Youth Microfranchise Initiative: Market Analysis of Sierra Leone This report analyzes the general youth labor market and includes an industry and market analysis of 8 distinct sectors and evaluates the potential of launching a microfranchise business in each. Prepared for : Prepared by: 2010
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oakley1008 Hewlett-Packard
1/1/2010
Youth Microfranchise Initiative: Market Analysis of Sierra Leone
This report analyzes the general youth labor market and includes an industry and market analysis of 8 distinct sectors and evaluates the potential of launching a microfranchise business in each. Prepared for : Prepared by:
2010
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TABLE OF CONTENTS Executive Summary ......................................................................................................................... 4
Competition within the informal water sachet market appears to be saturated. The streets are
lined with many vendors selling unpurified water sachets. Customers typically buy from a
trusted person and when no such person is available they will purchase from whoever has the
coldest water nearby. The product turns over quickly with one street vendor selling 20
unpurified sachets in approximately one hour. In another case, a single mother had her 3
children sell water sachets at the local market before and after school. Providing cold water is
very important as 80% of informal survey respondents indicated that they would travel to
another location if the water was not sufficiently cold.
Competition between formal players is equally fierce with more than 10 companies fighting for
market share. Purified water sachets are sold both by street vendors as well as more formal
store fronts.
There are issues of unpurified water sachets misleading consumers and lying about water
quality on packaging, and this presents some problems for formal players. Recently, the
Ministry of Health audited the industry and shut down 8 falsified operations. Thus, strong brand
presence in this space is very important.
SUPPLY CHAIN
Water sachets both purified and unpurified are made at the water source – for the informal
producer this is the home or public water faucet, and for a formal player this would be the
manufacturing facility. Informal street vendors head directly to the street to sell the products.
Formal players tend to have more developed supply chains. Purified water sachets are plastic
wrapped into cubes of 30 and loaded onto trucks for distribution to markets, small street
vendors, and individuals.
EVALUATION OF MICROFRANCHISING POTENTIAL
PARTNERSHIP
Formal companies producing purified water sachets have established distribution routes and
methods. For one of these companies to adopt a microfranchising mode, it will require
modifying relatively longstanding business practices. However, opportunity exists to build out a
completely new microfranchising system for Ice Ice Baby, who has expressed interest into
moving into the water sachet business. Ice Ice Baby is a very well-known and trusted brand in
Water Well City
River
Purification
Process
Sachet Package
Distributio
n Trucks
Business Customer
s
Tied Bag Package En
d C
ust
om
er
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Sierra Leone and this will be a strong asset for when it moves into the sachet business. They also
already have trucks and distribution competencies in the adjoining space of ice.
SCALABILITY
Although there are already many competitors in the purified water sachet business, a strong
brand in the purified sachet business will be able to scale. Microfranchises will allow for even
deeper distribution in Freetown. Brand presence outside of Freetown is limited and a strong
brand outside of Freetown, where there is even less competition, should be able to scale
quickly.
SUSTAINABILITY/PROFITABILITY
Water is a basic necessity for survival and people need to drink it. The decision to purchase a
purified water sachet depends on two things, disposable income and education levels. As water
is free for residents in their homes, convincing consumers to spend their meager disposable
income on purified drinking water can be a challenge, especially since they are already
accustomed to drinking unpurified tap water.
The water business is a low margin operation with many vendors for the readily available
product. The market may not need deep distribution for purified water sachets as it might for
other products and services as deeper distribution would penetrate markets that may not prefer
purified sachets to unpurified tap water in the home. However, if customers are drawn to water
sachet street sellers due to their offering other attractive products like popsicles, then this could
increase a well-branded sachet seller’s profitability.
CONCLUSION There is significant opportunity in the water sachet market. Customers will welcome a company
with a trusted brand for high quality. As a result, we recommend that IRC consider partners in
this industry. In particular, a company like Ice Ice Baby, with a well recognized brand
would capture significant market share. Ice Ice Baby's management envisions developing a cold
chain distribution system for all products cold or frozen - not just ice, but also water and
popsicles. There is significant value for both the franchisor and the franchisee in selling multiple
products including energy savings from selling various cold products that keep each other colder
longer in route to the end customer.
Other water sachets companies have established operations and methods for selling.
Partnering with an existing water sachet company would hinder the opportunity to innovate
around new products, distribution routes and branding as these companies already have well
established procedures. With Ice Ice Baby there is freedom to build a new business that
benefits both the franchisor and franchisee instead of simply plugging into an existing business
model. There is a complimentary relationship between ice and water sachets that will help Ice
Ice Baby to quickly scale. In addition to the strong brand recognition, the company already has
established distribution routes. In order to pursue the opportunity, Ice Ice Baby will need to be
willing to acquire some production equipment and adopt new production practices. Manocap
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and Ice Ice Baby have expressed willingness to do so once the hub distribution system is
designed.
POPSICLES AND FROZEN TREATS
Frozen treats and more specifically popsicles in Sierra Leone are a popular frozen snack food. In
this market a popsicle refers to a frozen sugary mixture (approximately 3 ounces) funneled into
a plastic bag. The product can be either dairy-based using powdered milk or traditional syrup
based fruit flavoring. These popsicles, like those pictured below are sold for Le 500 (USD
$0.127) from street vendors.
