Sierra Leone Market Analysis

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Sierra Leone Market Analysis

  1. 1. 2010 Youth Microfranchise Initiative: Market Analysis of Sierra Leone This report analyzes the general youth labor market and includes an industry and market analysis of 8 distinct sectors and evaluates the potential of launching a microfranchise business in each. Prepared for : Prepared by: oakley1008 1|Page Hewlett-Packard 1/1/2010
  2. 2. TABLE OF CONTENTS Executive Summary ......................................................................................................................... 4 Methodology ................................................................................................................................... 6 IRC Research Objectives .............................................................................................................. 6 Research Model And Criteria ...................................................................................................... 7 Management Team ................................................................................................................. 8 Scalability ................................................................................................................................. 8 Profitability .............................................................................................................................. 8 Sierra Leone Youth Labor Market Analysis.................................................................................... 10 Youth Demographics ................................................................................................................. 10 Location ................................................................................................................................. 10 Gender Ratios ........................................................................................................................ 11 Poverty .................................................................................................................................. 11 Employment Characteristics...................................................................................................... 12 Employment .......................................................................................................................... 12 Work Opportunities............................................................................................................... 12 Microfranchise Business Model ................................................................................................ 13 Impact on the Youth .............................................................................................................. 14 Business Sector Analysis ................................................................................................................ 15 Mobile Banking Services ............................................................................................................ 15 Market Analysis ..................................................................................................................... 15 Demographics...................................................................................................................... 15 Industry Analysis.................................................................................................................... 17 Evaluation of Microfranchising Potential .............................................................................. 18 Conclusion ............................................................................................................................. 19 Ice .............................................................................................................................................. 20 Market Analysis ..................................................................................................................... 20 Industry Analysis.................................................................................................................... 22 Evaluation of Microfranchising Potential .............................................................................. 23 Conclusion ............................................................................................................................. 24 Water Sachets ........................................................................................................................... 25 2|Page
  3. 3. Market Analysis ..................................................................................................................... 25 Industry Analysis.................................................................................................................... 26 Evaluation of Microfranchising Potential .............................................................................. 27 Conclusion ............................................................................................................................. 28 Popsicles and Frozen Treats ...................................................................................................... 29 Market Analysis ..................................................................................................................... 29 Industry Analysis.................................................................................................................... 29 Evaluation of Microfranchising Potential .............................................................................. 30 Conclusion ............................................................................................................................. 31 Salon Services ............................................................................................................................ 32 Market Analysis ..................................................................................................................... 32 Industry Analysis.................................................................................................................... 34 Evaluation of Microfranchising Potential .............................................................................. 35 Conclusion ............................................................................................................................. 36 Baked Goods .............................................................................................................................. 37 Market Analysis ..................................................................................................................... 37 Industry Analysis.................................................................................................................... 38 Evaluation of Microfranchising Potential .............................................................................. 40 Conclusion ............................................................................................................................. 41 Poultry ....................................................................................................................................... 42 Market Analysis ..................................................................................................................... 43 Industry Analysis.................................................................................................................... 44 Evaluation of Microfranchising Potential .............................................................................. 45 Conclusion ............................................................................................................................. 46 Mobile Phone Credit Sales ........................................................................................................ 47 Market Analysis ..................................................................................................................... 47 Industry Analysis.................................................................................................................... 48 Evaluation of Microfranchising Potential .............................................................................. 48 Conclusion ............................................................................................................................. 49 Conclusion ..................................................................................................................................... 50 Appendix........................................................................................................................................ 52 3|Page
  4. 4. EXECUTIVE SUMMARY Introduction Sierra Leone has been plagued with high unemployment rates since the conflict, with 70% currently unemployed. The country is listed as the poorest country in the world, and 34% of its population is youth between the ages of 15-35. To address youth unemployment, the International Rescue Committee (IRC) launched an innovative microfranchise project in February 2009 to provide business opportunities to unemployed youth. After evaluating this pilot, IRC sought additional impact on youth by exploring new industries and strengthening the microfranchising component of the project. This report provides further analysis and recommendations necessary to expand IRC’s youth microfranchising initiative and three-year microfranchising strategy. Based on the Fairbourne Consulting Group’s (FCG) five week in- country analysis, this report outlines FCG’s research methodology, assesses the current youth labor market, and makes IRC partnership recommendations based on a broad business sector analysis. The Youth Labor Market and Microfranchising Potential As a result of Sierra Leone’s long conflict, many youth lack key labor skills due to the limited educational opportunities available during that time. Combining the high percentage of youth with low education levels and the few employment opportunities today, many youth roam idly in the streets of Sierra Leone. Although many skilled laborers provide opportunities for apprentices to gain skills, 50% of urban youth work as unpaid apprentices. Often times these youth apprentices work for years under their bosses with minimal chance for advancement. In the rural areas this ratio moves even higher to 70% as youth work on family farms without pay. Although most youth see self-employment as their best income opportunity, only 33% of working youth are self-employed as compared to 50% of adults. Youth focus groups cite a lack of capital, network, and training. While traditional businesses in the formal market often require high levels of education, opportunities for both educated and uneducated youth remain limited. Addressing these youth labor market issues, a microfranchising business model will increase youth’s employment opportunity and help them to become more independent, develop self- respect, and learn the skills necessary to operate a successful business. Microfranchsing opportunities are well-suited for youth because they provide capital, branding, and training. Because microfranchises are proven businesses, youth should have a greater chance at running a successful business. As a quality microfranchise prospect, Sierra Leone's youth also represent a strong labor class because they have more energy, are more malleable, and are more open to new ideas than adults. 4|Page
