Millions of small, family-operated retailers known as nanostores are the main source of consumer packaged goods (CPG) for many consumers in Africa, Asia and Latin America. These mom-and-pop outlets have thrived by offering affordability as well as the right mix of items and convenience, and by gaining the trust of their customers. At the same time, however, the retail model they have created is far from efficient.
Can nanostores survive in the face of competition from large, more efficient retail chains?
A new book, Reaching 50 Million Nanostores: Retail Distribution in Emerging Megacities*, argues that nanostores still have a key role to play in a changing retail landscape. The authors share their views and extensive experience of studying and working with the millions of family-owned small stores in the large metropolitan areas of much of the developing world.
Nanostores operate with less than five employees, and depend on cash transactions and customer relationship-based credit. They sell hundreds of SKUs with at most a couple of options offered per category in smaller, affordable and mixed presentations.
These technically unsophisticated retailers serve a few hundred consumers by offering the right assortment of products, and stores that are conveniently located near to working centers and residential areas.
Nanostores account for more than half of the CPG retail business in developing countries, and have achieved a growth rate of 70% over the last five years according to the consulting firm McKinsey.
In China, nanostores have managed to compete successfully with larger retailers. Nielsen data indicate that supermarket penetration in China (i.e., share of consumers who shop at supermarkets) dropped from 86% in 2002 to 77% in 2009. The major retailer Tesco recently withdrew from the Chinese market; Carrefour and Walmart have had to reconsider their hypermarket strategies in the country. These changes in strategy highlight the difficulties that modern retailers still face in China.
In other countries, nanostores dominate the retail channel. For example, in Morocco, 80% of grocery sales take place in the traditional channel; in India, the share is greater than 95%; in Nigeria and the sub-Saharan Africa region, it accounts for at least 95%; in Latin American countries, it ranges from about 45%.
However, these statistics probably underestimate the market dominance of nanostores. In many countries reliable public data are not available because many mom-and-pop businesses try to evade taxes by withholding information and are part of the informal economy. Hence, these businesses might not show up in government statistics.