MARKET ANALYSIS
DEMOGRAPHICS
With limited selection of products in the frozen treats category, a large portion of the
population purchases these products. Target customers include school-age children and
mothers. Popsicles retail at an extremely accessible price point for Le 500 (~$0.12). As a point of
reference a bottle of Coca-Cola retails for Le 1200.
CONSUMER NEEDS/WANTS AND PREFERENCES
There is a high demand in Sierra Leone for anything frozen or cold. When purchasing a popsicle
consumers are not only satisfying their hunger for a sugary treat, but also some relief from the
heat. The product size also makes it readily available to be bought and sold on the street at an
accessible price point. Popsicle vendors also value the low price point and portability because it
makes for a quick product turnover. Quick turnover is important as the product melts during
the course of the day.
MARKET SIZE AND GROWTH
Fanmilk, a similar company in Ghana sells ice cream using the microfranchise model. Last year
the company reported $66 million revenue from selling ice cream in Ghana (population 24
million). Using Fanmilk’s experience in Ghana as a comparable business, the market size for
popsicles in Sierra Leone is estimated at least at $18 million.
INDUSTRY ANALYSIS
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INDUSTRY TYPE
The frozen treat market is entirely informal, from the manufacturers to the street vendors.
Neither group is large enough to fall into the formal sector. It appears that only one
manufacturer is large enough to have achieved any level of scale. Product is sold to consumers
through street vendors, making this a manufacturing and distribution sector.
MARKET PLAYERS AND COMPETITION
There are no formally established businesses operating in the popsicle or frozen treat space.
The industry is characterized by a fragmented informal group of producers and distributors.
There is a loosely organized Ice Cream Seller’s Association comprised of approximately 15 ice
cream street vendors. The association shares 2 extremely old ice cream producing machines
which are in constant need of repair. Ice cream vendors complain of unreliable supply for sale,
an d there are no other close substitutes for popsicles or frozen treats.
SUPPLY CHAIN
Inputs for Popsicle production include sugar, water, powder milk and flavoring. All inputs can be
obtained easily for local markets in large quantities. Current production methods require access
to either block ice or a freezer for cooling.
Upon freezing, product is distributed to street vendors. Vendors typically sell on credit and
return cash and unused product at the end of each day. Street vendors pay Le 400 to producers
and retail the product at Le 500, making a 20% margin.
EVALUATION OF MICROFRANCHISING POTENTIAL
PARTNERSHIP
There currently is no formal player in this industry. Partnering on this
venture would entail working with a reputable business in an adjacent
industry like water sachets, ice production or juice production. Ice Ice
Baby, the leading producer of ice in Sierra Leone, has expressed
interest into moving into this adjacent space and would make for a
potential partnering candidate.
SCALABILITY
In the informal sector, popsicles are produced in Freetown and then transported up to Makeni
(approximately 3 hours away). There is high demand for this product that extends beyond
Mixing and Packaging
Process
Freezing
Process
Street
Vendors
Customers
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Freetown. Regions outside of Freetown, like Kenema and Bo, struggle with unreliable access to
electricity, which could impede the freezing process. This challenge could be overcome by using
generators and/or ice blocks. Also, simple packaging improvements to more of a sachet form of
popsicle would minimize product loss due to thawing. Once challenges related to freezing are
addressed, the business opportunity is highly scalable across the country.
SUSTAINABILITY/PROFITABILITY
Currently, both vendors and producers make adequate profit to sustain operations in the
informal popsicle sector. Vendors make Le 100 per unit sale and according to multiple
distributors they can sell up to 200 per day during the dry season, equating to a total take home
profit of Le 20,000 (approx USD 5). Producer’s profit is determined by the scale of the operation
and cooling costs.
CONCLUSION The product is in high demand and the current supply is unreliable, unhygienic, and unbranded. Since there are no formal players producing popsicles, there is an enormous opportunity for a new entrant to capture market share, and we recommend IRC explore this industry. As with water sachets, Ice Ice Baby has also expressed interest in producing and selling popsicles. This is a natural move for the company. Ice Ice Baby’s strong brand for product quality as well as established distribution routes would allow for quick scale. Simple product improvements coupled with Ice Ice Baby’s Baby’s brand would excite the market. It is possible that the new popsicle could even be sold at a premium just above the current Le 500 price point. Right now, informal popsicle vendors spend time producing popsicles. Integrating popsicle production machinery would make the entire process much more efficient and sanitary. Thus, franchisees could devote more of their time to selling and earning money. Again, since Ice Ice Baby envisions setting up a cold chain distribution system for all products frozen or cold, IRC’s youth microfranchise initiative is very well matched for this opportunity.
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SALON SERVICES
Hair styling related businesses can be divided into three separate areas: barbers for men, stylists
for women, and weavers for women. Barbers offer shaves and hair trims for men, stylists can
relax hair and style it, and weavers weave in extensions. Each area ranges in quality and price:
large/nice barber shops and salons that offer multiple products and services, small shops offer
only a few products and services, and capable friends of the end consumer simply barter for
services. This analysis focuses primarily on the middle tier shops, although we mention the other
two to give a holistic view of the overall market.