  5. 5. Industry and Core Market Sectors Analysis Initially exploring 20 different industries in Sierra Leone, FCG discovered many market inefficiencies, thus business opportunities. Through multiple interviews with business leaders, government officials, business associations, and investors, FCG learned that Sierra Leone was improving its barriers to market entry for private sector investments; however, challenges still remained for a number of industries to grow. Weak infrastructure, management capacity, and government regulations discouraged many industries, such as tourism, agriculture, and manufacturing. In addition, there were many political and market saturation issues with mining and selling gold and diamonds. Although private sector development was improving, no strong incentives appeared to encourage local private sector development, but more support was given to imported goods. Based on FCG’s research and meetings organizations such as the Minister of Trade, Sierra Leone Investment Public Access, the First Lady of Sierra Leone, and a variety of other business association, 8 sectors were chosen out of over 20 to determine which would make a good microfrachise business opportunity. These 8 industries included: mobile banking services, ice, water sachets, popsicles and frozen treats, salon services, baked goods, poultry, mobile phone credit sales. FCG explored these industries and businesses that operate in the formal and informal markets, have innovative products or services, or are in high demand. Recommendations After analyzing 8 business sectors for their microfranchise potential, FCG recommends IRC further develop relationships with the businesses Splash and Ice Ice Baby. By developing partnerships with these two businesses, IRC will be able to tap into the following 4 businesses sectors: mobile banking, ice, water sachets, and popsicles. Based on this robust market analysis and exploration of the major businesses in Sierra Leone, Splash and Ice Ice Baby show the greatest potential for working with IRC to create 3000 youth microfranchisees over the next three years. As mutually beneficial partnerships, these businesses will create youth employment opportunities, and IRC’s youth microfranchisees will help these businesses deepen their distribution channels and improve the brand their products and services. FCG also recommends Splash and Ice Ice Baby as optimal IRC partners because of their strong management teams, potential scalability and profitability for both the microfranchisors and microfranchisees. Both management teams of these potential partners run efficient businesses and are very innovative, welcoming partnerships with IRC and FCG. They are excited about creating new employment opportunities for youth in Sierra Leone and addressing the youth unemployment disparity. Since both of these partners receive financial and management support and oversight from Manocap, a Sierra Leone based venture capital firm, FCG is confident that these businesses will maintain a strong, long-term market presence in Sierra Leone through adequate capitalization. 5|Page
  6. 6. METHODOLOGY IRC RESEARCH OBJECTIVES IRC evaluations of the 2009 microfranshing pilot project showed that 96% of the youth plugged into the microfranchise systems were either profitable or at least broke even. Further evaluations found the benefit to the youth was much greater than the money they were earning. Their self-confidence and outlook on life was also significantly higher compared to non IRC microfranchise youth in Sierra Leone. While the IRC found much success in their pilot project, they also wanted to overcome the unintended challenges they encountered. Hoping to develop more quality business partnerships, ensure the success of every microfranchisee, and scale the youth microfranchising initiative, IRC engaged the Fairbourne Consulting Group (FCG) due to its firm’s expertise with developing microfranchises in emerging markets. IRC employed FCG to undertake a five-week analysis in Sierra Leone to conduct market research and identify viable business partners in the three regions of Western Urban (Freetown), Kenema, and Bo Districts. Due to similarities in the markets, and resource constraints, FCG’s analysis is based primarily on data gathered in Freetown and Kenema. FCG’s team of four experts was led by, Jason Fairbourne, the author of multiple microfranchising texts and articles. At the request of IRC, FCG was tasked to complete the following key objectives: 1. Identification of businesses for three-year micro-franchise strategy; 2. Business conversion and definition of path to scale for micro-franchises; 3. Definition of cost-efficiency and sustainability plans for micro-franchises In this market analysis report, we address objective #1, sub-questions a. through f., while two separate microfranchising business plans will address objective #1, sub-question g., and objectives #2 and #3 in more detail. More specifically, this analysis addresses objective #1 along with the following sub-questions from IRC in mind: 1. Identification of businesses for three-year micro-franchise strategy; a. What sectors should microfranchise development in Sierra Leone focus on, and why? b. What products and services currently demonstrate unmet demand, at scale? c. What are the supply chain, regulatory, or financial constraints to production, processing or sale of these products? d. Who are the market actors engaged in each of the specific product/ service sectors? e. Is there value added to products or services as they move through the chain? If so how and what are the monetary values of these additions? f. Which businesses demonstrate potential for microfranchise operations in the products or services identified, at scale? What are the specific criteria that are used to make this decision? 6|Page
  7. 7. g. What are the specific strengths and weaknesses of these models in comparison to other international youth-inclusive microfranchising models? Please identify three comparable models that are youth-inclusive or set in conflict-affected countries and describe the strengths and weaknesses of the strategy proposed. RESEARCH MODEL AND CRITERIA We used a flexible methodology for conducting market assessments and understanding the business landscape in Sierra Leone. First, we used a fluid process that allowed us to adapt our daily agendas to be most efficient with our limited time in country. The fluidity allowed us to tailor our daily objectives as we learned new information to meet the most pressing needs. We set an initial agenda for the first few days and modified daily activities as we progressed. The reason for the fluidity of our methods is we did not want to limit ourselves to a set plan designed in the US. As we learned, we better understood the right questions to ask, and who to ask, so we wanted to be fluid enough to adapt with the process. As shown above, the data gathering and processing is cyclical in nature allowing us to immediately apply new information to guide our analysis. Second, we conducted research with a large range of participants including: government officials, businesses, consumers, IRC youth groups, non IRC youth groups, households, and informal entrepreneurs. The purpose of the initial scoping was to (a) identify potential products and services from a range of sectors, which demonstrated unmet demand; and (b) identify successful businesses which were providing these goods and services. Third, we created a shortlist of twenty potential micro-franchise partners and/or sectors. At the end of each day, we would report our new findings and re- evaluate these industries based on any new Manage- ment information. By the end of the first two weeks of Scalability analysis, the most promising eight industries were: mobile banking (Splash, Zap), popsicles, water, ice (Ice Profitability Ice Baby), salon services (Jemna), poultry (Yewe Poultry Farms), bakeries (School Bakery, Lebanese, J1, Red Lions, Lumley), and top-up (Balani and Son’s, Africell, Zain, Comium). Microfranchise Opportunities Fourth, we assessed these eight industries further and evaluated potential partnerships in each one. Only 7|Page
  8. 8. two potential partnerships passed our microfranchising model criteria. This process involved cataloguing and ranking potential business partners in each industry on the basis of their ability to meet three core requirements. Through the assessment we found that there were many business opportunities in Sierra Leone, but not all were poised for microfranchising and thus did not make it through all three filters. Our three microfranchising filters or criteria were; Management Team, Scalability, and Profitability. MANAGEMENT TEAM For the Management team we analyzed the skill sets of key management positions. We asked ourselves questions like:  Does the manager have ability to run a large scale business? o Can he/she manage managers? o Do they see value in using a microfranchise model? o Are they willing to make management changes to meet needs of a microfranchise business? o Are they willing to allocate resources to make it work? o What is there level of commitment? o Are they trainable?  If they do not have the ability are they willing to relinquish power and hire a manager above them?  Do they have the bandwidth to grow their business? o Are there key staff and managers that need to be hired before adding the microfranchise systems? o How many hours do they put into their business? o Are they innovative problem solvers?  Do they have a vision that a microfranchise model can help them scale their business? SCALABILITY While the management team questions filter the ability of management to scale, our scalability questions filter consumer needs and the overall market demand. We interviewed consumers on the streets, in their homes, in focus groups, in taxis, anywhere and everywhere to get a pulse on the needs and wants for the final eight industries. This is the primary question this filter answers: Is there enough need for this product or service to scale large enough and provide microfranchise opportunities to thousands of youth. If we felt it only had the ability to scale to hundreds we crossed it off the list. Good businesses like hair salons fell short on this filter. PROFITABILITY To ensure these businesses would be profitable to both the microfranchisees and the microfranchisor, we asked questions about wages and cost structures. As a result of our analysis, we determined that the average daily wage for youth was LE 20,000. Most youth 8|Page
