you will hear a shop keeper say hio haikujangi siku hizi….And then you ask kwa nini ? If the answer is because the suppliers disappeared then it’s an n opportunity. If the response is along the lines that the company ‘spoilt’ their products or consumers don’t buy it, then keep off.

New products offer distribution opportunities especially at an early stage before the market gets flooded. To know about new products you simply have to have a keen eye and research in different markets. For instance during the introduction of Selecta bread in the market was only in limited areas of Nairobi. But some of the bread customers turned to distributors in other markets. The same has happened with a number of pamper brands. Of course you don’t do this blindly; you have to understand the market you are targeting.

You also have to look at the capital at your disposal. Some products are more capital intensive than others. There are many small items that you can start with a capital as low Ksh.1000, but for others you need at least Kshs.10, 000.

Successful products in similar markets. There are areas which are always similar market needs, demographics and income. If a product is successful or in demand in one such market then chances are that it will also work in the other markets. For instance there is a high chance if a product works in Nairobi’s Huruma estate that it will also be successful in Pipeline.

In the end observation, research, conversations and an interest in products will help you determine what to distribute. When in doubt you can start with what is sure to move. The

 

 

 

 

learning curve varies with products. For instance in some areas it would take a lot in time and resources to introduce such an item as tomato paste compared to a new substitute to royco.

Suppliers in this case being bigger wholesalers or distributors can also give you a good hint of what is moving or what is new at a particular time. But don’t trust the suppliers 100%, the onus will always be on you.

Choice of Location

The products that you distribute will also be determined by the market that you are targeting. Sometimes you get the products first then seek the market while at others you get the market first and then seek the products.

In the first case you make acquaintance in a place like Githogoro slums, and then start researching on what product you can supply in the area.

In the second case you discover a product say the new peanut butter packed in the 25 grams sactchet and decide this could do well in slums and then you purchase from a distributor or approach the manufacturer with a proposal to distribute.

So choice of location could take two forms:

Discover market then look for product fit

Discover product look for market fit.

Below are some pointers to help decide your target location.

FMCG have relatively lower margins. The margins could be as low as Kshs. 5 per quantity. This means to break even you need high volumes. It follows then that you need a market with a high number of shops. Ten twenty shops will not be enough to sustain and grow your small distribution business.

A high number of shops in your area are also necessary because not everyone you introduce a product to will purchase. Some will out rightly say no, others will not be the decision makers while others will cite cash. So perhaps for every five shops you visit perhaps only one shopkeeper makes a purchase. Because of this you need to look at your market in terms of tens of shops if not hundreds.

The market you target will also depend on the product that you want to distribute. As a pointer in low income areas often brand loyalty comes second after price considerations. Take for instance if you were introduce a brand of milk called Juu which retails at Kshs. 30, while Brookside sells at Kshs.35, many will likely go for the former despite it being unknown. The tables will turn of Juu is introduced in mid income areas. Despite the price advantage Brookside will sell more. You have to be realistic of the consumption habits of the target market.

The resources at your disposal will also determine the market you target, the area you cover and the product you distribute. Key resources are not only in terms of capital but also such items as transport which could be in the form of a car, motorcycle or even bicycle. If you don’t

 

 

 

 

have a means of transport you need to look for a densely populated area where you can comfortably move on foot or with minimum fare. You also need items which are not very bulky or heavy if you will be moving on foot.

For instance if you are distributing bread in a sparsely populated area then there is a limit as to how many crates you can carry on foot and on your own. Then again at times you are not sure the quantity that a retailer will purchase so how many crates should you carry? But then this could work in a densely populated area where shops are many and next to each other.

Consider the level of competition both when deciding on the product that you will sell and the location. To insist margins are relatively low and so if competition is too high then they will be squeezed further. Competition could be in terms of distributors of a particular product or total number of wholesalers in the area. Look at the competition relative to the market size, some markets are big enough for every distributor to break even.

It’s very common for a successful product to attract competition. For instance a baker could introduce a new kind of bread in a particular area and because he is unsure whether it will be a success has only two distributors, but then the product picks up and he decides to increase the number of distributors in the same area at a scale faster than the growth in consumption. Hence instead of the two we now have 11 distributors, whereas before the two distributors were each selling 20 crates now they sell 3, some drop the product and go seeking for more profitable products.