MARKET ANALYSIS
DEMOGRAPHICS
The demographics of customers differ significantly from the high end salons and barber shops,
the small shops on the side of the road, to the person that trims hair for free.
HIGH END SALONS AND BARBER SHOPS
These establishments are frequented primarily by higher income earners. This includes the large
expatriate and Lebanese populations as well as local formal and informal wage earning Sierra
Leoneans. For men to keep their hair care to 10% of total income, they need to make at least L
400,000 per month. Women, who place a much higher value on their hair, would need to earn
at least L 350,000 per month to keep their hair costs to 20% of their total income. It is expected
that the majority of those that frequent these shops earn far more than those amounts.
Lebanese, expatriate, and local Sierra Leonean woman each patronize different shops
dependant on relationships and trust level. Lebanese men are the same, patronizing only
Lebanese run barber shops and local Sierra Leonean men tend to patronize the local barber they
know and trust, placing less importance on the quality of the overall establishment. Ages for
these customer groups range from 18 to 65 years.
SMALL BARBER SHOPS AND SALONS
The majority of adults in Sierra Leone frequent small, one-chair shops to have their hair styled,
trimmed, or weaved. Income levels of these individual are estimated to range from Le 75,000 to
Le 400,000. This means that these individuals are typically well established and have families
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that they provide for. Ages appear to range from 18 to 65 for men and 16 to 50 for women, with
the majority falling closer to the younger middle of that range.
UNPAID TRIMMING AND STYLING
The majority of youth and children fall into this bartered service category. Also, those living at
sustenance levels also fall into this group. Income is so low for these individuals that they place
very low value on their hair. Styling, weaving, and trimming are often preformed for free in swap
style agreements when one will trim or style the other’s hair in return for the same service.
Thus, friends will style each other’s hair and parents will style their children’s hair.
CONSUMER NEEDS/WANTS AND PREFERENCES
Like many markets in developing countries,
individuals buy from people they know well and
trust. In the hair styling business, many get their
start by simply styling or cutting their friends’ hair.
Over time they gain enough clients that they open
up a shop to style hair. It appears that little formal
advertising is done and that all shops rely
primarily on word of mouth advertising and/or
business from their established clientele. Trust
appears to be the biggest factor, regardless of
customer segment. Customers need to feel comfortable that their hair will be styled or trimmed
well and that the service is safe.
Demand for actual shops and trained stylists/barbers increases with income levels and the
complexity of the desired trim. For women in this group, styling their hair is very important and
they are willing pay for the better atmosphere and skill of a high end salon. Lebanese men tend
to prefer the nicer Lebanese-run barber shops, while relatively wealthy Sierra Leonean men
appear to use their local, trusted small barber shop.
As in most countries, women are the driving force of the salon industry. Women place a high
amount of value on their hair, even slightly above clothes. Thus, those that can afford it will
have their hair relaxed and styled at least once every two months, and often they will style it
even more frequently. This is particularly true of girls who are no longer in school, as many
schools also do not permit girls to have styled hair, resulting in girls keeping their hair trimmed
and short.
It is important that hair relaxing is done correctly, as improper application of the chemicals can
result in permanent hair loss. This unfortunately occurs quite often as hair stylists lack the
required training and products to properly relax hair. Better education about these risks is
needed to help build customer preference to safe treatments over cheap ones.
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MARKET SIZE AND GROWTH
The chart below shows an estimated yearly market size of $131M for the salon industry (a
breakdown of these calculations can be found in the appendix). We expect this market to
increase over time as both population and incomes rise within the country. Using historical GDP
growth over the last 8 years of 6% as a proxy, the market would be expected to reach $165.5M
by 2014.
INDUSTRY ANALYSIS
INDUSTRY TYPE
The salon industry is primarily a service sector. The majority of services rendered occur in the
informal areas of the market, with bartering for hair trimming/weaving a significant portion of
the overall market. Few large salons exist, and only in the major urban areas. These
salon/barber shops cater primarily to wealthly clientele and typically offer more services. Closely
tied to the salon sector is the hair care products sector. Most hair related services use these
products as part of the hair trimming/styling process.
MARKET PLAYERS AND COMPETITION
Using the assumptions from the market analysis, we estimate that there are 2,875 small, one
chair salons and barbershops in the country. This is assuming that 95% of those that style their
hair do so at one of these shops and that each shop does 6 stylings per day, consistent with our
informal surveys. We estimate that the rest (5%), whom are higher income individuals, have
their hair styled at one of an estimated 150 high end salons in the country.
Most of the high end salons are owned and operated by the Lebanese, who also control the
majority of hair product imports into Sierra Leone. We found that the majority of small, one
chair salons are run by Sierra Leoneans, many of which are formally trained through one of the
numerous local vocational schools/programs.