  9. 9. considered LE 20,000 a day, which is USD $5, a good salary. We also interviewed youth that were making roughly LE 5,000 a day profit in Kenema and were very happy to have that. While we hope youth will maximize their profit earning potential, we have only set a daily income of LE 20,000 as a minimum goal. We also asked ourselves questions like:  How much value add does this business bring to the youth, compared to other options? o How much more would the youth earn by entering into this business as opposed to selling top-up (a business that anyone can enter if they have some capital)? o Do the youth learn any skill sets? What are they? Are they transferable? (selling top-up for example does not require a lot of training or add much experience) o Is there room for growth?  Can they afford to add employees?  Is there a limit to the growth potential?  Do they earn enough money?  What equipment costs would they have?  Would it engage the youth or is it a boring mind-numbing business?  How innovative is the business – is it unique and differentiated from other businesses?  Will it push the youth to new boundaries and build confidence? Using these three filters, our experience in other emerging markets, and our analysis of each potential industry, we were able to determine the best microfranchising opportunities in Sierra Leone’s current market. Though our time to research the complete business sector was limited to just five weeks in Sierra Leone, having four consultants in-country, and the ability to hit the ground running, we were able to increase the volume of meetings and maximize our research from day one. This entire analysis was also made possible due to IRC’s in-country staff as they provided a solid foundation and support to our consultancy. Their initial youth microfranchise pilot and business sector network was key to our preliminary understanding of the business sector and youth employment. The IRC staff also arranged numerous meetings and focus groups with the most knowledgeable business leaders and market players, including youth. In addition, IRC provided necessary feedback as we conducted our analysis. 9|Page
  10. 10. SIERRA LEONE YOUTH LABOR MARKET ANALYSIS In order to better understand the major factors we would need to consider in developing our youth microfranchising models, in addition to showing the impact microfranchising has on youth, we analyzed Sierra Leone’s youth labor market. Today, youth ages 15-35 represent 34% of the country’s 6,300,000 people (all statistics in this section come from Statistics Sierra Leone Census 2004). These youth face numerous changes in this post-conflict state. Due to the closure of many schools and the general inoperability of the government to maintain social programs during the war, most of these youth lack the education to create meaningful value in their communities. This lack of education and skill development results in high underemployment rates where youth are unable to make money beyond a basic sustenance level. This precludes the ability to improve their situation or to be able to afford caring for a family, thus making them perpetual “youth.” This is a particularly important issue to address as history has shown that unemployed and underemployed youth, frustrated with their situation and lack of control, turn to violence to achieve a sense of power. This phenomenon is highly relevant in Sierra Leone, where the Revolutionary United Front (RUF) was composed primarily of disenchanted youth. Although the war has ended, this key catalyst of the war has still not been entirely addressed. The IRC is attempting to address this issue in part by helping youth become employed through microfranchise businesses. The microfranchise business model addresses many of the key constraints often faced in these markets. The model offers microfranchisee business owners a proven turn-key business, differentiated products, and a comprehensive training program. Thus, those that lack education or entrepreneurial talent can successfully provide value to the market while developing human capital at the same time. YOUTH DEMOGRAPHICS LOCATION Young people tend to be more urbanized than the rest of the Sierra Leone population as shown to the left. Youth originally relocated to the urban areas during the war for protection. After the war, research indicates that youth continue to migrate in search of better income opportunities. This in part is driven by the social controls of rural elders – land is controlled by 10 | P a g e
  11. 11. a few elite families that use their positions to extract unpaid labor from rural youth. These reasons may indicate why urbanized youth have expressed strong resolutions not to leave urban areas. GENDER RATIOS As with most populations, young women outnumber young men in Sierra Leone. Youth Gender by Location 350,000 However, the differences in ratios are 300,000 particularly high in rural areas. This is possibly 250,000 explained by three effects. During the war, 200,000 young men had a higher incidence of death as 150,000 100,000 compared to women, men are often selected 50,000 over women to receive educational - opportunities available only in urban centers, Rural Rural Urban Urban and it appears that proportionally more men 25-35 15-24 25-35 15-24 Male Female migrated during the war. It is important to note differences between when men and women become parents within a family unit. Even compared to other sub-Sahara African countries, youth pregnancy in Sierra Leone is high among women with 17% of 16 year olds and 47% of 18 year olds having at least one child. Many of these women marry at earlier ages (50% by age 19 and 71% by age 24), particularly in rural areas where arranged marriages and traditions dominate. Men on the other hand do not marry until much later in life (50% by age 27 and 85% by 35). This is in part due to the cultural responsibility placed on men to provide for the high cost of supporting a family. Achieving this level of income can take a long time for men, as they work to gain education, experience, and stronger social networks. In rural areas, many men are dependent on the local elders to be able to marry, often requiring that they provide free labor to future in-laws in order to “pay” for their wives. Marriage delays often result in social exclusion and ultimately, violence. POVERTY Given Sierra Leone’s low Human Development ranking of 180 out of 182, it is no surprise that poverty is prevalent. Among youth, poverty incidence is particularly high due to lack of education, weak social networks, and few employment opportunities. 11 | P a g e
  12. 12. Focus groups and interviews have shown that most youth contribute very little to their families. This results in additional burden to the income producing members of the family and promotes a lack of respect for those youth. The emotional impact of poverty therefore may play a more important emotional and social stability role for youth. It appears that by simply reducing the financial burden on their family, youth gain more respect from others and from themselves. EMPLOYMENT CHARACTERISTICS EMPLOYMENT 25% of young men are neither Unemployment Profiles of Labor Force 80% working or in school. Unemployment 70% 60% is the highest for men between the 50% ages of 20-24 at 30%. That age span 40% 30% is considered a time of transition for 20% 10% youth as they finish up school and/or 0% 15-19 20-24 25-35 36-65 15-19 20-24 25-35 36-65 feel additional social pressure to Men Women become more financially Completely Inactive Unemployed Home Duties independent. As shown above, many young men are completely inactive, while those that are actively searching for a job (unemployed) or performing house work (home duties) still make up a large percentage of the youth labor force. As would be expected with earlier marriages and child barring, women tend to have higher unemployment rates, though they are primarily busy doing house work. Differences occur in employment rates between rural and urban areas. 70% of rural 20-24 year olds have work compared to only 40% of their urban counterparts. This difference declines with age such that by 35, labor participation rates are the same. These differences are driven by rural youth leaving school sooner and working on the family farm, while urban youth face fewer job opportunities. WORK OPPORTUNITIES Work opportunities for youth fall into the following categories:  Unpaid Labor: More than 50% of urban youth are employed in unpaid labor (apprenticeships) with 70% of rural youth engaged in unpaid agricultural activities (primarily family farms). Although unpaid labor rates decline with age, 33% of men work for free, while 40% of women work for free in their husbands’ shops and stalls. While workers within a family do share household expenses, many are unable to become independent income earners.  Self-employment: Most youth see self-employment as their best employment option. Although this leads to increasing self-employment with age, only 33% of working youth are self-employed, compared to 50% of adults. Urban youth and men are more likely to 12 | P a g e
  13. 13. operate their own business, though this gap also declines over time with more than 50% of the labor force operating their own businesses. A key finding is that many youth feel that they lack sufficient capital and access to cheaper inputs to help their business operate efficiently, be productive, and ultimately competitive. 25% of all unemployed would like to start their own business. 30% of unemployed youth would like to start their own business, though this declines to only 16% by age 25-35.  Wage Employment: Wage employment is very rare and predominately an urban male phenomenon. Given that wage employment increases with age, even when controlling for education across ages, it appears that wage labor markets value experience over education. Youth also indicate that labor market connections often trump merit in hiring decisions. 70% of all unemployed would prefer wage labor, which may be an indication of entrepreneurial drive in the economy.  Formal Sector Employment: Only 10% of labor in Sierra Leone is a formal sector wage job with benefits. Workers in this sector are more educated and are predominately urban and male, even compared to comparably educated women. As education level increases, unfortunately so does unemployment. However, the likelihood of being employed in the formal sector also increases with education such that once a highly educated individual finds a job, it will most likely be in the formal sector. Most people move from one work sector to another, improving their situation over time, with a wage position as the end goal. Many youth start their own business and over time are able to go back to school and get more education and/or make more connections with other wage earners, thereby increasing their chances of acquiring a wage paying job. Strong educational backgrounds are required for formal sector employment, while experience and connections appear to be the biggest influences to achieving a wage paying job. MICROFRANCHISE BUSINESS MODEL The youth labor market is an important part of the overall economy and social structure of the country. Long term growth and development will depend on having a strong, experienced labor force well into the future. In order to make up for the lost years of the civil war, when few educational and work opportunities existed, youth today need even more opportunities so that they gain the necessary skills to develop into the next generation of leaders in Sierra Leone. As a microfranchise prospect, youth represent a strong labor class. Youth typically have more energy, fewer family responsibilities, and potentially more ambition than adults. They can endure longer work hours and travel distances. This is important because a core part of microfranchising is the model’s ability to drive wider distribution through microfranchisees that are able to sell to the last mile. Youth are also more malleable and open to new ideas than adults. This makes them more optimistic about their potential success and they are more teachable, making it easier to transfer successful business practices within the microfranchise. Given that strong systems are a 13 | P a g e
