Where's Milk When Needed? The Problem with Kiosks and Co

June 12 , 2021
By Christian Tesfaye ( Christian Tesfaye (christian.tesfaye@addisfortune.net) is a researcher and Fortune's Deputy Editor-in-Chief whose interests run amok in the directions of political thought, markets, society and pop culture. )

There is something that most of us here in Ethiopia are used to but someone from a developed country would find strange. Retail is extremely atomised. Take my neighbourhood. In a radius of no more than 0.4Km, there are about seven pharmacies, three greengrocers, four bakeries, four or five clinics, about a dozen boutiques and even more kiosks.

They often sell the same goods and services. One clinic is no better than the other. The bread from one mom-and-pop bakery is no tastier than the other. Often, if I can not get a pasteurised milk at one kiosk, I am sure I would not find it at any of the over a dozen others. There is not even any meaningful price differentiation.

Why the waste of so much space? How come that one large and well-equipped drugstore, greengrocer, bakery, clinic, even a boutique or a supermarket does not serve a small neighbourhood such as mine?

It all comes to one thing: small shops are easier to run. Some bakeries are a side hustle, pharmacies are often a way for fresh medical graduates to get started, and kiosks offer flexibility in an environment where price setting and sourcing of goods is unpredictable.

Large stores – say a supermarket – are far more complicated. Unlike a kiosk, to get started with a supermarket, it is necessary to have a large starting capital to make bulk purchases and rent an ample space – no small risk to take in a country where credit is hard to come by unless there is collateral at hand. A supermarket also requires contracted suppliers and a relatively large warehouse facility that accommodates cold food storage (and with this, backup generators) and is safe, secure, organised and each good tracked meticulously.

While a kiosk would often have at most two people running it, a supermarket requires cashiers, stockers, a butcher, store manager, guards and accountants, in the least. It is a large and complex operation.

And yet, modern consolidated retail offers a range of advantages to the overall economy than atomised retailers ever will. For the consumer, the benefit is that a retailer could build on the economy of scale to bring down prices. It can also secure contract arrangements, which scattered and small retailers could never manage as they would be too unreliable and time-consuming to deal with. Large retailers make it possible for producers to scale up by ensuring that a certain size and standard of products would indeed be bought if they supply it.

The impact of contract agreements on the rest of the economy can not be understated. Brewers in Ethiopia have demonstrated this by supporting malt barley farmers to modernise, increase yields and grow. A recent study by the Ethiopian Institute of Agricultural Research found that contracted smallholders in Arsi and West Arsi zones of the Oromia Regional State secured 28pc more gross annual income than non-contracted malt barley farmers.

Modern retail is also better placed to mobilise to invest and innovate if there is competition. Resources could be geared towards e-commerce and long-distance delivery – which a kiosk owner would have neither the capital nor the incentive of economy of scale to realise. Large modern retailers are also more likely to get access to credit as they would have account books instead of many small retailers whose incomes are rarely properly reported. This means better domestic revenue mobilisation.

This will not be an easy task. The government would need to invest more in standardisation and enforcement of contracts, and access to credit needs to be improved. The transition from atomised retailers to consolidated ones would also need to be smoother and more inclusive to cushion the subsequent economic dislocation in the retail business. While large stores are not necessarily job killers – Walmart employs 1.5 million people in the United States – their impact could be whiplash for small-time retailers and informal traders. This is where long-term planning and flexible regulation are most needed.

PUBLISHED ON Jun 12,2021 [ VOL 22 , NO 1102]

Christian Tesfaye (christian.tesfaye@addisfortune.net) is a researcher and Fortune's Deputy Editor-in-Chief whose interests run amok in the directions of political thought, markets, society and pop culture.

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