The same could be the case when a product is common and easy to acquire from the larger distributors and wholesalers. For instance a new brand of pamper can be introduced in the market, a small distributor starts selling to the retail shops in the area. But then an entrepreneur observes how fast the pampers are moving, goes to a distributor and starts distributing in the same market winning retailers either by virtue of price or superior selling skills.

In the end the key pointers are:

Need

Competition

Resources at your disposal

Product

Population density

Suppliers

From the diagram in the first section you see that as a small time wholesaler you can purchase from bigger wholesalers, distributors, directly from manufactures or the companies importing products.

Since you are working with low margins be keen about the price you buy at more so for a product which is already in the market or for which competition exists.

 

 

 

 

The other factor to think about will be reliability; the ability to consistently supply a product. It’s to your disadvantage if you work to introduce a product and then within a short time the product is no longer available. The retailers might view you as unreliable despite it being the supplier’s mistake.

Product – Price – Terms - Reliability

Most suppliers, with the exception of perishable products such as bread and milk, insist on cash terms. Milk and bread companies will offer short terms credit terms which will touch on in the next section.

So terms here mainly has to do with the ability to break bulk. Must you buy a whole carton of a dozen pieces or can the suppliers sell you six boxes? Go for suppliers who break bulk especially if you are limited in capital and are dealing with a variety of products. On the other hand bulk is good if you have the market ready. You save more on price, time and costs such as transport.

You should compare prices between the different suppliers. Sometimes the prices are so significant. Don’t always lower your prices simply because you are sourcing at lower prices. Always seek to maximize your profits before an under cutting competitor comes into the market.

Like we mentioned this guide is partially biased towards Nairobi in terms of suppliers. However in every major town there are what could be referred as super wholesalers and distributors. You purchase from these and sell to satellite towns and estates. Compared to other areas prices in Nairobi are relatively low. This is because of proximity to importers and manufactures, and also intense competition among the wholesalers.

Also there are many products which are first introduced in Nairobi before spreading to other areas. If you are buying in bulk and within a reasonable distance of Nairobi then it make sense to go all the way to Nairobi to make purchases.

In Nairobi there are tens of major wholesalers but here we list a few and in the key areas to help you get started:

Eastleigh Wholesalers – Eastleigh has a huge number of wholesalers especially in the area around 12th street. Whereas there are many products which are locally made there are also a big number of imported products some in legally and others illegally. The latter will likely not have the KEBS mark of quality. Eastleigh is a good place to discover new imported products. Among the leading Eastleigh wholesalers include Mega Wholesalers and Diamond Wholesalers along 12th street.

Price differences in Eastleigh are high sometimes as high as Kshs. 150 for the same product and quantity.

Keekorok Road, Nairobi CBD – This area also has a large number of wholesalers and distributors selling a wide variety of fast moving consumer goods.

OTC, Kamukunji, Ladhies Road – In addition to the common FCMG products this area also has various merchandise such as plastic items and innerwear.

 

 

 

 

Products, Margins, Markets: Some Case Studies

Like we mentioned there are tens of items that you can supply as a small scale level. It’s not possible to cover each and every item. However the below case studies will give you a good idea of various different distribution models and margins.

Case Study One: Mass Market Mandazi

KDF are a form of mandazi or more so a cake that have become very popular in low and mid income areas. The thick mandazi is supposed to “protect” the stomach from hunger. It has its origins in Congo, and arrived in Kenya through the country’ refugees in areas like Huruma.

Now the mandazis are produced by bakeries largely in Kariobangi North. Most of these bakeries have been in the business of mass producing a variety of cakes and mandazis for a number of years. The ‘popular’ products keep changing with time. KDF has been popular for much of 2017 and is still doing great in 2018.

To become a distributor of KDF (and other mass market cake and mandazi products) all you need is to purchase from the bakers and then sell to retailers

Purchasing the cakes is a walk in walk out affair, there are no bureaucracies. You just walk in, buy minimum quantities which could be as low as five packets then go sell to retailers.