  14. 14. key component to a successful microfranchise system, having youth that adhere to a microfranchise system’s guidelines is crucial. IMPACT ON THE YOUTH A microfranchising business model helps youth to become more independent, develop self- respect, and learn the skills necessary to operate a successful business. Microfranchise businesses around the world have demonstrated the ability to provide individuals with better, more reliable jobs. Research of several microfranchises in Bangladesh, Ghana, and Guatemala have indicated that although microfranchisees don’t always earn the most as compared to stand alone enterprises, they do have a much tighter profitability band, indicating much less risk for the microfranchisee. This is important in developing countries as a bad week for the business can have dire consequences on a family. We have seen countless individuals go from earning $1-2 per day before joining a microfranchise business to earning $20-30 per day. This dramatic increase in income has a large impact on the overall welfare of the family and the independence of the microfranchisee. In focus groups with youth, we found a stark contrast between those that were part of the IRC Youth Microfranchise Initiative and those that were not. Youth employed in the program cited multiple benefits. Youth felt like they were contributing to their families, or at the very least independent from their families for their care. Others referenced an increased amount of respect from their family and community and how their status within the community had changed from idler to contributing member. Many youth also enjoyed the freedom associated with having extra money. All demonstrated an increased level of self-respect and self-worth. Youth not part of the program, however, were more pessimistic and frustrated with their situation. They also appeared to be more prone to expect others to help them as opposed to being independent. Although most youth see self-employment as their best income opportunity, only 33% of working youth are self-employed as compared to 50% of adults. The youth we met with often cited lack of capital, network, and training. A microfranchise business model solves these issues. Most microfranchises are set up with financing as part of the package through either microcredit or consignment sales. Microfranchisees are immediately plugged into the broader market and have the opportunity to leverage a strong brand/product to develop their own business relationships. Finally, training is a core component to any microfranchise. In order to operate smoothly and increase sales, microfranchisees are trained on their products, best sales practices, and general business operations. This addition to their human capital improves their potential for success within the microfranchise and greater society. 14 | P a g e
  15. 15. BUSINESS SECTOR ANALYSIS After exploring over 20 business sectors in Sierra Leone, eight sectors met our first pass criteria for viable youth microfranchise options and thus warranted further analysis. The Business Sector Analysis section outlines each sector’s products and/or services, analyzes the market and industry dynamics, and evaluates its microfranchise potential. Finally, each sector summary concludes with our recommendations regarding its viability as a youth microfranchise business. MOBILE BANKING SERVICES Mobile banking is currently one of the hottest economic growth and development opportunities in emerging markets. With the recent success of M-PESA in Kenya, more organizations, governments and companies are looking at the potential of mobile banking. This is a big opportunity in Africa as over 40% of Africans own at least one cell phone. M-PESA, a mobile banking solution provided by Safricom in Kenya, is currently the largest player in Africa with over 8 million active customers, representing an 18.4% country penetration rate, and a 38.3% penetration rate of total cell Kenyan cell phone users (The Economist, September 2009). One recent study by Olga Morawczynski, an ethnographer at the University of Edinburgh who has studied M-PESA in detail, found that mobile banking has saved E-PESA users enough in time, travel, and fees so as to increase their incomes by 5-30%. The basic mobile banking services simply allow people to transfer funds via their cell phones. Applications may include but are not limited to remittance transfer, payroll, shopping, non- interest paying saving accounts, utility and school fee payments, etc. In part, mobile phones act like debit cards. The service reduces the need to carry cash, which can be unsafe and cumbersome. This is important for countries like Sierra Leone where inflation has led to paper currency with little value, resulting in the need to carry large quantities of cash. MARKET ANALYSIS D EMOGRAPHICS Currently, users include mostly more educated and technology savvy consumers and businesses. Customers will need to make enough money to own a cell phone and to justify the transfer fees. Most users are urban based, though as the services rolls out, it is expected that usage among rural users will grow significantly. Today there are only 200,000 bank accounts among Sierra Leone’s 6.3 million, compared with the 1.5 million mobile phone users. Akin to other countries in Africa, mobile telecommunications are leapfrogging archaic technologies; youth as well as adults use cell phones. Although youth are 15 | P a g e
  16. 16. more technologically savvy and likely to adopt new mobile phone applications quickly, adults who account for the majority of small business and farm owners could stand to profit the most from mobile banking solutions. C ONSUMER N EEDS /W ANTS AND P REFERENCES Awareness is one of the largest problems facing mobile banking in Sierra Leone. People are unfamiliar with banking in general given the low banking penetration in the country and they typically lack the education to understand how the system operates. Although many people in Freetown had heard of Splash and Zap, the two solutions provided, few know where or how to use the service. People do not trust or like banks in Sierra Leone. Countless individuals store money under their beds and in other unsecure areas rather than depositing it in the bank. This bleeds over into the mobile banking sector as people get comfortable with the system and trust that it will operate correctly – ensuring that they always have access to their money. Currently, there is limited benefit to the customer due to the few other registered customers. As more and more people use mobile banking solutions, it is expected that there will fast growth due to network effects and ease of use. However, the service must be available to thousands of customers with hundreds of physical access point before it reaches exponential usage growth rates. M ARKET S IZE AND G ROWTH Currently the market size is small, with very few users. Splash currently has 25,000 users and the competing offering Zap by Zain is also now just raising awareness of its product. Using M-PESA as a guide, number of mobile banking users in Sierra Leone could reach 600,000 (40% of 1.5 million cell phone users). This estimate might even be low, given that M-PESA is tied into Safaricom and only works on that network. M-PESA transfers around $200 million every month with an average transaction size of $18 in Kenya among its 8 million users. Using similar statistics to M-PESA would result in a potential $5.4 million market size per year in the next year or two, assuming 3% transaction fees on $15 million in transfers per month. If Sierra Leone mobile phone penetration hit the same 40% as the rest of Africa (2.52 million Sierra Leoneans), that alone would grow the market to $22.7 million per year. Although this may seem like a much lower market size, this does not account for other additional services, nor is it expected that more than 2-3 players will operate in this market. In addition, there is still significant growth in this market given that M-PESA is currently signing up 10,000 new users per day. 16 | P a g e
  17. 17. INDUSTRY ANALYSIS E CONOMY T YPE Mobile banking sits within the finance industry; however, it decentralizes traditional banking into the informal markets and is considered one type of “banking for the unbanked.” While many poor have access to mobile phones, there are still many without bank accounts or education regarding how to save money. Hence, mobile banking has the potential to change the financial industry as it becomes more prevalent and possibly redefine the demand for banking services in the emerging markets. M ARKET P LAYERS AND C OMPETITION Currently in Sierra Leone, only two companies offer mobile banking services. These include Zap by Zain, a mobile payments service that only operates on the Zain network and a few large businesses, like one of the local gas station networks. The other is the new start-up Splash, which is funded by ManoCap and works with all three of the major telecommunications companies in Sierra Leone: Zain, Africell, and Comium. Customers can substitute either by simply transferring air time units to one another. Although it appears from talking to people that this is uncommon, we did meet a couple individuals that transferred money to the provinces in this manner. Perhaps the greater threat comes from outside of the country. M-PESA is currently working with a number of banks to expand its presence in other African countries. MTN recently launched a mobile payments service in Uganda with Stanbic Bank. So far the trial has been successful and resulted in expansion to Ghana with 20 other countries on the expansion list (“Beyond Voice”, The Economist, 2009). Other potential entrants include Gcash and Smart Money in the Philippines, Wizzit in South Africa, and Celpay and Mobile Transactions Zambia Limited in Zambia. S UPPLY C HAIN Mobile Banking System Provides banking system, training, certification Large Bank Super Agent Agent Customer “Agent of Capital and Transaction Last Resort” Management Point for w/reserves Support Customers Mobile banking agents provide a very simple service to their customers. First, customers deposit money with a mobile phone agent. The mobile phone agent then transfers the amount minus a small fee to the customer’s mobile phone and both will receive an electronic SMS as a 17 | P a g e