Market Size in Leones
Trim/Styling Hair Relax Weaving Total Market Size
Men 83,796,300,000 - - 83,796,300,000
Women 54,617,476,546 180,582,842,784 205,301,087,629 440,501,406,959
524,297,706,959
Market Size in US Dollars (using L 4,000:$1 exchange rate)
Trim/Styling Hair Relax Weaving Total Market Size
Men 20,949,075 - - 20,949,075
Women 13,654,369 45,145,711 51,325,272 110,125,352
131,074,427
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SUPPLY CHAIN
Because this is a service industry, the supply chain for salon services will vary depending on the
level of training obtained by a stylist/barber. Whether trained in a vocational school, learned
through non-formal apprenticeship, or entirely untrained, stylists/barbers offer various services
and products at a range of prices to their end customers. However, trained labor will most
likely have access to wholesale prices and high end imported products due to their stronger
networks. Ultimately, prodcuts are avaialble for end customers from salons as well as shops in
the market, albiet products at market shops may not be of the highest quality.
EVALUATION OF MICROFRANCHISING POTENTIAL
PARTNERSHIP
After visiting various salons, we only found one salon that offered a
unique and innovative package that potentially matched a
microfranchising model. Naasu Fofanah , owner of Jemna Salons,
has established her salon in Freetown and attracts more high end
clientele in the city. Unlike most high end salons, she caters to all of
the major high income groups including the expatriates, Lebanese,
and high income Sierra Leoneans. Her salon has been in operation
for the past 6 months. She has plans to expand to several shops in
the Freetown city.
One of the core parts of her business is her agreement with Avlon,
a high end hair products company in the US that targets salons that
cater to African American clientele. Naasu has negotiated an
exclusive distributorship for West Africa. Avlon is very supportive
and has come out to do product training to other salon owners and
stylists that purchase Avlon product from Naasu.
She is college educated with undergraduate and master’s degrees
from universities in the UK, where she has lived for the past 15+
years. She also has spent the last five years running her own salon in the UK, where she also
Skilled
Individual
Vocational
School Apprenticeship
Salon/Barber Shop
Imported Styling Products
US/EU/China/ECOWAS
Wholesale
Market End
Cu
sto
mer
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underwent numerous trainings on how to do more complex hair styling.
Overall, we found Naasu to be very well connected, competent and eager to work with us. From
a management perspective, we feel that she would be an ideal manager to partner with.
However, she would need to add additional staff to manage a larger microfranchise operations
business.
SCALABILITY
Although Naasu would be a great manager, we are concerned about scalability of the business.
Although it would be possible to quickly scale the business through conversion franchising,
wherein existing salons were converted to a microfranchise model, there are only an estimated
2,875 in Sierra Leone, requiring 30% market conversion to reach this project’s target. Even
under the assumption that each salon could employ and average of two stylists/barbers, it is
uncertain if even 15% market share could be captured.
SUSTAINABILITY/PROFITABILITY
We also are concerned with the amount of value added to the salon by converting to a Jemna
microfranchise salon. Although her products are of higher quality, they are also much more
expensive than other products on the market, particularly if they are used correctly. In addition,
it is still unclear if there are other ways that a salon microfranchise could help the
microfranchisee make money through either more clients or better margins. This is due in part
to the fact that most salons in Sierra Leone are frequented by the same clients who have a
personal connection with the stylist and thus trust him or her.
CONCLUSION Even though Naasu is potentially an ideal manager to partner with, her current business is
difficult to franchise to the scale required for this project. However, if she was able to get her
product costs down and if we were able to line up partnerships with a few of the local
vocational schools, the salon market may represent a unique microfranchise opportunity. We
recommend IRC continue to monitor Naasu’s business in the event that either she is able to get
cheaper inputs to make the microfranchises salons more accessible to the broader market or
market dynamics shift favorably.
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BAKED GOODS
The baked goods industry includes bakeries and individuals involved in selling baked goods in
the formal and informal markets of Freetown. This industry’s main service is to provide ready-
to-eat baked products to individual consumers and businesses. Although formal shops offer
various baked products, such as breads, cakes, and desserts, the most widely consumed
products purchased by the majority of the population are the basic bread options of begets,
rolls, etc. These basic bread products are sold to consumers both from the bakeries directly as
well as by the individual bread sellers in the streets.
The bakeries produce bread in a few basic shapes; some bread is long or round, while other
styles are square or the traditional loaf-styled bread. Individual bread sellers sell these products
as plain bread or sweet bread to their customers.
MARKET ANALYSIS
DEMOGRAPHICS
As a regularly consumed product by many Sierra Leoneans, citizens buy their bread daily from
the bakery shops or from individual bread sellers in the street. The majority of customers
purchased their bread daily from the individual bread sellers, primarily out of
convenience. These individual bread sellers are mostly youth and adult women.
Youth sellers walk from place to place, through dense urban areas as well as residential
communities, carrying their bread on their heads in plastic bins or crate-like boxes. Having the
bread sellers walk around the towns and communities, customers more easily purchase bread
rather than incurring any additional travel expense or loss of time to go to a bakery to buy it.
Some individual bread sellers have regular customers throughout the major city of Freetown
and its hills; these bread sellers have built up trust with their customers and they distribute
freshly baked bread to their customers daily. Also, since many Sierra Leoneans do not have a
way to store the bread or prevent it from spoiling, most consumers would buy what they would
eat right away rather than paying for any excess bread they would have to store. Bread is a
daily commodity for many as it is regularly available staple of grain.