Let’s look at some figures market and realities.

In February 2018 the distributor price of a packet with six KDFs was Kshs. 42. This is the price when buying a packet from the bakeries. You the small wholesaler will sell to retailers at Kshs.

50.The retailer will sell each KDF at Kshs. 10, making total revenue of Kshs. 60 per packet.

42– 50 – 60.

In this case getting the products from the manufacturer is without any major barriers. The next step is to get the retailers. But first note that the margin is Kshs. 8 per packet. Costs are largely those of transport.

With a margin of Kshs.8 per packet then to make just Kshs.100 in gross profit you need to sell at least 13 packets. To make at least Kshs. 500 you need to sell at least 65 packets.

It’s not a walk in the park but neither is it impossible. On average shops in high population low income areas buy four packets of KDF per day. In the morning and evening. Hence using the above example to make Kshs.500 you need at least 17 shops to purchase from you.

The major challenge will be getting the 17 shops. There is no way around this other than moving from shop to shop selling and convincing the retailers. One of the most common fears among

 

 

 

 

first time distributors is that the existing shops already have suppliers. But this is not always a barrier per se especially for such snacky items.

Where a shop could have taken two packets in the morning, by noon they could have sold out and there is no supplier around. And yes suppliers fail at times, such that for a reason or another they don’t deliver.

Another way is to explore new markets especially out of Nairobi markets. There are entrepreneurs who are buying in large quantities and distributing to towns like Nakuru. Some selling between 500 -800 packets a day. This works better if you have a vehicle of your own.

You could also win more of the market by coming up with a new business models relevant to the particular area. For instance you could establish a local distribution point; a cake and mandazi depot of sorts, from where retailers and even consumers can walk in and buy a variety of cake and mandazi, not just KDF, in wholesale. The shop will make it easier to distribute within the locality.

One fact we will keep insisting is that as the market becomes profitable so will it attract more entrepreneurs, competition will increase and definitely your market share will decrease and so will your profit.

Suppliers:

Here are some mandazi, KDF and cake bakers to jump start you. They are all located in Kariobangi North.

Farmers

Picknick

Wellington

Garden – Makes bigger KDFs, while others are 400gms, these are 600gms.

Key Take Aways:

Be on the lookout for new products or those that are growing

Margins are small and you need volumes.

Presence of distributors in your target market should not discourage you.

Look for related products that are just coming into the market or an improvement of the existing (In the above case think of a company making larger KDFs)

Look for markets outside areas of manufacture or ‘normal’ product coverage. There could be more opportunity there.

Products do not remain popular or fast selling forever.

Case Study Two: Bread

 

 

 

 

Selecta is a relatively new bread brand in Kenya having been introduced in the market in 2016. The brand differentiated itself by having more slices of bread for the same quantity. Thus 400gms Selecta bread looks bigger than say a Nature’s bread of the same quantity.

This is made possible by the slicing machines. In the initial days the owner used to get bread from another bakery, slice and package in his own facility.

Selecta’s first target markets were low income areas in Nairobi. Areas like Huruma, Dandora, Baba Ndogo, Mathare and such. Partially this was because of the high population and with it demand. And partially because it was within a reasonable area of the production facility, thus the proprietor was able to keep costs low and keenly observe the market.

To this end he first looked for distributors in those areas. The process was pretty an informal one, seeking distributors from existing small wholesalers and just by word of mouth through shops. Most of the initial distributors were a mix of new and existing small distributors.

The terms were pretty simple at the start. Each distributor was initially given 10 crates, and without very strict guidelines on the areas to cover. All they were supposed to do was make sure they sell the ten crates.

Some of the distributors had bicycles while others distributed on foot. The bread was dropped between 3am and 5am at specific locations agreed on with the distributor.

At this point the distributor has not paid for the breads; rather he is supposed to sell first then by 3pm send money equivalent to the day’s sales to the baker’s Mpesa Till.

The distributor moved from to shop selling. For a new product such as bread the challenge is convincing a retailer who probably is a already stocking four other brands. In the case of Selecta the entry point was the seemingly larger size of the bread.