  18. 18. receipt of the transaction. From there, the customer uses their electronic credit by dialing certain numbers and using their security id or password. They can pay bills that are set up with the service, transfer money to family or friends, or pay for additional phone minutes out of their mobile phone’s balance. Mobile banking systems are simply a software and mobile texting platform that sits on top of the transaction network. The networks are designed to keep the virtual cash as liquid as possible for the customer, this being the key to generating revenue for the mobile banking unit as it derives its incomes from fees. Each layer of the network, from the Bank to the Super Agent, to the Agent, carry increasing amounts of cash, so that if the Agent runs out of cash to handle transactions, the customer or the Agent can always resort back to the Super Agent or Bank. EVALUATION OF MICROFRANCHISING POTENTIAL P ARTNERSHIP We have strong partnership opportunities with Splash. They have an experienced management team that is capable of managing a large scale business. In addition, they have access to capital from a venture capital fund, ManoCap, which has invested USD $2 million to date, while currently raising another $1 million for a third round of funding projected to close at the end of this year. Splash’s management also sees the value of designing a microfranchise model to scale their services; thus, strengthening the commitment to see the IRC youth succeed. S CALABILITY There is a lot of potential for mobile banking to be successful in Sierra Leone. Building out the strong transaction network outlined in the Supply Chain section will be crucial to achieving that success. This network of Agents will require that at least thousand people are ready throughout the country to provide liquidity for customers. Splash recognizes this and is focused on building and supporting this network. This provides a real opportunity to employ hundreds, if not thousands of youth through a microfranchise model. In many aspects, this business should scale to a similarly to the mobile air time reseller market, such that a Splash agent can be found within a certain distance from any customer. Splash is also exploring a number of other verticals such as payroll services and becoming Sharia compliant, which would give them better access to the large Muslim population that accounts for 60% of Sierra Leone. S USTAINABILITY /P ROFITABILITY Mobile banking has the possibility to be profitable to both the microfranchisees and the microfranchisor. We see good potential for IRC microfranchisees to get involved in an emerging industry and build a large clientele before the industry explodes and the market is saturated with youth mobile banking agents. While the cost for Splash agents to offer mobile banking 18 | P a g e
  19. 19. services may be fairly low, we expect each youth agent to have a high earning potential, with a percentage of transactions being paid as a commission. According to Splash, Agents should make L 20,000 (~$5) per day if they service at least 7 transactions. In addition, microfranchisees will be able to sell mobile phone air time at a much better rate through Splash then they could get from airtime wholesalers, thus increasing their earnings. CONCLUSION Due to the mobile banking industry’s current management team, scalability, and profit earning potential, we recommend using mobile banking as one of the project’s sectors. In particular, we recommend IRC partner with Splash as the best microfranchising partner. Since Splash envisions developing a deep distribution system with mobile banking and its services, it will make a great partner. This service distribution network represents an enormous opportunity for youth microfranchisees to become mobile banking agents throughout Sierra Leone. In addition, Splash has already expressed interest to work with IRC and Fairbourne Consulting Group to develop the microfranchising system. Manocap, the local venture capital firm funding Splash has also offered its backing and support. This is an enormous opportunity that will benefit both the youth microfranchisees and Splash. 19 | P a g e
  20. 20. ICE In Sierra Leone the temperature remains fairly constant throughout the year, hitting 95 degrees Fahrenheit during the dry season and not dropping much below 70 degrees during the wet season. There is an obvious need to keep items cool. Ice is used in this market much more as an input for other businesses rather than direct consumption by the end user. Consumers demand ice-cold water and soda from vendors. Fishermen need large quantities of ice to transport their catch. Frozen treat vendors require ice to sell their products as well. To that end there are different kinds of ice – cubed ice, block ice, and packing ice. The highest cost of producing and distributing ice is fuel and energy. Thus, ice is very much a commodity product that can fluctuate in price based on energy costs. MARKET ANALYSIS D EMOGRAPHICS Ice is primarily sold to two customer groups – fishermen and street vendors, with only a minimal amount going to restaurants and hotels. Ice Ice Baby, the largest producer of ice in Sierra Leone estimates that half of their sales can be attributed to fishermen (packing ice) and the other half to street vendors (crushed ice). Fishermen in Tombo (1 hour outside of Freetown) order ice in large quantities as needed to keep their catches cool for resale. Fishermen prefer either shaved or crushed ice, as it is the best form of ice for packing fish. Street vendors are less discriminate about what type of ice they have to keep their beverages cool. When questioned almost all street vendors purchased ice to keep soda, ginger beer, and water cool for resale. Hotel and restaurants are occasionally in need of cubed ice for drinks and tend to make higher purchases on the weekends. Many hotels have their own ice producing equipment and will only request ice when their machines are broken. When there is a power outage, there is a high demand for ice because almost everyone loses the ability to keep things cold and small informal producers lack the power needed to 20 | P a g e
  21. 21. manufacture ice. However, Ice Ice Baby, the largest ice producer in the country with capacity of 28 tons of ice daily has a high output generator to meet all of its energy needs. C ONSUMER N EEDS /W ANTS AND P REFERENCES Fishermen need ice to cool fish, street vendors to cool their inventory of beverages, and hotel owners to prepare drinks for tourists. The important common denominator with these three distinct customer groups is that these are business-to-business transactions. Little to no ice is sold direct to consumers for their cooling needs. Customers prefer specific types of ice (blocked, cubed, crushed, shaved) based upon their business needs. All customers demand “strong” cold ice. Upon distributing ice, many customers at the end of the distribution route tend to complain about ice quality as some of the ice was melted after a few hours of transport. However, left with no real alternative options to purchase ice, customers quickly purchase what ice remains. M ARKET S IZE AND G ROWTH Current estimated revenue just for ice is $880,000 annually per conversation with Amadeus, Ice Ice Baby’s General Manager. He provided sales amounts for the dry season at 11.2 million Leones daily, and we estimated the wet season at half that. There is also opportunity for deeper distribution within Freetown, possibly 3 times the current 5-kilo bags distribution which is half of the current revenue, so an additional $1,320,000. Total estimated market size on current routes with deeper distribution is $2,200,000. Building out new production facilities in 4 other sites to establish a larger network of 5 total facilities to blanket the country could bring the total estimated nationwide market size to $11 million. There is opportunity for exponential growth in the ice market, as producers cannot meet demand both in and outside Freetown. Within Freetown deeper distribution networks would greatly expand the customer base to many street vendors in need of ice. Riding alongside Ice Ice Baby’s salesmen on a daily distribution route to Waterloo in Freetown, literally hundreds of customers were calling for ice from the side of the road and yet did not receive ice as the truck only stopped at specific locations. Outside of Freetown there are many customers whose needs for ice are not being met. In addition, should Ice Ice Baby be able to reduce the cost of its ice, it may be able to further grow the overall market size. In the long run however, it is expected that ice sales will decline as power becomes cheaper and more reliable within the country. 21 | P a g e
  22. 22. INDUSTRY ANALYSIS I NDUSTRY T YPE Ice production is primarily a manufacturing and distribution sector. Core competencies and resources related to both are important for success in this sector. Strong players have access to large ice production facilities and the ability to keep them consistently operating. Refrigerated or insulated trucks for distribution are also necessary. Finally, quality of the product produced through those processes is important to building trust in the market. M ARKET P LAYERS AND C OMPETITION Competition in the ice market is not intense as the market absorbs all ice that can be produced. There is room for much more capacity. Whether that capacity comes from current market players or new entrants, it will be a function of capital costs to set up facilities and distribution routes with trucks. First movers that can set up deep distribution routes and build a strong brand will capture significant market share. Currently, Ice Ice Baby is the only major player in this industry. There are many small and informal local vendors as well. However, customers clearly prefer Ice Ice Baby due to product quality and brand recognition. These producers sell minimal amounts as they have limited capacity to pay the utility bills to freeze and store ice. Ice Ice Baby is the only company that is certified by the Ministry of Health to sell ice for consumption. Other ice producers were shut down due to poor water quality earlier in 2010. Remarkably, the company is also certified by the European Union to service the fishermen in the event the fishermen can export fish. S UPPLY C HAIN The production capacity outside of Freetown is rather limited. Therefore, Ice Ice Baby will ship it as far as Tombo and Makeni. No other established company is servicing the ice needs of communities past Makeni. The transport costs combined with Ice Ice Baby’s limited number of trucks discourages transport of the product farther than Makeni. The company is eager to expand into these areas and could build another facility in the region to do so when ready. Distribution in and around Freetown follows more of an “ice cream man” distribution route. The ice truck follows a daily route in the morning making stops in strategic locations to meet street vendors to sell 5-kilo bags of crushed ice (Le 2700). As traffic is a big problem on the road to Waterloo the ice truck is limited on where it can stop to avoid being ticketed by the police. Many customers will call to the truck from the side of the road requesting ice, but the truck will not stop. 22 | P a g e