CONSUMER NEEDS/WANTS AND PREFERENCES
After observing the bread sellers in the street, visiting various markets, and shadowing two
youth bread sellers for an entire day, it was easy to determine there is a high demand for bread
in Freetown and its surrounding cities. The average person is willing to pay for either sweet
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bread at the price of Le 700 per piece or regular bread for Le 500 per piece. While these prices
may fluctuate based on the cost for ingredients, bakeries are constantly running out of supply
for these individual bread sellers to sell. At one bakery we visited, the daily supply of bread was
sold out before 6:30 AM to various individual bread sellers, and many more still remained with
their empty containers awaiting the production of more bread.
We also observed that consumers demanded quality in their bread products as they would buy
from individual bread sellers with a certain quality of bread associated with a particular brand
(i.e. J1 Bread or Red Lion Bread). Branding also helped the individual bread sellers to garner a
regular customer base as customers knew what quality they would receive from their daily
bread distributors. While individual bread sellers would sell to whomever they could find, many
went directly to their most-frequented areas to sell since they maintained relationships with
consistent customers and became those customers’ exclusive daily suppliers. Hence, when
these individual bread sellers could not deliver a product, they had some very unhappy
customers that missed the opportunity to buy from another seller since they were loyally
counting on only one distributor. In the village communities, consumers also preferred to buy
bread from family or close friends as they were more familiar with the seller.
MARKET SIZE AND GROWTH
Due to the high demand for baked goods, the market size is large and appears to be growing;
however, with so many market actors selling the same products the likelihood of long-term
expansion is slim. There is definite room for growth should this industry diversify its products
available to every citizen. Unfortunately, without any innovative bakeries producing new
products and distributing them for sell in the informal markets, this potential for growth
remains untapped.
The lack of any wide-reaching strong brand also remains a challenge for the growth of this
industry. The market is saturated with individual bread sellers on every city street or even in
remote areas selling similar bread products without many being brand exclusive.
INDUSTRY ANALYSIS
ECONOMY TYPE
The baked goods industry is a food processing and distribution sector. Because there are limited
packaging options for these products and Sierra Leone is very hot and humid, most baked goods
have a short shelf life and are consumed daily or within a few days. While grains are a main
staple for consumers, this sector creates value through increasing grain consuming options and
decreasing the cooking costs for baked goods. In addition, this industry provides timely access
to baked goods otherwise not regularly produced every day by average consumers.
MARKET PLAYERS AND COMPETITION
Due the high volume of baked goods consumption, there are many market players and steep
competition for individual bread sellers in Sierra Leone. In order to understand this baked goods
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market better, we met with a number of baked goods producers in Freetown and Kenema. We
found everything from high end bakeries that supplied various products to low end bakeries that
were simple bread businesses. We explored various Lebanese bakery shops, J1 Bakery, Red
Lions Bakery, Lumley Bakery, and also spent time talking with the IRC’s Microfranchise youth
that were individual bread sellers. In addition, we shadowed two IRC Microfranchise youth as
they collected their bread from a local bakery and another from a bread delivery
van. Subsequently, we followed them around for the majority of a working day as they sold
their bread throughout their hillside village communities.
With a volume of individual bread sellers found in any given community, competition can be a
challenge for each seller. The most successful bread sellers are those that have built
relationships with regular customers and gained recognition for his/her high quality bread. For
example, when following around Muhammad--a 23 year old individual bread seller and J1 Bread
representative—he sold most of his bread because he yelled, “J1 Bread. Fresh, hot, J1 Bread.”
Although he did not actually have J1 Bread that day, nor did his customers know that, they still
purchased his bread.
There are other advantages for individual bread sellers to partner with a particular branded
bakery to remain competitive. Since bakeries only produce so much bread each day, we found
that when they sell their supply wholesale to individual bread sellers, they give precedence to
their regular wholesale customers before they sell to new customers. Regular wholesale
customers can also maintain payment systems unavailable to new customers. They can pre-pay
for bread the day or week before and also maintain a credit with the bakery. Also, there are
multiple individual bread sellers that are trying to become new customers, hence, new
customers may have to pay more in order to buy the extra bread over another new customer.
Also, since bakeries do not regulate who can sell their bread, most individual bread sellers
appear to sell from multiple producers.
SUPPLY CHAIN
With the limited diversity in baked goods products in Sierra Leone, the supply chain of this industry is very simple. First, products are purchased by the bakeries such as milk, butter, sugar, and grain. Bakeries then make the various types of bread mentioned earlier and prepare it to sell to businesses, stores, restaurants, individual bread sellers, and in the markets. Individual bread sellers then resell the bread to other customers, which include different businesses, individual customers, and regular citizens. If all the supply is not sold, depending upon the seller, the individual bread seller or businesses may store the bread to sell at a bread stand in
Bread Inputs Flour, yeast,
water, power
Bakeries Lebanese, Red Lion, Lumley,
J1
Individual Bread Sellers
End
Customer
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the next day or two or some may sell it back to the bakery. Ultimately, the supplies end up with the consumer, individual bread seller, or bakery, albeit these products will not last long.
