How Will Last-Mile Distributors Adapt to and Survive the COVID-19 Crisis?
Editor’s note: This article is part of NextBillion’s series “Enterprise in the Time of Coronavirus,” which explores how the business and development sectors are responding to the pandemic. For news updates and analysis, virtual events, and links to useful resources related to the COVID-19 crisis, check out our coronavirus resource page.
COVID-19 is creating significant challenges for last-mile distributors (LMDs) around the world. At the Global Distributors Collective (GDC) we’ve spent the last few weeks consulting our members to understand the impact of COVID-19 on their businesses, how they are responding and what support they need.
In the face of unprecedented uncertainty, LMDs are proving to be both nimble and resilient. But – like many businesses – they urgently need financial and technical support to survive this crisis and to protect their ability to deliver impact as the crisis abates.
A Dramatic Slow-Down in Operations
Based on intel from our members, nearly all LMDs have scaled back or ceased operations completely because of government lockdowns, reduced access to communities, and/or precautions that members themselves are taking to protect their staff and customers. Many LMDs are also having trouble procuring stock because of affected supply chains – e.g., products getting stuck at port.
Some LMDs have been exempt from lockdowns and allowed to operate under the classification of essential service providers. In countries that have yet to implement lockdowns, some are continuing to trade while adhering to social distancing and taking other precautions. But many are planning for hibernation, and their immediate priority is conserving cash.
In general, LMDs report lower customer demand as a result of reduced incomes. Additionally, among the many LMDs that sell on credit, more customers are missing repayments, increasing default risks and exacerbating working capital constraints. But this isn’t true across the board: Some of our members report that demand has remained stable or increased. This is primarily due to people spending more time at home (therefore seeking lighting and entertainment products), stockpiling essential goods (particularly cooking fuels), or being disconnected from services (increasing their need for products like water purifiers).
Supporting Staff, Agents and Customers
In situations where staff or agents are unable to work, LMDs are trying to keep them on payroll so they can continue to support their families – and so LMDs can retain their business capacity. It is particularly difficult to pay agents whose incomes are commission-based, and to keep staff engaged and motivated. But LMDs are finding creative ways to manage, for example by deploying field staff in other areas of the business and developing remote customer support capabilities.
Most LMDs are focusing on maintaining communication with customers and keeping them informed about the crisis, including sharing information about preventative measures – for instance, through SMS texts. Many LMDs are exploring how to re-organise payment terms, or delay payments, for customers experiencing hardship.
Helping LMDs to Adapt
Nearly all LMDs have cut non-essential costs and undertaken some form of scenario planning. Some have been able to negotiate extended or delayed payment terms on existing loans or stock purchases.
Where in-person sales are still possible, LMDs are focusing on areas where demand is highest (e.g.: in villages that are now growing, as the pandemic drives rural migrants out of cities back to their villages). Where in-person sales are no longer possible, LMDs are pivoting to online sales or sales via call centres, delivering products by post and providing customers with remote support.
LMDs are also positioning themselves to rebound as quickly as possible when the situation eases. As well as focusing on staff and agent retention, they are building up stock supplies, particularly in field locations close to customers. Many are continuing with their marketing activities, aware of the need to exercise sensitivity given the challenges that poor consumers are currently facing. LMDs that usually rely on in-person marketing are turning to radio, TV, printed and online press, and community/loudspeaker announcements. One LMD has set up a consumer referral program via SMS, to compensate for lost leads from word-of-mouth marketing.
This is new territory for many LMDs, and they have a growing need for technical assistance in digitising operations, providing remote support to customers, and testing new types of marketing so they can continue to operate. Support with crisis management – particularly scenario planning, financial management and risk mitigation – would also help, so they can identify areas for both cost-cutting and continued investment to protect their business capacity.
The GDC has a dedicated resource page, bringing together a curated set of resources specifically designed to support members. But additional focused, tailored support for LMDs is also needed, in the form of virtual trainings and simple downloadable tools, and through in-depth one-on-one mentoring.
A Role for LMDs to Distribute Essential Supplies
LMDs could also play a vital role in distributing critical supplies during the pandemic. However, country-level responses are being coordinated by governments and UN agencies that are often not aware of LMDs or their capabilities – such as the ability to communicate with customers at scale – which could be redeployed to support crisis response.
Nevertheless, these collaborations are happening. One GDC member is partnering with Unilever and DFID to distribute essential health/hygiene supplies and consumer goods, leveraging a network of 1,000 frontline health workers. Many other LMDs are eager to distribute products like face masks, sanitizers and soap, but there are challenges around sourcing quality products, and pricing or subsidising them appropriately.
We know of three LMDs who have raised funds to engage in free distribution of off-grid solar and water purification products, in response to the crisis. Several have partnered with INGOs to facilitate the delivery of food parcels. And other LMDs are exploring options to distribute solar systems and refrigerators to health centres.
The Urgent Need for Relief Funding
LMDs are looking at their cash runways, and understandably they are nervous. Most LMDs are small companies with little or no reserves. Relief funding, in the form of both grants and concessional debt, would prevent many LMDs from becoming insolvent, helping to protect their employees’ jobs and their business capacity to deliver by covering fixed costs and ensuring stock availability.
Social impact investors are developing emergency loan facilities to support these enterprises, which could be tremendously beneficial. But taking on additional debt – even highly concessional debt – could make LMDs less attractive to future investors, reducing their chances of securing much-needed funding after the crisis. It could also force them to pivot to a model which prioritises profits over serving the poorest/most remote customer segments.
Emergency grant funding linked to ongoing salary payments or proof of other fixed costs would put LMDs in a stronger position to recover and attract investment after the pandemic has passed, ensuring they can continue to have an impact in last-mile communities. Funding could be made available on a strictly time-limited basis, linked to the imposition of lockdown conditions, and only offered to companies that were clearly viable prior to the crisis, in order to minimise the risk of market distortion.
Taking a Long-Term Perspective
The COVID19 crisis is fundamentally time-limited, but LMDs and their supporters need to take a longer-term view. Our members are asking us for support to manage this difficult period, but they are also asking us to continue with our “business as usual” activities, like providing training services, facilitating peer-to-peer learning, and generating marketing intelligence. One LMD told us that the huge volume of (well-intentioned) communications they were receiving about the crisis from the international development community was making their staff feel helpless and demotivated. Another LMD reported that an investor had pulled out of a transaction due to nervousness around COVID-19.
It is true that LMDs are at risk of becoming insolvent, and the longer the situation continues, the greater the risks become. But we won’t be in crisis mode forever, and if LMDs get the right financial and technical support now, they will be in a strong position to bounce back.
What LMDs need more than ever is confidence in their resilience, their adaptability, and their capacity to serve last-mile communities. So please ask yourself what you can do to support the LMD sector through this crisis, and get in touch if you are interested in working with the GDC and our members – we’d love to chat.
Emma Colenbrander is Head of the Global Distributors Collective (GDC)
Photo courtesy of EU Civil Protection and Humanitarian Aid.