Microenterprises, businesses with one to nine employees, in low-and middle-income countries face disadvantages compared to larger firms when it comes to sourcing inventory. Because of their smaller purchasing quantities, they may pay higher costs and have to travel frequently to restock. In a large marketplace in a low-income neighborhood of Bogotá, Innovations for Poverty Action is working with researchers to evaluate if Agruppa, a mobile phone-based technology, can help with these challenges. It is designed to help aggregate orders from small vendors in an area into bulk purchases, to take advantage of better pricing and direct delivery. Researchers are evaluating whether using this technology can help small-scale food vendors reduce costs, time spent, and ultimately increase profits.
For microenterprises in low- and middle-income countries, the process of finding and purchasing inventory to sell can be costly and inefficient, compared with larger firms with more formalized supply chains. In addition to the time, the small scales on which these businesses buy and transport goods add costs, ultimately sapping their already limited profitability. Little research, however, exists on how to make value chains for microentrepreneurs more efficient. Research from the project partner in informal settlements in urban Colombia has found that in order to purchase inventories, vendors spend an average of 15 hours per week and 20 percent of their weekly revenue traveling to make inventory purchases, and because they purchase small quantities at a time, do not benefit from bulk discounts. Taking advantage of technological innovations to reduce these costs and allow microenterprises to benefit from the same advantages as larger firms, such as buying in bulk, could improve their business efficiency, profitability, and ultimately, livelihoods for these microentrepreneurs.
Small-scale food vending is a common microenterprise in low- and middle-income countries, especially in marginalized urban areas. In Colombia, there are an estimated 340,000 of these vendors with 85,000-110,000 in Bogotá. This evaluation is being conducted in southern Bogotá, near Corabastos, a low-income area with the largest marketplace in the country. There tend to be three types of establishments: indoor small shops, outdoor stands which covered by a tent or a roof.
Agruppa, a start-up based in Colombia, uses mobile phone technology to create virtual buyer groups in low-income urban areas. The system aggregates small vendors’ demand for produce, creating collective orders which add up to wholesale quantities. Innovations for Poverty Action worked with researchers to offer approximately 500 interested vendors on randomly selected blocks access to the service, and compare them to a similar group of vendors on other blocks.
Over six months researchers are studying whether using Agruppa reduces the amount of time and money they spend traveling to purchase inventory, the price they pay for these inventories, the amount of spoilage/unsold inventory, and whether these translate into higher profits. They are also exploring how much of the savings is passed onto consumers, whether vendors increase the variety of fresh food offered in low-income neighborhoods, and how competitors respond to these changes.
In progress, results forthcoming.