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Small is beautiful: Slum traders spark big business trend

By Lillian Leposo, CNN
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Multinationals in Kenya now sell items in single-serve packs -- an idea pioneered by small traders.
STORY HIGHLIGHTS
  • Roadside merchants in Kenya sell goods in small quantities to serve low-income earners
  • Products range from margarine and cooking fat to toothpaste and phone cards
  • The business model is being copied by multinationals such as Unilever

CNN's Marketplace Africa offers viewers a unique window into African business on and off the continent. This week the show looks at Kenya's single-serve packaging industry.

Nairobi, Kenya (CNN) -- Deep in Kibera, Kenya's largest slum, stands Anna Wanjiru's small shop, made out of yellow-painted planks of wood with rusty tin sheets for the roof.

Inside, shelves are creaking from her merchandise, which consists mainly of consumer items used in homes daily -- from margarine and washing detergent to cooking fat and toothpaste.

A common factor in these goods is that they are sold in small packages, weighing from 45 grams to just four grams, and costing from as little as half a cent.

Though now all her goods are sold in branded packaging, Wanjiru has been selling the same items in similar small portions for decades to the low-income market.

"My customers are poor and were locked out of the supermarkets where everyday things were packaged in large quantities, making them unaffordable," said Wanjiru.

"So I decided to buy the big packs and then resell in small portions to my customers."

The ingenuity of Wanjiru and other shopkeepers who serve people in low-income areas gave rise to Kenya's "Kadogo economy," which loosely means low-unit economy.

Progressively, big consumer goods companies noticed the profits and decided to cash in as well by repackaging their products.

The big companies copied us, traders from the slums, and that makes me proud.
--Anna Wanjiru
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One of the early takers was Unilever Kenya, a leading manufacturing company that makes, among other things, food and home products.

It currently has more than 15 low-unit packs that contribute significantly to its total business turnover.

"It has been drummed into our heads by many a statistician that a significant population of Kenyans earn below $1 a day, and if you're not targeting this consumer base then you have no business calling yourself a fast-moving consumer goods company," said Mumbi Kyalo, media manager for the firm.

"Because there will be no fast movement happening in your business."

Mobile phone service providers have also broadened their target markets, with some providing phone cards for as little as 25 cents, in comparison with about 10 years ago, when the cheapest phone card retailed at roughly $3.

"The bulk of our sales come from the 60 and 25 cents-valued phone cards and this is because the people who buy them depend on a daily income," said a senior marketer at Safaricom, a leading mobile phone service provider in Kenya.

"This translates to daily high frequency in purchases and consequently high volume in sales," he added.

The World Bank rates Kenya as a low-income country and analysts like Alban Aoko of Consumer Trends say that companies ignoring the mass market do so at their own peril.

"I've seen many companies fold up because they focused on the rich and ignored the low-income earners, so when the economy was hard the companies took a big hit," he said.

"The masses will always be able to afford that spoonful of fat but the high-end market may not always afford the big tins of fat. Not ignoring either is therefore critical to survival," Aoko added.

Busy in her small shop, Wanjiru is content that she and her fellow shopkeepers were pacesetters in this new business trend.

"The profit margins are lower today because then I determined my price while now they come fixed," said Wanjiru.

"But the big companies copied us, traders from the slums, and that makes me proud."