A distributor does not necessarily have to sell a whole crate to a shop. For a new product a retailer can take as low as three breads. As a new distributor you should not insist on crates or large quantities; retailers and consumers are yet to trust your product, and when they do there won’t be any need to convince them to stock more.

Again for a new product some retailers will insist to pay later will mean in the afternoon, evening or the following day. When new in the market you would rather the retailer takes three breads and pays in cash than ten and pays after a day. Debt collection could be hectic, time and resource consuming, and as much as it is a way of getting into the market, don’t b tempted to go all credit. And in a situation as this, if you don’t have the cash flow to pay for the bread by the end of the day then you will start having strained relationship with the manufacturers which could lead to the contract being cancelled.

Still you need to be flexible. At times it will be wise and necessary to offer short term credit. Make the decision on a case by case basis.

In a few weeks the initial Selecta distributors were able to easily sell the ten crates and even more. The product was ‘selling itself” but for a period of time when the bakery changed the formulation of its bread and consumers complained “it had become dry and tasteless”.

 

 

 

 

With the increased popularity of the bread the company allowed more distributors within same area. Where there was one distributor there were now two or three, competition increased, profit decreased. For as much as a product is great consumers in a particular area can only take as much within a given time period.

Distributors margin in the bread business vary from one company to the other. However they will range between Kshs.5 and Kshs.8. Generally new companies offer higher margins so as to motivate distributors and sometimes even retailers to stock their product. But some of the older ones will also offer higher margins. There are times when such companies will have different product margins in various markets depending on their level of market penetration or competition in that particular market.

Selecta started with Kshs. 7 before settling at Kshs. 5 per bread. A crate of Selecta bread has 10 loafs (compared to 15 loafs for ‘normal’ size brands).

Thus for one crate a distributor makes Kshs. 5 * 10 = Kshs.50

If he sells 10 crates then he will make Kshs.50 * 10 = Kshs.500

If the market shrinks and say he has employed somebody then he might not be motivated to remain in the business. Still there are bread distributors who sell as many as 30 crates of normal size bread in a day.

Another way to increase your revenue is to diversify the product and take advantage of the networks you have built selling the bread (or other product for that matter) to distribute related products like mandazi and scones.

Among the initial Selecta distributors some quit, others diversified while others are still in the business.

In Summary:

To become a bread distributor:

Approach a bread manufacturer with the proposal. Some bread companies will openly call for distributors in particular areas.

Some will require you to make a deposit equivalent to about twenty crates or so. This is a form of security.

Others will be comfortable to start with you without any deposit. They will allocate the area and drop the bread.

Many require you to deposit cash from the day’s sale by 3pm.

Margins range from Kshs.5 to Kshs.8. Margins depend on the company, the level of market entry and competition in the market.

A means of transport be it a bicycle or motorcycle is a necessary but not a must. A means of transport helps you cover a wider area.

 

 

 

 

Depending on the number of crates that you are selling or have the potential to sell you can have an employee to help in distribution. To keep them motivated you can pay them on a small basic salary and commission per bread sold.

To get to the market you just have to move from shop to shop selling. You must convince the retailers to stock an extra brand of bread. It follows then that an established well known brand will have higher chances of being accepted than a new little known brand unless of course the latter has some advantages as in the Selecta case above.

However in low income areas price could be a big determinant in deciding to stock a product. This does not mean you should keep away from the less established brands, but be real it will take much more work to get to retailers to stock.

There is always a chance a competitor will come into your market and eat into your profits.

Manufacturers can review terms sometimes on very short notice.

Do not rest on your laurels; always be on the lookout for market trends and the next thing you can distribute.