EVALUATION OF MICROFRANCHISING POTENTIAL
PARTNERSHIP
Although the baked goods market has potential for increased market efficiency and growth, we
cannot recommend any of the producers we explored as strong partners for IRC’s youth
microfranchising project. Currently, we did not find any baked goods business that was
producing innovative products or had a systematic method for branding itself in the informal
market to maintain a large market share of bread consumption. As IRC’s previous partner J1
Bread struggled to manage its financials as well, we could not recommend J1 as a strong partner
either.
SCALABILITY
Due to the high demand for bread, the baked goods industry has the potential to scale;
however, this would only be possible if there was a well-established partner that could manage
the growth of a baked goods microfranchise. Without a strong partner that could manage the
volume of work involved with training the youth, growing the microfranchise, and systematizing
a baked goods model, this baked goods industry is not the most viable sector for IRC. Desiring
to create 1000 jobs in the next three years for youth and with the influx of individual bread
sellers already, IRC would also need to attempt to convert existing individual sellers to our
microfranchise model and brand, in addition to adding new individual bread sellers to thier pool
of microfranchisees. Without an effective partner, IRC cannot scale this microfranchising
business conversion model.
DEMAND CHARACTERISTICS
As mentioned above under the consumer preference section, baked goods are in high demand
in Sierra Leone. Regardless of socio-economic status, Sierra Leoneans are willing to pay for
bread products both plain and sweet, and they desire quality and reliability from the individual
bread sellers. A microfranchise model would easily meet this demand as the franchisor would
have a strong brand and trained staff on how to sell that brand. Quality would also be
recognized and tied to the brand as the baked goods microfranchise would enforce a
policy/practice that only microfranchisees could sell bread from IRC’s partnered bakery to claim
affiliation with the bakery. Thus, having a strong brand that includes a unique product design,
quality product, and systematized marketing and distribution method, IRC’s youth
microfranchisees would more likely garner business and find success.
SUSTAINABILITY/PROFITABILITY
A baked goods microfranchise model could prove sustainable and profitable under the right
conditions. If IRC’s youth microfranchisor partner managed its financials well and maintained
quality equipment and access to inexpensive products with a high mark up value after bread
41 | P a g e
production, then the profit margins could be substantial. As the youth microfranchisees have a
quality brand, consistent access to enough supply, and are well trained in managing their
finances and marketing the products, then they could also ensure sustainability and
profitability. Regardless, the profitability of a baked goods microfranchise highly depends on
the effectiveness of implementing the microfranchise model itself, which would require a
quality partner.
CONCLUSION While the baked goods industry appears initially attractive to the IRC youth microfranchising
initiative due to its potential scalability and sustainability, there are no quality partnership
options at this time. Hence, we do not recommend IRC pursue partners in this industry.
However, since there is a demand for baked goods, a few small distribution networks, and an
inexpensive cost to produce, sell, and purchase these products, FCG recommends that this
market be watched over the coming years in the event that a strong partner emerges with
whom a differentiated baked goods business can be launched via a microfranchise model.
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POULTRY
The poultry market can be divided into two distinct product categories: poultry for consumption
and poultry for production. Although this report focuses primarily on poultry for consumption, it
is important to understand the market dynamics influencing poultry for production products, as
both are connected.
POULTRY FOR PRODUCTION
Poultry for production includes chickens for laying eggs (lay birds), fertilized eggs to hatch
chicks, and chicken feed. It is very expensive and difficult to build the capacity to produce
fertilized eggs. This has resulted in fertilized eggs being imported from Holland at ~$1.70 plus
tax and tariff per dozen. In order to turn those eggs into chicks, large incubators are required
and the process takes 21 days. Once hatched, new born chicks can sell for around $1.50 each.
Farms will often keep the female chicks to turn into lay birds and sell the male chicks to others
interested in raising them for consumption.
Feed is another important portion of the equation as access to and pricing of feed directly
impacts egg production. Chicken feed is composed of 50% maize, 35% feed concentrate
(includes minerals and vitamins), 10% brown fiber, and 5% limestone. Feed concentrate is
imported and although special approval can be made to waive import tariffs, getting that
approval can be difficult and time consuming.
POULTRY FOR CONSUMPTION
Poultry for consumption consists of eggs that sell
for market prices of Le 4,500-6,000/dozen. There
are several types of eggs for sale on the market:
White eggs that are imported from India account
for more than 50% of egg sales, large brown eggs
that are produced domestically by farmers, and
small brown eggs that are produced by
individuals.
Whole chickens consumed for their meat sell for
43 | P a g e
Le 8,000-10,000 each. Whole chickens are imported predominately from Brazil with imports
also coming from other countries like the USA. Chickens are also grown domestically, many by
individuals that purchase the chicken as a chick and raise it.
MARKET ANALYSIS
CONSUMER NEEDS/WANTS AND PREFERENCES
Chicken meat is a high demand food and considered a type of
delicacy in the provincial areas of Sierra Leone. It is often
cooked for special visitors and it is considered an honor if you
are served chicken at someone’s house. This is typically
because in the provincial areas, one of the family chickens was
killed that day for your meal.
Almost all Sierra Leoneans interviewed expressed the interest
in eating more chicken and listed it as one of their favorite
foods. They noted lack of availability and the high price as
constraints to increasing their current consumption. It is also
interesting to note that live chickens are often given as gifts.
