Poverty Footprint Study on how the Coca Cola - Oxfam America

Micro Distribution Centers apply the supply chain knowledge of the Coca-Cola system to support small
and medium enterprises to become distributors of Coca-Cola products. Coca-Cola and SABMiller work
with local entrepreneurs to build distribution hubs from which products are delivered using bicycles,
pushcarts or motorcycles to hard-to-reach small retail outlets in urban and peri-urban centers in
developing countries.
Distribution
In El Salvador, two-thirds of Coca-Cola products
are distributed directly by SABMiller’s bottling plant,
ILC, and the remaining portion are distributed by
independent depositos (urban/rural warehouses),
mayoristas (rural wholesalers) and minibodegas
(small mostly urban warehouses).
In both El Salvador and Zambia, SABMiIIer’s bottlers
help distributors develop and grow their businesses
by providing incentives such as credit and free crates
of beverages based on distribution volume targets.
In El Salvador, distributors interviewed for this study
indicated that ILC had provided them with training
on business skills and marketing in the past, but
it had not done so recently. They would welcome
more training opportunities. Owners of depositos
interviewed for this study reported having a good
source of income, on average more than twice the
minimum wage, and that sales of Coca-Cola products
represented over half of their average profits. As
expected, owners of smaller warehouses or small
retailers reported much lower monthly profits.
Owners of MDCs in Zambia reported a desire for
increased access to marketing training and materials.
They also indicated that licensing regulations were
a hindrance to business, and they were seeking
improved dialogue with their city council on this
topic. In 2008, the Harvard Kennedy School and the
International Finance Corporation conducted
a study sponsored by The Coca-Cola Company
of the MDC model in East Africa. They found that
the model presented significant benefit to the
Coca-Cola business, enabling it to reach consumers
in dense, urban areas, and provided much-needed
opportunities for local entrepreneurs. They identified
a number of opportunities for tailoring of the model
to increase its positive development impacts while
not sacrificing its business benefits; for example, by
formalizing the owner recruitment process, improving
access to finance and supporting entrepreneurship
education programs.
It is important to recognize that MDC and other
independent distributor workplaces are in the informal
sector. As a result, employees may not have written
contracts, as reported by three deposito employees
interviewed in El Salvador. These employees also
reported earning lower than the minimum wage and
did not have significant income from other sources.
The working environments in these centers also
present potential safety challenges, since they are
often in small spaces with deteriorated infrastructure
and limited access to basic amenities such as water
and sanitation.
52 Exploring the links between international business and poverty reduction
Coca-Cola products arrive at distribution centers by
truck, some of which are driven by drivers employed
by SABMiller’s bottlers and some of which are
independent trucking firms. In El Salvador, ILC has
sought to shift drivers from formal employment within
ILC into independent contracts as owner-drivers
to increase distribution efficiencies. In this role, the
truck drivers rent the truck from ILC and cover their
own expenses while distributing products. In two
years’ time, the drivers have the option to buy the
truck. Owner-drivers receive the same benefits and
support as normal ILC employees. However, some
drivers indicated they were concerned that this new
approach would mean less security of employment.
Self-employed retailers
The sale of Coca-Cola products supports vital
self-employment and employment opportunities in
both countries. Many entrepreneurs in traditionally
excluded groups, such as women and the elderly,
pursue livelihoods in this way. Women are far more
likely to find employment in the retail sector in El
Salvador than in Zambia. However, small-scale
retailers are in the informal sector, and, as such,
they face vulnerabilities such as lack of access to
private health care and lack of job security. Most have
incomes close to the local minimum wage equivalent
or less.
For retailers, sales of Coca-Cola products have
relatively high margins compared to sales of other
consumer goods products but not in comparison
with competitor beverages on a unit basis. However,
Coca-Cola volumes tend to be higher than competing
brands and therefore the total contribution to income
by Coca-Cola products, for retailers, is higher. As
profit margins are relatively low on individual unit
sales, store owners in both countries reported
selling Coca-Cola products for higher than the
recommended retail price to boost their margins.
The Coca-Cola/SABMiller value chain supports retail
sales by providing marketing materials, mentoring
retailers as needed to improve their business skills,
and, if the retailers have a sufficiently large volume
of sales, The Coca-Cola Company provides assets
such as coolers or iceboxes as needed. Furthermore,
the Coca-Cola/SABMiller value chain encourages
retailers to expand their portfolio of products to grow
their businesses.