Case Study 3: Variety of Products

Like we mentioned there are hundreds of products that you can distribute. These could include:

Pampers

Pen

Books

Ready to eat snacks like corn chips

Juices

Airtime

Confectionary like sweets

Biscuits

Food spices like royco and curry powder

Detergents

Drinking straws

Toilet paper

Small package cosmetics

Youghurt

Handkerchiefs

Mandazi

Cake

Tea leaves

 

 

 

 

Cocoa

Many more

Below are some sample margins. These are actual prices which some small scale wholesalers buy and sell at:

Products

Quantity

Buying Price

Selling Price

Aramis Jelly

50gms/ dozen

200

240

Candles

Dozen

50

55

Royco Cubes

Dozen

65-70

75 - 80

Mr. Berry

Packet

70

85

Muguka Chewing

Packet

68

75

Gum

 

 

 

Lollipop

Packet

200

230

Curry Powder

Carton (with 8 outers)

900

1040

Tomato Paste

Carton (4 outers)

1000

1200

The above figures are from distributors in Nairobi. There could be slight differences based on the wholesaler or retailer.

You will note that the margins are relatively small, and this is a volume business.

A distributor making Kshs. 5-10 per packet will need to sell at least 50 packets a day to make Kshs.500. However the distributor could utilize the networks he has created selling sweets to sell other items, he could sell gums, he could sell curry powder, he could sell detergents and more products. And now he doesn’t have to sell 50 packets of sweets but a few of each item to make a Kshs.500.

We are using Kshs.500 as an example the amount could be Kshs.1000 or Kshs.2000. There are small distributors who make as much as Kshs. 3000 in a day.

The basic strategy is to decide what you will use to get into the market, and then utilize the relationships you build with retailers to introduce new products. Still it’s good to have a core product that you are best known for, which retailers particularly identify you with. Yet you don’t want to stretch yourself so thin by having each and every product.

It’s still possible to make money from a single product if you are the only distributor in the market or it’s a product that is consumed on a daily basis. Think products like milk and bread. However items like sweets, candles and the like take a longer time to exhaust. If you are selling such you will need a bigger customer base to break even.

You would also need more than one product, not necessarily ten of products but even two or three. For products that are consumed on a daily basis say like food like products or items like toilet pay, you see products like candles and toothbrush then you also need a customer base wide or a bigger variety.

 

 

 

 

Summary

Margins range between 10% and 30%. Higher margins are the exception more than the rule. When planning use the lower margins.

Revenue is influenced by:

The size of the market

Choice of the product

Competition of the market

Variety of product

Selling Skill

Resources Required

There are several variables in the business that it’s not possible to exactly say the value of all resources are required. Among the variables are the kind of set up that you choose, the product that you are dealing with, the quantity and variety of stock, the area that you cover among others.

That said let us look at some of the basic item you need:

Stock – This is the very basic item. You require cash to purchase the inventory to go and resell. The amount that you require will depend on the product that you are selling, size of your market and the distance between you and the wholesaler.

Considering the prices of items as listed above then as low as Kshs.1000 could be enough to start. On the other hand if you look at the margins then you require volumes. Whereas you can purchase a pack of chewing gum at Kshs.70, the margins you make from a packet are Kshs.5- Kshs.20. Take in transport and time and you need to sell more than a thousand worth of packets to make it worthwhile.

Whereas it’s possible to start this business with low amounts of stock considering the margins it makes business sense to invest a little more.

If you are close to the wholesaler such that your transport costs are minimal then you can invest less. If your market size is big and demand higher then you need more. If you are dealing with products like milk or bread which at times require you to put in some security deposit with the retailer then you will need more.

Kshs.10, 000 should be a good start. You do not need to invest all of it in stock. Some of it is to help you continue running say when some retailers are yet to pay you. Or empower you to seize opportunities when you identify gaps in the market.

 

 

 

 

To avoid dead stock you should increase your stock gradually as you win more retailers and understand the market better.

Means of Transport -We covered a bit on this above. It’s very possible to start with a means of transport. However it will depend on the area you are covering and the kind of products. Bulky products over a wider area will require a means of transport. Same with tens of products over a wider area. Even when the area is not so wide but the product bulky a means is required. The very basic means is a trolley. Bigger means include a bicycle or motorcycle.

A bicycle will average Kshs.3500.

A motorcycle is more versatile, can carry more and cover longer distances. A motorcycle will average Kshs.80, 000. You don’t necessarily need a very powerful motorcycle that will end up consuming a lot of fuel; 125 cc is good enough. If you can’t afford new then you can go for a second hand in good condition.

