Imagine a massive machine with intricate gears and wheels working in sync to bring goods from all over the world to your local store. This machine is the consumer goods industry, a $30 trillion complex network of suppliers, manufacturers, distributors, and retailers that make it possible for over 5 billion consumers to access the products they need and want. It’s an industry that touches every aspect of our lives, from the clothes we wear to the food we eat and the medicine we take.
But the gears of this machine are not as strong as they seem. Despite its vital role in our daily lives, the consumer goods industry is fragile and inefficient, particularly in emerging markets. McKinsey research reveals that major disruptions to the supply chain, lasting a month or longer, are becoming alarmingly frequent. These disruptions result in staggering financial losses, with brands losing up to $4 trillion in revenue. Furthermore, these disruptions also lead to record-high prices of consumer goods and consequently put essential items such as food out of reach for millions of people, putting them at risk of starvation.
According to data by the IMF, only 20% of the recent price hikes are due to the increased prices of raw materials passed from manufacturers to consumers. Rather, a staggering 80% of the price increase can be traced to shipping and final distribution costs. In other words, millions of consumers cannot access the goods they need at affordable prices due to the inefficiency and lack of transparency in the current offline distribution model, characterized by limited access to finance and technology.
This also means that by solving the distribution problem, we can help unlock significant business growth for the next billion retailers across emerging markets and enable over 6 billion consumers to access the essential goods they need, like food, medicine, beverages, and baby care products at affordable prices. In this article, we examine how digital, online trading powered by Open Commerce can address the challenges facing small businesses and retailers across emerging markets and help change the lives of consumers and communities in these markets.
The offline trading problem in emerging markets
Meet Joseph, a small retailer in South Africa who has been running his shop for over a decade. Despite his hard work, he has struggled to grow his business and make a decent living for his family. Joseph’s shop is in a low-income neighborhood with limited access to finance and suppliers. As a result, He has to pay for all his stock in cash, which means that he is often unable to buy all the stock he needs and often has to wait several days to restock essential products, resulting in lost revenue for his business.
Joseph’s story is not unique; it’s the story of millions of small retailers in emerging markets struggling to survive under an unfair trading model. According to the World Bank, Small and Medium Enterprises (SMEs) like Joseph’s make up 90% of all businesses in emerging economies, account for 60-70% of all employment, and contribute more than 40% of the national GDP. These small businesses are the backbone of local communities but are faced with significant barriers to growth.
For example, even though Joseph and other retailers like him have been in business for over a decade, there are often no trading records that can be used to access credit and other financial services needed to grow their businesses. Any credit available usually comes from family, friends, or predatory loan sharks that take undue advantage of the retailer’s position. In addition, distributing goods to these retailers is difficult, as brands and distributors have to rely on multiple intermediaries and sales reps to help move stock across the informal market, which increases the cost of consumer goods significantly.
Technology can solve some of the problems that Joseph and other retailers like him face, but so far, very little progress has been recorded. For example, digital trading can help small retailers directly access brands and distributors to order the stock they need, and digital payments can allow Joseph to finally access the credit he needs to grow his business. Interestingly, the basic tools needed to help Joseph already exist – smartphone and internet penetration is on the rise in emerging markets, which means retailers like Joseph should be able to access the stock and finance their businesses need.
Yet, almost nothing has changed, and here’s why.
Traditional e-commerce is killing small businesses and local economies.
Digital technologies like online commerce and digital payments can unlock new possibilities for the millions of small businesses in emerging markets, with studies showing that digital payments, if implemented successfully for B2B merchant transactions, could potentially increase the GDP of all emerging economies by 6%, unlock more than $3.7 trillion in growth, and create more than 95 million new jobs across all sectors of the economy.
Unfortunately, most of the widespread digital solutions available will not unlock this level of growth for Joseph and retailers like him. For example, traditional e-commerce platforms like Amazon or Jumia would rather replace Joseph outright than empower him to grow his business. For most small businesses, e-commerce platforms are a threat to their survival rather than a solution to help drive growth.
Traditional e-commerce makes it almost impossible for small retailers to build their businesses online by charging exorbitant fees and implementing policies that can destroy entire businesses and livelihoods overnight. For instance, e-commerce giants like Amazon have been reported to spy on sellers, use third-party sales data to build competing products on the platform, then artificially manipulate search results to place first-party products higher to get more sales. More damaging, however, is that much of that sales data was never made available to the seller in the first place.
The average Amazon seller has no idea who is buying their products, where the demand for those products is, or what can be done to drive sales growth. In most cases, the best they can do is to pay more to Amazon for “advertising,” a pseudo-black hole that does not provide any useful visibility across the supply chain that can be used to drive growth.
Digital payments are another significant challenge for small business owners, many of whom have extremely limited access to traditional banking and financial services. Most financial services in emerging markets are provided by traditional players, such as banks, money-lending institutions, and credit card companies like MasterCard and Visa. These companies are often predatory and controlling, charging exorbitant fees and restricting access to financial services for small retailers.
Research shows that, on average, SMEs in developing economies pay as much as 10% more in fees for financial services than larger firms. These exorbitant fees, which most retailers cannot afford, are devastating for small businesses and leaves them struggling for decades. In addition, banks, credit card companies, and other financial service providers have strict requirements and policies that make it almost impossible for small retailers to access their services, further limiting their growth potential.
How Open Commerce is revolutionizing offline trade in emerging markets
It’s time to transform how consumer goods are bought, sold, distributed, and paid for across emerging markets. We need a digital solution that empowers small retailers and gives them access to the tools they need to grow their businesses. And that solution is Open commerce.
Open Commerce is a new way of trading for the next billion retailers like Joseph across emerging markets that unlocks the full value of the distribution chain, connecting brands, distributors, and retailers on a single platform where they can trade openly, with no restrictions or barriers. Unlike traditional e-commerce, where large platforms like Amazon have all the power and leave brands and retailers with none, Open Commerce puts retailers in control of their business. They can access every brand on the platform and buy stock at prices that they can afford.
To achieve our mission of accelerating global economic growth for the next billion retailers and ensuring that 6 billion consumers can access the products they need when they need them, we built the world’s first Open Commerce platform, Red101. With Red101, small business owners like Joseph instantly access a wide network of brands and distributors who carry a wide variety of stock. This means he can order all the products he needs for his store and have them delivered directly to his store, even before the current stock is exhausted. We’ve also built the world’s largest local payment network with over 2 million cash-in points across 100 countries, so SMEs can easily make and accept digital payments, even if they do not have a bank account.
Today, that mission is a reality. On our Open Commerce platform, over 200,000 retailers worldwide are buying over 250,000 products daily from some of the largest brands in the market, with a transaction volume above $1 billion. We’ve also unlocked exponential growth for brands, distributors, and retailers. For example, one of the distributors on the platform, Mishabet stores, has recorded close to a 500% increase in sales within the last year, and has grown its profit by over 30%.
We’re helping businesses of all sizes compete in a fair, open environment and driving sustainable growth that has a real impact on both our customers and the communities they reside in.
Schedule a demo today to see how RedCloud’s Open Commerce platform is revolutionizing offline trade in emerging markets and helping the next billion merchants drive consistent growth after decades of stagnation.
We’re building the future of commerce, and it’s Open.