Mercado Fresco Example
Mercado Fresco, or “Fresh Market”, is the first microfranchise developed by Supply Hope. They have been piloting Mercado Fresco since 2012 with 50-60 stores. Their goal is to achieve sustainable operations as it scales up to 250 stores in Managua, Nicaragua by 2018.
Mercado Fresco makes quality, affordable food accessible to low-income communities since the stores are located in the homes of their microfranchise operators. The products include fresh dairy products, vegetables, bread and traditional foods such as rice, beans and nacatamales. Supply Hope teaches operators everything from proper food handling, customer service and money management. They are given equipment including food baskets, signs and calculators. It costs $1,000 to open one store – including all the costs of training, equipment and inventory. Within eight months, the average microfranchise operator’s monthly earnings exceed that one-time investment.
Qualitative, affordable food for low-income families is a problem in many developing countries. There are no safety regulations for most of their foods. Food often arrives in open, unrefrigerated trucks, kept “fresh” with chemicals like formaldehyde. All this contributes to poor nutrition and illness. Because Supply Hope is negotiating directly with suppliers and storing their products correctly in a warehouse, they control the quality of the products. If they cannot find a popular product that meets their standards, they simply make it themselves.
Microfranchise operators receive equipment, supplies and marketing tools to run their business successfully. They pay Supply Hope for their products after the products are sold. Growth in their commissions is not dependent on whether they can afford more products. Microfranchising is like a “business in a box”. It is simple to learn, easy to manage, and can grow quickly. In the testing period it was determined what equipment each store needs, and this is delivered on their opening day. They also get the best supplies and marketing tools to help them grow their sales.
Because the goal is that the microfranchises are owned by the most financially vulnerable families, they cannot usually obtain a loan to pay for their inventory. Learning how to manage inventory is difficult – a major reason why businesses started with micro-finance loans fail. Supply Hope designs their microfranchises so operators can focus on serving their customers and marketing their business instead of managing suppliers or fixing equipment.
Giving them products to sell before they have paid us may seem like a gamble, but with the appropriate inventory control procedures, the losses on this approach are less than .5% of the value of the inventory it has sold in total. By comparison, a good micro-finance loan loss rate is 2%. Supply Hope is willing to make this gamble, and their operators tell them this one of the most valuable aspects of the program.