Premises – If you are setting up formally you need a premise which is strategically located and visible. The premise does not necessarily have to be huge. It’s now common to see small wholesalers with kiosk size shops which by virtue of their sizes look very well stocked.

For a business premises you will need to pay a deposit and rent. The exact terms will vary with the landlord. Some require as many as three months deposit. You could also b required to renovate; insert some shelves, paint and the like. Budget at least Kshs.30, 000 for a premises.

Licenses – With a formal setting also comes licenses. The very basic being the Single User Business Permit issued by the county government. The price depends on the county and size of the building. Budget at least Kshs.10, 000 for this license.

Other licenses could include medical license for the staff issued by a hospital. This averages Kshs. 1500. Fire clearance certificate which is required of all businesses, this will average Kshs.4500. If you have a billboard you will also require an outdoor advertising certificate the cost of which is based on the location and the size of the billboard, starting at Kshs.1500.

Many small wholesalers operate without the last three licenses. However if you want to go as few clashes with the authorities as possible then acquire the licenses.

Manpower - Depending on what you are distributing, the area you are covering and the size of your operations you might need an assistant. There is no set template on the terms you offer the assistant. But if the assistant has to go out there and win customers then you have to offer terms that will keep her motivated; a basic and commission of sorts. You can structure the commission based on the product and what the duties of the salesperson. If the assistant is permanently located at the shop and his duties are to assist in loading and selling then you can offer a basic salary.

Market Entry

Once you have settled on the product the next question is to how you will sell it. What will make the retailers buy from you rather than from the other distributor or wholesaler.

 

 

 

 

The market you enter can take either of these two forms:

Virgin Market

In this you introduce a product and are the only distributor. The product could be either a new brand of an item that is commonly used. Say ‘Exy’ brand of pampers. Or it could be a completely new product; say rubber bands that make a woman’s hair curly.

In the former case the market entry will be comparatively easier especially if the product has advantages which stand out say in price or quality. In the latter case the sales cycle will be longer. You will need to educate the retailers and perhaps the consumers. This is especially if the product is not a recognizable brand and its use not so obvious.

Competitive Market

In this market there are already other distributors supplying the same product. You will be trying to win their customers or fill a supply deficit which means there is more demand than the current distributors can meet.

Whereas some markets will be open such a way that any distributor is welcome, others will be protective. There are distributors who will feel they have worked so hard to win the market that you cannot just come and try snatch that from them. For example this could happen if the existing distributor was the one who introduced a product and worked hard to educate retailers and gain acceptance.

When you try to enter such market such a distributor could approach you and politely, rudely or otherwise ask you to leave since he ‘owns’ that market. There is no open way of knowing if a distributor will try to protect her turf, you simply have to test the waters. This should not make discourage you for generally most markets are open.

Winning Retailers

A small distributor wins retailers by providing convenience through several ways:

Saving Time - By delivering items to his shop you save him time that he would have used to go to the wholesaler.

Breaking Bulk – The small distributor helps the retailer by selling the retailer just the quantities that they want. For instance he might sell only 2 packets of blue band, or 3 breads or 5 candles. The distributor will have a whole carton of blue band then sell small quantities to several retailers.

If the retailer would have gone to the wholesaler he might have to buy a half or full carton. The retailer might not have money to do this. Then he might want to diversify his stock so rather than purchase a whole carton of product A, he would prefer to have Product a little product A, B, C. Breaking bulk is one of the key reasons that retailers will buy from you.

 

 

 

 

Relationships – The relationship between the bigger wholesaler and retailer is very formal and fixed with mainly cash terms. The relationship with the smaller distributor is more flexible. The small distributor can offer short term credit, repackaging and even product suggestions.

So to get into the market you first need to offer the above first. But there is no substitute to actual selling. Talk about the advantages that you offer compared to the competition. Most of it will be tied to your character, sales skill and product need.

You need to understand the product very well to help you sell. This is more so for new products. You also need to know how to make product fits, like if you are introducing a malt drink then you could relate to miraa chewing consumers and such.

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