  23. 23. Water Purification Freezing Process Distributio Business Process Cubed n Trucks Customers Shaved Hotels Crushed Fish Businesses Power Drink Vendors Once the truck is stopped many vendors will run up to the truck to purchase the product. In the case of Ice Ice Baby, the truck will make as many as 12 stops before making it out to Waterloo. It is possible that all of the ice will be sold out before even making it out there. The salesman on the ice truck typically reserves ice for customers that routinely purchase larger quantities. Otherwise, it is likely that the ice truck will arrive in Waterloo with no ice. EVALUATION OF MICROFRANCHISING POTENTIAL P ARTNERSHIP Ice Ice Baby is a willing and strong partner. As mentioned, the company is the only company approved by the Ministry of Health to produce and sell purified ice. The company is well capitalized with 6 trucks and the capacity to produce 28 tons of ice each day. Ice Ice Baby may very well be the strongest brand for any local product in Sierra Leone. There is also a strong management team in place with oversight by Manocap, a local venture capital firm. Most importantly, Ice Ice Baby is willing to pursue a microfranchising model with the end goal of setting up a cold chain distribution system. Once the cold chain distribution system is set up, Ice Ice Baby can distribute more cold and frozen products like water and popsicles. S CALABILITY Scaling will require some capital expenditures, be it lighter trucks and/or strategically located storage facilities. Deeper distribution from these strategic points will also require some pushcarts or possibly bicycles and coolers for the microfranchisees. These costs should not be an obstacle to Ice Ice Baby, given their backing by ManoCap, and ManoCap’s commitment to developing those distribution channels. S USTAINABILITY /P ROFITABILITY Ice is in very high demand and there is not sufficient supply for the market. The first mover to establish deep distribution will open up and capture market share. Managing capital expenditure and growth of the distribution network will be a critical factor in the overall profitability. Developing a cold chain distribution system to sell products complimentary to ice like water and popsicles will make the business even more profitable. 23 | P a g e
  24. 24. CONCLUSION We highly recommend that IRC further develop their relationship and partnership with Ice Ice Baby in the ice selling industry. Due to Ice Ice Baby’s high quality management team and potential scalability and profitability, it provides a great opportunity for IRC’s youth microfranchisees. Microfranchising is also well matched for the needs of Ice Ice Baby since the company envisions developing a cold chain distribution system. With this distribution network and support, Ice Ice Baby’s cold/frozen products will more easily be sold throughout Sierra Leone. In addition, Ice Ice Baby has already partnered with the IRC during the pilot phase and expressed interest to work with the Fairbourne Consulting Group to develop the microfranchising system. Manocap, the local venture capital firm owning Ice Ice Baby has also expressed interest in financing capital expenditures for popsicle and water sachet production equipment. Ultimately, this is an enormous opportunity that will benefit both the youth microfranchisees and Ice Ice Baby. 24 | P a g e
  25. 25. WATER SACHETS Water sachets are single serving plastic bags of drinking water sold by street vendors and established stores alike. There is both an informal and formal market for the product. Customers will pay a premium for branded sachets that are known to contain purified water. Customers also highly value an ice-cold water sachet and will seek out vendors that can provide this. Informal water sachets (Le 100) are filled with unpurified water from homes or community water taps and sold on the street. Many youth will sell unpurified water sachets on the street as the product turns over quickly and anyone can produce it. Purified water sachets (Le 300 – Le 500) are produced by local companies using a reverse osmosis process and are distributed in packs of 30 for retail by street vendors and formal establishments. One challenge with the purified water sachet business is the water quality. As “purified” sachets sell for more than double the price of unpurified sachets, the true water quality of some brands is called into question, especially since some have businesses have been shut down by the government for falsifying their water quality. MARKET ANALYSIS D EMOGRAPHICS Everybody buys water if they are thirsty and not near their home water source. Individuals that spend a lot of time outside working away from the home like taxi drivers, other street vendors, and laborers may represent a higher portion of the customer base, but either way water is a necessity for all and everyone buys it as needed. However, the size of a customer’s disposable income will dictate whether or not a customer purchases purified or unpurified water as there is a premium for the purified product. C ONSUMER N EEDS /W ANTS AND P REFERENCES There is no more basic need than water. Consumers need to satisfy their thirst and highly prefer cold water when given a choice. Customers require an accessible price for this most basic product. Low-cost convenient packaging and lack of purification in the informal sector make this easily attainable at Le 100. Customers in the formal purified water market highly value the brand and are willing to pay a premium for safe drinking water. A well known trusted brand is highly valued by consumers of purified water sachets. 25 | P a g e
  26. 26. M ARKET S IZE AND G ROWTH Estimated Water Sachet/Bag Market Size Location Avg Price Population Water/Day Penetration Market Size (L) Market Size ($) Urban 200 2,394,000 3.5 70% 428,166,900,000 107,041,725 Rural 250 3,906,000 3 40% 427,707,000,000 106,926,750 Total 855,873,900,000 213,968,475 Growth will be driven by increased distribution through expansion by existing companies and new entrants and by general population trends. Using just the historical population growth of 2.2% and the estimated market sizes above, the water sachet market could hit $606M by 2014. INDUSTRY ANALYSIS I NDUSTRY T YPE The water sachet industry is primarily a treatment, packaging, and distribution sector. Water is either purified or not and then packaged into small bags for easy distribution and sales. This industry is based on the idea that finding clean, cold water for consumption is difficult and inconvenient. By making access to drinking water convenient, vendors of water sachets create value through both distribution and purification. M ARKET P LAYERS AND C OMPETITION Most anyone can produce and sell unpurified water sachets. All that is needed is access to tap water and a supply of plastic bags. The ability to sell cold-water sachets does come at a higher expense to the producer, but this producer will sell sachets much more quickly. There are numerous established companies producing purified water sachets including:  Nour  Global H2O  Family Care  Ubez’s Pure Water  Magram Water  More Companies  Mama Pure Water  Water Care Educated consumers prefer to drink purified to unpurified water, but the decision of which sachet to purchase is purely economic. Customers purchase what they can afford. For the most part, the purified and unpurified water sachet markets are two distinct markets with little to no competition between them. However, fierce competition exists within both the purified and unpurified sachet markets. Customers are fairly loyal to their water preferences and if they can afford to pay for premium purified water sachets, they will avoid buying informal water sachets. Likewise, customers who regularly purchase informal water sachets typically do not decide to buy a branded product without a significant rise in disposable income. That does not mean that relatively affluent customers do not purchase unpurified water sachets, but rather customers tend to stay true to their preferences as dictated by disposable income. Informal surveys indicate that an average person purchases 6-7 water sachets or bags a day. 26 | P a g e
  27. 27. Competition within the informal water sachet market appears to be saturated. The streets are lined with many vendors selling unpurified water sachets. Customers typically buy from a trusted person and when no such person is available they will purchase from whoever has the coldest water nearby. The product turns over quickly with one street vendor selling 20 unpurified sachets in approximately one hour. In another case, a single mother had her 3 children sell water sachets at the local market before and after school. Providing cold water is very important as 80% of informal survey respondents indicated that they would travel to another location if the water was not sufficiently cold. Competition between formal players is equally fierce with more than 10 companies fighting for market share. Purified water sachets are sold both by street vendors as well as more formal store fronts. There are issues of unpurified water sachets misleading consumers and lying about water quality on packaging, and this presents some problems for formal players. Recently, the Ministry of Health audited the industry and shut down 8 falsified operations. Thus, strong brand presence in this space is very important. Purification Sachet Distributio Business End Customer Water Process Package n Trucks Customer Well s City River Tied Bag Package S UPPLY C HAIN Water sachets both purified and unpurified are made at the water source – for the informal producer this is the home or public water faucet, and for a formal player this would be the manufacturing facility. Informal street vendors head directly to the street to sell the products. Formal players tend to have more developed supply chains. Purified water sachets are plastic wrapped into cubes of 30 and loaded onto trucks for distribution to markets, small street vendors, and individuals. EVALUATION OF MICROFRANCHISING POTENTIAL P ARTNERSHIP Formal companies producing purified water sachets have established distribution routes and methods. For one of these companies to adopt a microfranchising mode, it will require modifying relatively longstanding business practices. However, opportunity exists to build out a completely new microfranchising system for Ice Ice Baby, who has expressed interest into moving into the water sachet business. Ice Ice Baby is a very well-known and trusted brand in 27 | P a g e
