How the Ideas Behind McDonald's Can Help Save the World
1. SOCIAL SECTOR
MICROFRANCHISING:
How the Ideas Behind McDonald’s
Can Help Save the World
Justin Berk
Yale MPH Candidate 2011
justin.berk@yale.edu
2. Burden of Disease
A short list of treatable diseases accounts for
70% of all childhood illness and death in the
developing world. (Black, Morris, and Bryce 2003)
3. THE PROBLEM:
Only 35% of the populations in developing
countries have access to essential
medicines. (WHO 2009)
Over 50% of the drugs in the market are
counterfeit or sub-standard. (WHO 2009)
4. Disease Burden of Treatable Illnesses
Data taken from WHO Global Burden of Disease: 2004 update (2008)
5. Treatments are Affordable.
Estimated Annual Estimated Cost of
Disease
Deaths (2004) Single Dose
Malaria 860,000 $0.83 / £0.53
Diarrheal Disease 1,810,000 $0.09 / £0.06
Respiratory Infections 2,940,000 $0.10 / £0.06
Total 5,610,000 <£1.00
- Death statistics from WHO 2008
- Treatment costs based on calculated averages taken from the HealthStore Foundation
6. Why is this happening?
• The public system is broken.
• NGOs have limited capacity.
• Private markets exploit the poor.
7. Government Clinic Inefficiencies
Courtesy of HealthStore Foundation
The average public sector availability of generic medicines ranged from 30% to 54%
across WHO regions. (Cameron et al. 2009)
8. Lack of Consumer Confidence
India:
“No one uses public [health-care] facilities very much,
and if anything, the poor use them less than the non-
poor.” (Banerjee, Deaton, and Duflo 2004)
Uganda:
“Public health facilities were perceived to offer low
quality care with chronic gaps such as shortages of
essential supplies.” (Bakeera et al. 2009)
9. Limitations of the Charity Model
• Charity creates dependence on
external donor support
– Accountable to donors, not beneficiaries
• Grant conditions may restrict operations
10. Private Market Exploitation
• Over 50% of drugs in
developing countries are
counterfeit (WHO 2006).
• Private sector patients paid
9–25 times international
reference prices for generic
products (Cameron et al. 2009).
• No government regulation
12. HealthStore’s
“Three Point Test”
• Standardization: ensure consistent quality
to ensure effectiveness and gain confidence
• Scalability: geometric growth to serve
millions of customers or patients
• Economies of scale: achieving lowest
possible costs as the network grows
13. How It Works
Corporate
Franchisor
Franchisee Franchisee Franchisee Franchisee
14. A Microfranchise
Through a business model of standardization:
• Consistent quality
• High customer volume
• Low cost
• Financial accountability
19. The Franchise Model Passes
the “Three Point Test”
• Standardization: builds a brand name to
ensure replicable quality at all outlets
• Scalability: Subway scaled from 16 to over
27,000 outlets in 86 countries in 33 years
• Economies of scale: achieved in advertising,
distribution, information systems, supplies etc.
20. Methods of Funding
Grant • Lowest price
based • Grant dependence
• Low price, no donor dependence
Sustainable • No access to private investment
• Greater access to investment capital
For-profit • Need for profit margins;
how much investor return?
21. Case Studies
Two practical examples of the
social sector microfranchise model
25. Is it affordable to the poor?
• HealthStore Foundation:
Over 540,000 customers served
• Base-of-Pyramid Health Sector: $158 Billion
(Hammond et al. 2007)
– Currently non-competitive and inefficient
– Over 50% spent on pharmaceutical drugs
26. Is it profitable?
HealthStore Foundation
2008: Of 59 CFW outlets, 88% reported a
profit (Beck, Deelder, and Miller 2010).
2010: HSF operates 85 locations:
82 in Kenya, 3 in Rwanda
27. Is it profitable?
Living Goods
Necessary Sales per Representative: $200/month
Average Rural Household in Uganda: 5.5 people
Households per representative: 200 (1100 people)
$200 / 1100 people = 18 cents per month
28. Current Challenges
• Need for “social investments”
• Low market density in rural areas
• Legal and regulatory obstacles
• Competition with NGOs
30. How Microfranchising Works
Problem Microfranchise Solution
Counterfeits Creates reliable brand name
Stock-outs Incentives to maintain inventory
Corruption Franchisor regulates and penalizes
Financial
No dependence on donors
Sustainability
Overcrowding Reduces strain on public system
Affordability Limited menu keeps costs low
31. How Microfranchising Works
It creates incentives that induce
franchisees to comply with
quality standards, then uses this
standardization to scale
exponentially.
32. Limitations
• Does not reach the poorest of the poor;
there is always a need for charity
• A complement to the public system, not a
replacement
• Requires strict adherence to the franchise
model
33. For the full paper
www.justinberk.com/senior-essay/
justin.berk@yale.edu
35. References
Bakeera, Solome K et al. 2009. “Community perceptions and factors influencing utilization of health services in Uganda.”
International Journal for Equity in Health 8(35). Available at: http://www.equityhealthj.com/content/8/1/25.
Banerjee, A., A. Deaton, and E. Duflo. 2004. “Health care delivery in rural Rajasthan.” Economic and Political Weekly: 944–
949.
Beck, S., W. Deelder, and R. Miller. 2010. “Franchising in Frontier Markets: What's Working, What's Not, and Why.”
Innovations:Technology, Governance, Globalization 5(1): 153–162.
Black, R. E, S. S Morris, and J. Bryce. 2003. “Where and why are 10 million children dying every year?.” The Lancet
361(9376): 2226–2234.
Cameron, A. et al. 2009. “Medicine prices, availability, and affordability in 36 developing and middle-income countries: a
secondary analysis.” The Lancet 373(9659): 240-249.
Hammond, A. L., Kramer, W. J., Katz, R. S., Tran, J. T., & Walker, C. 2007. The Next Four Billion: Market Size and Business
Strategy at the Base of the Pyramid. Washington, DC: World Resources Institute and International Finance
Corporation.
HealthStore Foundation, 2010. “The HealthStore Foundation” http://www.cfwshops.org/
Living Goods. 2010. “The Living Goods Model: A Sustainable System for Defeating Diseases of Poverty.” http://
www.livinggoods.org
WHO. 2008. “The top 10 causes of death. Geneva: World Health Organization.” http://www.who.int/mediacentre/factsheets/
fs310/en/index.html
WHO. 2009. “Access to affordable essential medicines.” In UN - MDG Gap Task Force 2009. http://www.who.int/medicines/
mdg/en/index.html.
Photos courtesy of HealthStore Foundation or Google Images
