Editor's Choicen, January 2013: Nutritious business and models at the base of the pyramid
It’s a simple equation: 925 million undernourished people worldwide + US$2.89 trillion spent on food each year at the base of the economic pyramid each year = big commercial opportunities.
This month on the Practitioner Hub, we’re exploring what these opportunities mean for inclusive business and what companies need to know to develop nutritious products for the base of the pyramid (BoP). So for our first Editor’s Choice of 2013, we’ve picked a report that explores the different business models that are emerging and making headway in the nutrition sector.
Access to Food and Improved Nutrition at the Base of the Pyramid provides an overview of different business strategies that are boosting nutrition at the BoP. Indeed the sub-title is Five business strategies to achieve social impact, financial sustainability and scale. Though as the authors recognise sustainability and scale are some way off in many cases.
Two of the five models interested me, because they are seeking to directly sell more nutritious foods to BOP households. One is fairly straightforward: fortification of existing foods, such as iron-enriched biscuits. Straightforward to understand that is. Building the commercial market can still be a challenge. This approach is depicted as the domain of an existing food company that adapts its product design and distribution channels to expand markets at the BOP.
The report’s example of Tiger biscuits in India shows that success can be achieved. The most heavily fortified product is distributed via a children’s feeding programme, while the less fortified is sold commercially. This blended market approach, which is also seen in elimentaire sarl’s Moringa-based food additives project (supported by IAP) and planned in BIF’s work with biscuit producers, is a top tip.
The other model is called ‘hybrid market creation’; hybrid because it tends to involve both commercial firms and social-oriented governmental or non-governmental organisations in co-creating new products and strategies.
Examples include Shokti Doi Yoghurt, a partnership between Grameen and Danone in Bangladesh that sells fortified yoghurt to children; Pushtikona, a partnership between Renata Ltd, BRAC and other partners that sells sachets of vitamin and mineral powder aimed at 6-24-month olds, also in Bangladesh; and KeBal, a micro-enterprise franchise model in Indonesia that sells health street food, originally set up by Mercy Corps.
These models tend to create new products and new distribution networks. They require dedicated project teams, new partnerships and KPIs and new forms of finance. They require more than 7-8 years to reach financial sustainability, and the examples have not broken even yet, but they do seem to hold tantalizing promise.
The other three models outlined boost food security by boosting incomes of farmers and other actors in the value chain. While it’s good to be reminded that tackling malnutrition is just as much about working with smallholders as it is about selling nutritious products, the strategies themselves for aggregation and value chain enhancement are relatively familiar to those already engaging with smallholders.
More measured than motivating, this report does outline the examples clearly and helps to unpick what drives these business models and what success they are reaching so far. The top challenges and tips offered for each model make sense, such as those shown here for the hybrid model.
Establish a strategic partnership upfront to co-create a market:
- mutual benefits in sharing distribution, R&D process;
- hybrid partnerships (both for profit and not for profit).
Develop new capabilities in your organization:
- new collaborative environment to cope with new mind sets;
- emergence of special projects and project teams.
Adopt an hybrid governance structure:
- possibility of using social enterprise status;
- develop KPIs that reflect the multidimensional goals of the structure and its innovative nature.
Allow space for the development of innovative mechanisms by trial and error:
- develop a new financial instrument like danone.communities;
- set up new distribution channels via existing informal networks.
Demand creation, e.g. in cooperation with public organizations:
- focus on the demand (instead of the need) linked to a product or service;
- use social marketing campaigns;
- spend time understanding BoP consumers and entrepreneurs via focus groups or an immersion period.
Across the models, they identify a set of issues for attention, such as different motivations of business involvement, the need for clear governance of a venture, the importance of leveraging competencies of partners, sourcing the right finance, and finally ‘resynchronisation.’
‘Resynchronisation’ is a new term I learnt from this report, and one that is particularly appropriate for business interventions in nutritious food. Resynchronisation in the food value chain means that a company influences the process beyond its own intervention space by investing in the ecosystem around the intervention. It is what we are seeing in BIF and IAP supported projects with smallholders and on nutritious products, and seems to be a key part of making innovation work.
For a listing of all Editor’s Choice blogs from December 2010 see the full list of Editor's Choice articles.