  28. 28. Sierra Leone and this will be a strong asset for when it moves into the sachet business. They also already have trucks and distribution competencies in the adjoining space of ice. S CALABILITY Although there are already many competitors in the purified water sachet business, a strong brand in the purified sachet business will be able to scale. Microfranchises will allow for even deeper distribution in Freetown. Brand presence outside of Freetown is limited and a strong brand outside of Freetown, where there is even less competition, should be able to scale quickly. S USTAINABILITY /P ROFITABILITY Water is a basic necessity for survival and people need to drink it. The decision to purchase a purified water sachet depends on two things, disposable income and education levels. As water is free for residents in their homes, convincing consumers to spend their meager disposable income on purified drinking water can be a challenge, especially since they are already accustomed to drinking unpurified tap water. The water business is a low margin operation with many vendors for the readily available product. The market may not need deep distribution for purified water sachets as it might for other products and services as deeper distribution would penetrate markets that may not prefer purified sachets to unpurified tap water in the home. However, if customers are drawn to water sachet street sellers due to their offering other attractive products like popsicles, then this could increase a well-branded sachet seller’s profitability. CONCLUSION There is significant opportunity in the water sachet market. Customers will welcome a company with a trusted brand for high quality. As a result, we recommend that IRC consider partners in this industry. In particular, a company like Ice Ice Baby, with a well recognized brand would capture significant market share. Ice Ice Baby's management envisions developing a cold chain distribution system for all products cold or frozen - not just ice, but also water and popsicles. There is significant value for both the franchisor and the franchisee in selling multiple products including energy savings from selling various cold products that keep each other colder longer in route to the end customer. Other water sachets companies have established operations and methods for selling. Partnering with an existing water sachet company would hinder the opportunity to innovate around new products, distribution routes and branding as these companies already have well established procedures. With Ice Ice Baby there is freedom to build a new business that benefits both the franchisor and franchisee instead of simply plugging into an existing business model. There is a complimentary relationship between ice and water sachets that will help Ice Ice Baby to quickly scale. In addition to the strong brand recognition, the company already has established distribution routes. In order to pursue the opportunity, Ice Ice Baby will need to be willing to acquire some production equipment and adopt new production practices. Manocap 28 | P a g e
  29. 29. and Ice Ice Baby have expressed willingness to do so once the hub distribution system is designed. POPSICLES AND FROZEN TREATS Frozen treats and more specifically popsicles in Sierra Leone are a popular frozen snack food. In this market a popsicle refers to a frozen sugary mixture (approximately 3 ounces) funneled into a plastic bag. The product can be either dairy-based using powdered milk or traditional syrup based fruit flavoring. These popsicles, like those pictured below are sold for Le 500 (USD $0.127) from street vendors. MARKET ANALYSIS D EMOGRAPHICS With limited selection of products in the frozen treats category, a large portion of the population purchases these products. Target customers include school-age children and mothers. Popsicles retail at an extremely accessible price point for Le 500 (~$0.12). As a point of reference a bottle of Coca-Cola retails for Le 1200. C ONSUMER N EEDS /W ANTS AND P REFERENCES There is a high demand in Sierra Leone for anything frozen or cold. When purchasing a popsicle consumers are not only satisfying their hunger for a sugary treat, but also some relief from the heat. The product size also makes it readily available to be bought and sold on the street at an accessible price point. Popsicle vendors also value the low price point and portability because it makes for a quick product turnover. Quick turnover is important as the product melts during the course of the day. M ARKET S IZE AND G ROWTH Fanmilk, a similar company in Ghana sells ice cream using the microfranchise model. Last year the company reported $66 million revenue from selling ice cream in Ghana (population 24 million). Using Fanmilk’s experience in Ghana as a comparable business, the market size for popsicles in Sierra Leone is estimated at least at $18 million. INDUSTRY ANALYSIS 29 | P a g e
  30. 30. I NDUSTRY T YPE The frozen treat market is entirely informal, from the manufacturers to the street vendors. Neither group is large enough to fall into the formal sector. It appears that only one manufacturer is large enough to have achieved any level of scale. Product is sold to consumers through street vendors, making this a manufacturing and distribution sector. M ARKET P LAYERS AND C OMPETITION There are no formally established businesses operating in the popsicle or frozen treat space. The industry is characterized by a fragmented informal group of producers and distributors. There is a loosely organized Ice Cream Seller’s Association comprised of approximately 15 ice cream street vendors. The association shares 2 extremely old ice cream producing machines which are in constant need of repair. Ice cream vendors complain of unreliable supply for sale, an d there are no other close substitutes for popsicles or frozen treats. S UPPLY C HAIN Inputs for Popsicle production include sugar, water, powder milk and flavoring. All inputs can be obtained easily for local markets in large quantities. Current production methods require access to either block ice or a freezer for cooling. Upon freezing, product is distributed to street vendors. Vendors typically sell on credit and return cash and unused product at the end of each day. Street vendors pay Le 400 to producers and retail the product at Le 500, making a 20% margin. Mixing and Freezing Street Customers Packaging Process Vendors Process EVALUATION OF MICROFRANCHISING POTENTIAL P ARTNERSHIP There currently is no formal player in this industry. Partnering on this venture would entail working with a reputable business in an adjacent industry like water sachets, ice production or juice production. Ice Ice Baby, the leading producer of ice in Sierra Leone, has expressed interest into moving into this adjacent space and would make for a potential partnering candidate. S CALABILITY In the informal sector, popsicles are produced in Freetown and then transported up to Makeni (approximately 3 hours away). There is high demand for this product that extends beyond 30 | P a g e
  31. 31. Freetown. Regions outside of Freetown, like Kenema and Bo, struggle with unreliable access to electricity, which could impede the freezing process. This challenge could be overcome by using generators and/or ice blocks. Also, simple packaging improvements to more of a sachet form of popsicle would minimize product loss due to thawing. Once challenges related to freezing are addressed, the business opportunity is highly scalable across the country. S USTAINABILITY /P ROFITABILITY Currently, both vendors and producers make adequate profit to sustain operations in the informal popsicle sector. Vendors make Le 100 per unit sale and according to multiple distributors they can sell up to 200 per day during the dry season, equating to a total take home profit of Le 20,000 (approx USD 5). Producer’s profit is determined by the scale of the operation and cooling costs. CONCLUSION The product is in high demand and the current supply is unreliable, unhygienic, and unbranded. Since there are no formal players producing popsicles, there is an enormous opportunity for a new entrant to capture market share, and we recommend IRC explore this industry. As with water sachets, Ice Ice Baby has also expressed interest in producing and selling popsicles. This is a natural move for the company. Ice Ice Baby’s strong brand for product quality as well as established distribution routes would allow for quick scale. Simple product improvements coupled with Ice Ice Baby’s Baby’s brand would excite the market. It is possible that the new popsicle could even be sold at a premium just above the current Le 500 price point. Right now, informal popsicle vendors spend time producing popsicles. Integrating popsicle production machinery would make the entire process much more efficient and sanitary. Thus, franchisees could devote more of their time to selling and earning money. Again, since Ice Ice Baby envisions setting up a cold chain distribution system for all products frozen or cold, IRC’s youth microfranchise initiative is very well matched for this opportunity. 31 | P a g e
  32. 32. SALON SERVICES Hair styling related businesses can be divided into three separate areas: barbers for men, stylists for women, and weavers for women. Barbers offer shaves and hair trims for men, stylists can relax hair and style it, and weavers weave in extensions. Each area ranges in quality and price: large/nice barber shops and salons that offer multiple products and services, small shops offer only a few products and services, and capable friends of the end consumer simply barter for services. This analysis focuses primarily on the middle tier shops, although we mention the other two to give a holistic view of the overall market. MARKET ANALYSIS D EMOGRAPHICS The demographics of customers differ significantly from the high end salons and barber shops, the small shops on the side of the road, to the person that trims hair for free. H IGH E ND S ALONS AND B ARBER S HOPS These establishments are frequented primarily by higher income earners. This includes the large expatriate and Lebanese populations as well as local formal and informal wage earning Sierra Leoneans. For men to keep their hair care to 10% of total income, they need to make at least L 400,000 per month. Women, who place a much higher value on their hair, would need to earn at least L 350,000 per month to keep their hair costs to 20% of their total income. It is expected that the majority of those that frequent these shops earn far more than those amounts. Lebanese, expatriate, and local Sierra Leonean woman each patronize different shops dependant on relationships and trust level. Lebanese men are the same, patronizing only Lebanese run barber shops and local Sierra Leonean men tend to patronize the local barber they know and trust, placing less importance on the quality of the overall establishment. Ages for these customer groups range from 18 to 65 years. S MALL B ARBER S HOPS A ND S ALONS The majority of adults in Sierra Leone frequent small, one-chair shops to have their hair styled, trimmed, or weaved. Income levels of these individual are estimated to range from Le 75,000 to Le 400,000. This means that these individuals are typically well established and have families 32 | P a g e
