ConSentido Project ALPINA Name of Project
ConSentido
Country
Colombia
Market Failure: What is the market failure the project is trying to address?
Lack of affordable nutritious products for low-income children in Colombia. Despite big improvements in the last decade, the Colombian socio-economic context remains challenging. Over 37.2% of the Colombian population lives under the poverty line and approximately 12.3% of the population is defined as extremely poor 1. In what relates to nutrition specifically, Colombia is far from achieving the millennium development goal (maximum percentage of children suffering malnutrition equal to 8%). According to the World Health Organization, in 2010, around 13.2% of children between 0 and 5 years old and 13.4% of children between 5 and 17 in Colombia suffered from chronic malnutrition. This is a big improvement if we consider that in the year 2000, the percentage of children suffering chronic malnutrition was 17.9%. However, the high percentage of children within the lower income socio-economic levels that suffer from malnutrition (24.8%) is concerning. The limited access to knowledge on basic nutrition in the country, combined with budget constraints of low-income households, has resulted in poor eating habits and nutritional problems among this population; around 42.7% 2 of households experience food insecurity. The objectives of the project are: (i) to start a company that can produce nutritious and affordable food for low-income markets (ii) launch the first product, which is a fortified product that provides 30% of the daily values requirements of some of the most important vitamins and minerals (Zinc, folic acid, iron, vitamin A, vitamin B6, vitamin B12) and 10% of calcium´s the daily value requirement; these vitamins and mineral are critical to the development of children between age 2-10 and are deficient for children living in NSE 1 and NSE2 Colombia, and (iii) to create employment opportunities for low-income women through the creation of a sales force that will not only distribute the fortified product in hard to reach areas, but will also provide advice on nutrition to poor families. The objectives will be achieved by supporting the creation of a Social Business (“ConSentido”) Any profit generated by the business will be reinvested in the model to expand and improve its impact.
Mission Statement (Project Objective)
1 2
Departamento Nacional de Planeación, Colombia (2011). Encuesta Situación Nutricional (ENSIN) 2010
Sponsor (Executing Agency) Information:
Alpina S.A., is one of the most recognized dairy companies in South America. Established in 1945, Alpina has become one of the most loved and respected brands in Colombia, given its values of caring for its communities and use of fresh, locally produced milk and fruits in its products. Alpina’s workforce consists of more than 6,500 employees and involves many partners and distributors. ConSentido has received technical advice and support from Alpina for the creation of its “Panela Láctea Fortificada” and will leverage Alpina’s distribution platform to introduce the product to the market. Additionally, ConSentido is exploring the possibility of introducing the product through some institutional channels (e.g. public schools) in order to reach the target population more easily.
Description:
The financial model was design taking into account that as a social business the main objective of the business is to provide nutritious and affordable food for low-income population while being financially sustainable, therefore the EBITDA margins are lower than the industry average. During 2013 first semester a pilot will be conducted in 2000 stores in Medellín and 2000 stores in Bogotá allowing to test the product´s frequency and penetration, and its communication and marketing strategy. During the second semester the product will be sold and distributed in 18.180 stores in Bogotá and Medellín. During the second year the business is expected to augment its penetration to a total of 24.990 stores and in the third year to 28.920 stores in Bogota and Medellin. Financial results are positive, reaching breakeven point on 2014 and sustaining a sales double digit grow during the first ten years. The figures on the financial model are based on conservative estimates for market volume, frequency and penetration; resent marketing research has shown higher results for those variables in Bogotá and Medellín. Following the conservative estimates the model considers only one product and two cities. The business plan states the expansion of sales and distribution of the product should start gradually from year three to five until reaching national coverage, at the same time that new products are introduced to the portfolio, none of these are considered on the financial model. Using the grant, the company could reduce the national expansion to two years starting on 2014, and start the innovation process for new products for the portfolio on 2013. These will have a significant impact on the company by increasing sales, reducing operational costs and augmenting the EBITDA margin; allowing the company to accelerate the scaling up process in Colombia and its expansion plans to other countries in Latina America.