These chickens thus become prized possessions and are used
to produce eggs and eventually for meat.
Recently a number of NGOs, such as Christian Veterinary Missions of Canada, have been
providing chickens to rural farmers in an attempt to help increase farmer income and rural
nutrition. This is typically accomplished by paying local poultry producers with incubator
capacities to import fertilized eggs and incubate them. The resulting chicks are then distributed
to provincial farms. This market however is fairly random in demand and is not considered of
long term importance.
Although eggs come in brown and white varieties depending on origin, there appears to be little
difference in consumer preference between the imported white and domestically acquired
brown eggs. Large brown eggs are reported as being slightly sweeter than white eggs and can
carry a slightly higher price (Le 100+ per egg) over white eggs. Small brown eggs are not liked by
most and thus carry a much lower price tag.
Imported eggs spend 4-5 weeks on a ship before they arrive in Sierra Leone. This means that by
the time a consumer eats an imported egg, it may have already technically spoiled. Prices for
white imported eggs thus decline rapidly after their arrival, dropping up to Le 1,000 per dozen
every week. Nonetheless, the price appears to be the key factor over quality as more white eggs
are consumed than brown eggs, which are typically only a couple days old when consumed.
44 | P a g e
MARKET SIZE AND GROWTH
The market is expected to grow due to the high demand for chickens. As chicken prices continue
to decline and income continues to rise, we project that the chicken meat and egg market will
also rise at least as fast as GDP growth, which has grown at a 6% annual rate since 2002. This
would result in an estimated market size for eggs of $171.6M and $64.3M for chickens by 2014.
INDUSTRY ANALYSIS
ECONOMY TYPE
The poultry industry is characterized as having a few large and medium importers of both eggs
and chicken, with a few small domestic poultry farmers that mostly produce eggs for
consumption and only a couple with the capability to incubate fertilized eggs in-country. The
rest of the industry is composed of thousands of individuals and families that raise their own
chickens and produce their own eggs for personal consumption or small sales in the market.
Distribution is similar to most agricultural goods. Eggs and chickens are brought to large
wholesale markets where they are purchased and taken to smaller markets or carried and sold
by individuals in the streets. Eggs are transported to rural areas by individuals that travel to
Freetown and back, returning to sell in their home markets. This results in slightly higher prices
due to the additional transportation costs incurred.
MARKET PLAYERS AND COMPETITION
According to our interview with the purportedly largest poultry producer by capabilities in Sierra
Leone, competition is fierce between importers and local producers. Domestic producers
complain that they are unable to compete against the low prices of eggs imported from India
and chickens imported from Brazil. Domestic producers suspect that other countries like India
and Brazil benefit from economies of scale and subsidies.
Having been crippled by the war, it has been difficult for domestic producers to rebuild their
production capabilities. The producer we met with has 21 poultry houses capable of holding
Estimated Chicken Egg Market Size
Ages 15-64
Ages <15
and >65 Ages 15-64
Ages <15
and >65
Cost Per
Egg (L)
Market Size Per
Year (L)
Market Size
Per Year ($)
Urban Population 1,197,000 1,197,000 6.6 3 400 239,016,960,000 59,754,240
Rural Population 1,953,000 1,953,000 5 1 500 304,668,000,000 76,167,000
3,000 each that could produce some 5,250 dozen eggs per day. He also has the incubator
capacity to produce 6,000 chicks per month. Unfortunately, the restart costs are high and make
it difficult to scale his business. Today he has 18,000 lay chickens, at least half of which are
getting close to the age where they will be sold for meat due to low egg production.
The government appears to have strong influence in this market. Because almost 50% of state
revenues are acquired from import duties, the government has a vested interest in promoting
imports. This has led to suspicion among domestic poultry producers that larger poultry
importers are not paying the full 40% import duties. As noted earlier, feed concentrate, a core
component of chicken feed must be imported. Although it is possible to receive special approval
to avoid import duties on it if it is used for agricultural production, getting that approval can be
time consuming, costly, and often result in a net loss for the farmer as dock fees pile up.
SUPPLY CHAIN
The above diagram does not fully take into consideration the large number of chickens owned
by individuals. However, the general processes would be the same. Males are kept until the
family is ready to eat them, which may not occur for several years as chickens live for an average
of 7 years. Eggs are collected from the female until she is ready for consumption as well, which
typically occurs after year two or three as egg laying ability declines.
EVALUATION OF MICROFRANCHISING POTENTIAL
PARTNERSHIP
There do not appear to be any strong domestic partners. The poultry farm that we met with that
has tremendous unused production capacity is currently for sale for $550,000 as the owner is
old and seeking to retire from the business. Although a number of poultry farms have opened
over the last couple of years, all remain too small to be an adequate partner.
