How Africa's Fastest-Growing Company is Helping Retailers Grow

Justin Norman: These small retailers in Nigeria power the economy. But they’re going through some tough times…

News Anchor 1: Currency devaluation.

News Anchor 2: Naira devaluation.

News Anchor 3: At least four multinationals have announced they're ending production.

News Anchor 4: There is fear now about the Nigerian economic climate. 

Justin Norman:_ Devaluation, food inflation, and overall poor economic conditions have made it especially hard for these small businesses to operate._

Alhaja Ogunjimi: The cost of the products are getting higher. 

Justin Norman: To better understand how retail works and how these small businesses can grow, I hit the streets of Lagos, Nigeria.

Deepankar Rustagi: We are going to Surulere. It's in the mainland. Heart of the city.

Justin Norman: Here on the mainland. We picked up some snacks.
 
Deepankar Rustagi: Give me one chin chin. Give me one Coco Pops.

Justin Norman: Then we talked business models.

Deepankar Rustagi: Finance and movement of goods is so tightly connected that you can't segregate one from another.

Justin Norman: And what retailers and distributors need in order to grow.

Deepankar Rustagi: Where you make more money is because of the...

Justin Norman: Take a look at these retailers in Lagos. What do you notice? I see a lot of really small businesses selling a lot of the same things as each other. But why does retail look this way? Why is so much of the market across Africa what they call traditional trade? And why do so many retailers remain so small? Despite the macro challenges, it's not what you may think.

Deepankar Rustagi: So working capital is a very big problem in this trade and a significant portion of the stockouts are driven from the unavailability of working capital.

Justin Norman: That’s Deepankar Rustagi, the CEO of OmniRetail. He and I visited a distributor in Lagos and saw this working capital problem firsthand.

Deepankar Rustagi: I see some space here.

Alhaja Ogunjimi: Yes, yes. We are expecting.

Justin Norman: How often do they come and deliver?

Alhaja Ogunjimi: Now, I paid today. Tomorrow they promised to supply.

Justin Norman: Okay, so you have to pay today and then they come the next day.

Alhaja Ogunjimi: Yes.

Justin Norman: So that's also the problem is then, so you paid and they have all that cash and you can't sell the product until you get it tomorrow.

Alhaja Ogunjimi: Exactly.

Deepankar Rustagi: Where you make more money is because of the reduction in overstocking. There is more capital available for rotation.

Justin Norman: Distributors and retailers have a fixed amount of capital they can use to pay for goods. So the faster they can sell through those goods, and turn over their inventory, the more revenue they make.

Deepankar Rustagi: So how distributors manage their business. This is inventory turnover ratio, how many times they can rotate the goods.

Justin Norman: Inventory turnover ratio is the key metric, and the goal is to help these small businesses turn over their inventory more regularly. But this requires capital, and too often, it’s not available to these small buinesses. 

Deepankar Rustagi: A large portion between 50 to 60% of the last mile retailers were unbanked when we got into the business and 90% of the transactions were cash. So they were not creating a transaction trail for anyone to track what they're doing to give, to see them as creditworthy. in countries where credit scoring rating is not available.It's the trade that has to arrange for the credit. 

Deepankar Rustagi: Do you get credit from the distributors?

Alhaja Ogunjimi: No. I don't like. 

Justin Norman: Oh, you don't like? 

Alhaja Ogunjimi: Yeah.

Justin Norman: Why not? 

Alhaja Ogunjimi: If they give you facility,  you won't be able to get 100 percent of what you are supposed to get, in terms of incentive. So I prefer source for my capital, do what I like with them.

Justin Norman_: Manufacturers provide incentives for the value chain to carry their product, and those incentives can also come in the form of working capital.  _

Deepankar Rustagi: Initially, what they used to do was based on the discounts that the manufacturer would offer. They were investing their working capital, not really based on the demand.

Justin Norman: And the issue is at the retailer level is either stockouts or they carry too much inventory of something else. And maybe it's something that was heavily discounted. So they have to carry this thing that nobody wants. Right. 

Deepankar Rustagi: Absolutely. So the retailers thought process is, if I don't have the leading product in each category, I have a problem.

Justin Norman: So if you A,  have the number one products that are, I suppose the most in demand or B, you actually have inventory, then the customers are going to come and continue to shop.

Deepakar Rustagi: Absolutely. I think that's what attracts the maximum number of walk-ins. 

Justin Norman: So to go from two times inventory turnover ratio to three, is a result of the retailers selling for their product faster. 

Deepankar Rustagi: Yes. So offtake happening faster.

Justin Norman: Okay. So that would imply that the demand for these essential goods is there provided that the products are available. 

Deepankar Rustagi: Yes. So it's a very interesting thing. Keeping the right amount of goods in the right place is the business acumen. 

Justin Norman: So, this raises a question - how to unlock working capital for the retail value chain and help them turn over their inventory faster. That’s the mission of Deepankar and OmniRetail. 

Deepankar Rustagi: Today, we boast of a little over 3,400 distributors onto a single platform. A little more than 120 logistics partners. a little more than 100, 000 retailers, shelf space, visibility, branding, pricing, all these data points. We brought that infrastructure and made it 100 percent visible. Now digitizing those gives you a large scale because any company which goes into buying or acquiring assets has a limitation of how much capital can be deployed and how returns can be generated. So use of capital becomes more effective and we, based on data, have more visibility of what quantity of goods should be kept based on the demand.

Justin Norman: And OmniRetail, in aggregating all of the players across the value chain, is becoming what Deepakar calls a systematically important platform.

Deepankar Rustagi: One idea is to build your own retailers, like build a retail chain. Another idea is to build your own logistics, which distribute. And some people think about building your own warehousing network that can store. But the idea today is if everyone is going to enter with that thought process There is going to be way more Infrastructure available than the goods required. But a systematically important platform would be a platform that inculcates or incorporates the existing infrastructure that is there and digitizes that so many other players can make use of it.