Justification:
Both generalized poverty (emphasized by the lack of income generation) and malnutrition issues have motivated Alpina, one of the largest dairy companies in Colombia, to explore different ways to use the company’s know how and technological resources in order to tackle these social problems. With this in mind, Alpina is supporting the creation of ConSentido S.A.S 3, a social business model that will produce nutritious and affordable products for low-income families, its first product (“panela láctea fortificada en polvo”) targets the needs of children between 2 and 10 years old living in poverty 4. The product is being developed with support of the Alpina’s nutritional team and to ensure that it will contain a good percentage of the daily micronutrients these children need to grow and develop their full potential. a. Target Beneficiaries Consentido aims to provide nutritious and affordable products for low-income families. In Colombia, 63% of the total population belongs to the poorest socioeconomic levels (NSE1 and NSE2), where 22% belongs to NSE1 and 41% belongs NSE2 5. In Colombia 42% of the households experience food insecurity this number is expected to be considerable higher for households on NSE1 and NSE2. Among children the deficiencies of vitamins and minerals key to the intellectual and physical development is high; 86% present calcium deficiency, 43% Zinc, 36% Protein, 33% Iron, 24% Vitamin A 6. The ethnographic study conducted shows that target beneficiaries are families composed of four or more people, and share the house with other families. Daily, they expend on average $15.300 COP ($8.6 USD) on food. Two products are constantly present on their purchases: rice and “panela” (panela is a sugar cane based product used to prepare beverages or as a sweetener.) In fact, Colombia has a “panela” consumption of 38.6kg per capita a year, the highest in the world. Other products we found were some kind of meat, pasta, and milk; in Medellín do to cultural customs they also consume arepa and cheese. The mother is who usually makes the decisions regarding the nutrition of the family and the food purchase. She bases her decisions on a balance between nutrition and price. For her the nutritional value of food comes from tradition, what her mother or grandmother said to be nutritious. She usually buys food
3
Sociedad por Acciones Simplicada (Ley 125 de diciembre 11 de 2008). Initially, ConSentido was planning to produce a fortified yogurt but the results of multiple focus groups with the target population (low-income families) in Bogotá and Medellin showed that the “Panela” was the most suitable product for this segment given its affordable price and familiar taste. 5 In Colombia the population is classified into six socioeconomic levels where 1 is the poorest socioeconomic and 6 the richest. Data obtained from : http://www.dane.gov.co/files/dig/CONPES_3386_oct2005_Focaliz_subsidios_servicios_publicos.pdf 6 Encuesta Situación Nutricional (ENSIN) 2010 4
that can be consumed by the whole family. The fact of preparing the food is a way of showing her love to her family, hence the importance of products that can be modified or prepare according to the family recipe. Recent marketing research also shows that in terms of beverages they value the nutritional component and the energy provided by the product. b. Innovation The ConSentido team has created a multidisciplinary group composed of general managers and experts in nutrition, marketing and distribution within Alpina, and by external consultants such as the Grameen Creative Lab (GCL), the leading organization for the promotion of social business around the world. The eclectic group has provided technical advice and consulting services to ConSentido during the design phase of its social business plan and will continue to support the company during its implementation phase. ConSentido intends to introduce the “Beta-product” to the market by the end of the 2013 first semester to start testing consumer’s acceptance. ConSentido´s first product is considered as a disruptive innovation, the “Panela Láctea Fortificada” is inspired on a traditional mix between “agua de panela” and milk; the product is a powder ready to prepare consisting on a mix of “panela” and dairy, fortified with vitamins and minerals, a product that currently doesn´t exist on the market. ConSentido innovative business model has attracted different allies that have contributed to reduce administrative costs and operational costs. Consentido has reached so far agreements with: Alpina Shared Services for all the administrative support, with Alpina Colombia for sales and distribution, with Tecnas S.A for the production of the product, and with DSM supplier of the vitamin and mineral pre-mix; all of them below regular market prices allowing a cost reduction and augmenting the competitive advantage of the company. In the medium term, ConSentido aims to develop an inclusive supply chain with micro-processors of Panela 7and its own distribution system. With a more inclusive business model, ConSentido will be able to provide social value not only from a product side, but also through the creation of income generation opportunities to low-income people. c. Scalability and Replicability During the first two years the business model is expected to reach 24.990 stores in Bogotá and Medellín. From year three to five it is expected to expand the distribution and sales of the product nationwide, also expanding its portfolio and developing new products. Thanks to a distribution and sales agreement with Alpina the products made in this company can be commercialized thru Alpina´s distribution and sales force having the potential to reach 298.943 stores in
7
In Colombia, the panela industry is an important source of employment with about 350,000 people working in nearly 20,000 trapiches (panela farms).
Colombia from which at least 192.366 are estimated to be low-income population (NSE 1 and 2) 8. The growth of the business it’s expected to be accompanied by the development of industrial capacities (M&A or Greenfield), and the development of new distribution channels. After the third year of operation research and business plans will be conducted on Venezuela, Ecuador and Perú to assess the feasibility of replicating the business model using Alpina´s infrastructure and know-how in those countries; by 2017 the company is expected to be operating at least in one of those countries.
8
Alpina´s sales and distribution system is consider to be one of the most effective ones on the food industry in Colombia.