  33. 33. that they provide for. Ages appear to range from 18 to 65 for men and 16 to 50 for women, with the majority falling closer to the younger middle of that range. U NPAID T RIMMING AND S TYLING The majority of youth and children fall into this bartered service category. Also, those living at sustenance levels also fall into this group. Income is so low for these individuals that they place very low value on their hair. Styling, weaving, and trimming are often preformed for free in swap style agreements when one will trim or style the other’s hair in return for the same service. Thus, friends will style each other’s hair and parents will style their children’s hair. C ONSUMER N EEDS /W ANTS AND P REFERENCES Like many markets in developing countries, individuals buy from people they know well and trust. In the hair styling business, many get their start by simply styling or cutting their friends’ hair. Over time they gain enough clients that they open up a shop to style hair. It appears that little formal advertising is done and that all shops rely primarily on word of mouth advertising and/or business from their established clientele. Trust appears to be the biggest factor, regardless of customer segment. Customers need to feel comfortable that their hair will be styled or trimmed well and that the service is safe. Demand for actual shops and trained stylists/barbers increases with income levels and the complexity of the desired trim. For women in this group, styling their hair is very important and they are willing pay for the better atmosphere and skill of a high end salon. Lebanese men tend to prefer the nicer Lebanese-run barber shops, while relatively wealthy Sierra Leonean men appear to use their local, trusted small barber shop. As in most countries, women are the driving force of the salon industry. Women place a high amount of value on their hair, even slightly above clothes. Thus, those that can afford it will have their hair relaxed and styled at least once every two months, and often they will style it even more frequently. This is particularly true of girls who are no longer in school, as many schools also do not permit girls to have styled hair, resulting in girls keeping their hair trimmed and short. It is important that hair relaxing is done correctly, as improper application of the chemicals can result in permanent hair loss. This unfortunately occurs quite often as hair stylists lack the required training and products to properly relax hair. Better education about these risks is needed to help build customer preference to safe treatments over cheap ones. 33 | P a g e
  34. 34. M ARKET S IZE AND G ROWTH The chart below shows an estimated yearly market size of $131M for the salon industry (a breakdown of these calculations can be found in the appendix). We expect this market to increase over time as both population and incomes rise within the country. Using historical GDP growth over the last 8 years of 6% as a proxy, the market would be expected to reach $165.5M by 2014. Market Size in Leones Trim/Styling Hair Relax Weaving Total Market Size Men 83,796,300,000 - - 83,796,300,000 Women 54,617,476,546 180,582,842,784 205,301,087,629 440,501,406,959 524,297,706,959 Market Size in US Dollars (using L 4,000:$1 exchange rate) Trim/Styling Hair Relax Weaving Total Market Size Men 20,949,075 - - 20,949,075 Women 13,654,369 45,145,711 51,325,272 110,125,352 131,074,427 INDUSTRY ANALYSIS I NDUSTRY T YPE The salon industry is primarily a service sector. The majority of services rendered occur in the informal areas of the market, with bartering for hair trimming/weaving a significant portion of the overall market. Few large salons exist, and only in the major urban areas. These salon/barber shops cater primarily to wealthly clientele and typically offer more services. Closely tied to the salon sector is the hair care products sector. Most hair related services use these products as part of the hair trimming/styling process. M ARKET P LAYERS AND C OMPETITION Using the assumptions from the market analysis, we estimate that there are 2,875 small, one chair salons and barbershops in the country. This is assuming that 95% of those that style their hair do so at one of these shops and that each shop does 6 stylings per day, consistent with our informal surveys. We estimate that the rest (5%), whom are higher income individuals, have their hair styled at one of an estimated 150 high end salons in the country. Most of the high end salons are owned and operated by the Lebanese, who also control the majority of hair product imports into Sierra Leone. We found that the majority of small, one chair salons are run by Sierra Leoneans, many of which are formally trained through one of the numerous local vocational schools/programs. 34 | P a g e
  35. 35. S UPPLY C HAIN Skilled Vocational Apprenticeship End Customer Individual School Salon/Barbe r Shop Imported Styling Wholesale Products Market US/EU/China/ECOWA S Because this is a service industry, the supply chain for salon services will vary depending on the level of training obtained by a stylist/barber. Whether trained in a vocational school, learned through non-formal apprenticeship, or entirely untrained, stylists/barbers offer various services and products at a range of prices to their end customers. However, trained labor will most likely have access to wholesale prices and high end imported products due to their stronger networks. Ultimately, prodcuts are avaialble for end customers from salons as well as shops in the market, albiet products at market shops may not be of the highest quality. EVALUATION OF MICROFRANCHISING POTENTIAL P ARTNERSHIP After visiting various salons, we only found one salon that offered a unique and innovative package that potentially matched a microfranchising model. Naasu Fofanah , owner of Jemna Salons, has established her salon in Freetown and attracts more high end clientele in the city. Unlike most high end salons, she caters to all of the major high income groups including the expatriates, Lebanese, and high income Sierra Leoneans. Her salon has been in operation for the past 6 months. She has plans to expand to several shops in the Freetown city. One of the core parts of her business is her agreement with Avlon, a high end hair products company in the US that targets salons that cater to African American clientele. Naasu has negotiated an exclusive distributorship for West Africa. Avlon is very supportive and has come out to do product training to other salon owners and stylists that purchase Avlon product from Naasu. She is college educated with undergraduate and master’s degrees from universities in the UK, where she has lived for the past 15+ years. She also has spent the last five years running her own salon in the UK, where she also 35 | P a g e
  36. 36. underwent numerous trainings on how to do more complex hair styling. Overall, we found Naasu to be very well connected, competent and eager to work with us. From a management perspective, we feel that she would be an ideal manager to partner with. However, she would need to add additional staff to manage a larger microfranchise operations business. S CALABILITY Although Naasu would be a great manager, we are concerned about scalability of the business. Although it would be possible to quickly scale the business through conversion franchising, wherein existing salons were converted to a microfranchise model, there are only an estimated 2,875 in Sierra Leone, requiring 30% market conversion to reach this project’s target. Even under the assumption that each salon could employ and average of two stylists/barbers, it is uncertain if even 15% market share could be captured. S USTAINABILITY /P ROFITABILITY We also are concerned with the amount of value added to the salon by converting to a Jemna microfranchise salon. Although her products are of higher quality, they are also much more expensive than other products on the market, particularly if they are used correctly. In addition, it is still unclear if there are other ways that a salon microfranchise could help the microfranchisee make money through either more clients or better margins. This is due in part to the fact that most salons in Sierra Leone are frequented by the same clients who have a personal connection with the stylist and thus trust him or her. CONCLUSION Even though Naasu is potentially an ideal manager to partner with, her current business is difficult to franchise to the scale required for this project. However, if she was able to get her product costs down and if we were able to line up partnerships with a few of the local vocational schools, the salon market may represent a unique microfranchise opportunity. We recommend IRC continue to monitor Naasu’s business in the event that either she is able to get cheaper inputs to make the microfranchises salons more accessible to the broader market or market dynamics shift favorably. 36 | P a g e
  37. 37. BAKED GOODS The baked goods industry includes bakeries and individuals involved in selling baked goods in the formal and informal markets of Freetown. This industry’s main service is to provide ready- to-eat baked products to individual consumers and businesses. Although formal shops offer various baked products, such as breads, cakes, and desserts, the most widely consumed products purchased by the majority of the population are the basic bread options of begets, rolls, etc. These basic bread products are sold to consumers both from the bakeries directly as well as by the individual bread sellers in the streets. The bakeries produce bread in a few basic shapes; some bread is long or round, while other styles are square or the traditional loaf-styled bread. Individual bread sellers sell these products as plain bread or sweet bread to their customers. MARKET ANALYSIS D EMOGRAPHICS As a regularly consumed product by many Sierra Leoneans, citizens buy their bread daily from the bakery shops or from individual bread sellers in the street. The majority of customers purchased their bread daily from the individual bread sellers, primarily out of convenience. These individual bread sellers are mostly youth and adult women. Youth sellers walk from place to place, through dense urban areas as well as residential communities, carrying their bread on their heads in plastic bins or crate-like boxes. Having the bread sellers walk around the towns and communities, customers more easily purchase bread rather than incurring any additional travel expense or loss of time to go to a bakery to buy it. Some individual bread sellers have regular customers throughout the major city of Freetown and its hills; these bread sellers have built up trust with their customers and they distribute freshly baked bread to their customers daily. Also, since many Sierra Leoneans do not have a way to store the bread or prevent it from spoiling, most consumers would buy what they would eat right away rather than paying for any excess bread they would have to store. Bread is a daily commodity for many as it is regularly available staple of grain. C ONSUMER N EEDS /W ANTS AND P REFERENCES After observing the bread sellers in the street, visiting various markets, and shadowing two youth bread sellers for an entire day, it was easy to determine there is a high demand for bread in Freetown and its surrounding cities. The average person is willing to pay for either sweet 37 | P a g e

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