Fertilized Eggs
(Imported)
Wholesale
Market
Incubator (21 days)
Chicks “Layer” Chickens
(eggs) 18-22 weeks
“Broiler” Chickens (meat)
4-10 weeks After 2 yrs for
Layers
Large
Retail
Marke
ts Last Mile Vendors
End Customer
46 | P a g e
SCALABILITY
Demand for both eggs and poultry meat is high in Sierra Leone, with hundreds of sellers of both
products in the markets, streets, and restaurants/tea shops. Very low start-up costs would be
required for this microfranchise, making it inexpensive to quickly enlist hundreds of
microfranchisees. Hundreds of existing egg and chicken sellers could quickly be converted into
microfranchisees, allowing the project to hit its goal of 1000 microfranchisees very rapidly.
SUSTAINABILITY/PROFITABILITY
As noted earlier, it appears that egg quality is not highly valued among consumers. The same
appears to also be true of chicken meat. Therefore a low cost strategy must be employed
instead of a differentiated one. In order to achieve a low cost strategy, the potential partner
would need to have significant economies of scale or some other protected source of low cost
inputs. To date, we have not found any domestic partners with that capability. In addition, it is
difficult to achieve meaningful profits with a low cost strategy in a microfranchise business
model as there are significant incentives for the microfranchisor to sell its product to as many
vendors as possible. The increased competition ultimately drives down prices, squeezing
margins and resulting in low profits for the microfranchisee.
CONCLUSION Although demand for poultry goods is very high in Sierra Leone and scalability of a poultry
microfranchise could be achieved quickly and easily, the poultry business lacks a domestic
partner with sufficient capacity and resources. FCG therefore recommends that this market be
watched over the coming years in the event that a strong partner emerges with whom a
differentiated poultry business can be launched via a microfranchise model.
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MOBILE PHONE CREDIT SALES
Mobile phone shops are scattered throughout every street in the cities of Sierra Leone. While
painted walls, shops, homes, and even huts are notorious for advertising the mobile phone
companies and their services in many emerging markets, Sierra Leone’s landscape follows suit
with its mobile companys’ branding. Whether talking for free on the weekend or being able to
transfer money or minutes to a friend or family, it is ironic to see even the poorest citizens,
many without electricity, owning a mobile phone. As one of the most attractive services offered
by mobile phone companies, young entrepreneurs offer “top up” service from their small street
shops, where one can purchase minutes to recharge their phone wirelessly rather than typing in
a scratched off number from a recharge card. Customers purchasing the convenience of the
timely service and smaller increments of minute units available provide a meager profit margin
for these youth microbusinesses.
MARKET ANALYSIS
DEMOGRAPHICS
The numerous mobile phone shop owners use their affiliations with the three main mobile
phone companies in Sierra Leone as a status symbol. Being connected to something greater
increases a small shops reputation and the perception of an entrepreneur’s socio-economic
status. In addition, providing new services and the most updated phones improves the identity
of individuals and business owners. Many youth have been used by the three largest
telecommunication companies to sell “top up” services. However, most important to this
industry is the impact mobile phones have had on the population in increasing communications
and information sharing country-wide, even in the most remote regions.
CONSUMER NEEDS/WANTS AND PREFERENCES
Based on our research, consumers frequently pay for top up service at the mobile phone shops;
however, since it is already widely available, consumer growth does not appear to be extremely
high. Although there are many paying for the service, others may know about it, but still choose
not to pay for it. Regardless of access, since the service is not very innovative or absolutely
necessary for consumers to use to increase their talking minutes, the overall consumer
preference for top up is low.
MARKET SIZE AND GROWTH
The market for cell phones and unique mobile services like top up constantly changes as
companies compete for customers. Currently all telecommunication providers offer top up as
an optional service; however, its potential for growth is uncertain. While some remote areas
may not have as many mobile phone top up retailers available, the populations in these areas
will have less access to and knowledge about this service. Even though customers in these areas
may not know about top up services, it is unclear exactly what percentage of these consumers
would want to pay for the convenience if they did.
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INDUSTRY ANALYSIS
INDUSTRY TYPE
From a mobile unit top up view, this is purely a distribution sector. Similar to the Coca Cola
model, the goal for telecommunication companies is to make their mobile units and sim cards as
accessible as possible to as many people as possible. This requires large distribution networks
with thousands of distribution points.
MARKET PLAYERS AND COMPETITION
Currently, there are three dominate mobile telecommunication companies in Sierra Leone:
Africell, Zain, and Comium. Each one offers various services that attempt to build the volume of
users and its network.
Africell has the most users and offers a number of value add features and services such as
downloadable ring tones. Africell is probably the cheapest on a cost to coverage ratio of the
three companies. Zain has the strongest network, but is also the most expensive. It is the only
company to offer service in most of the provincial areas. Comium is has the lowest coverage, but
it is also the cheapest option and offers the best margins to its wholesalers and resellers. All
three of these companies have markets outside of Sierra Leone and sell services that generate
business for those that travel between countries.
SUPPLY CHAIN
Mobile telecommunication companies sell their top up codes and minutes at wholesale prices to
a few designated selling agents. Then the selling agents offer those minutes to individual
retailers in shops throughout the country. The individual retailers purchase these minutes at a
discounted price and then resell the service at a marginally higher price to the customers.
Minutes can be transferred phone to phone (~95% of all mobile top up transactions) or by
entering and sending codes from the customer’s phone to the telecommunication company
which in turn sends minutes to the customer’s phone.
EVALUATION OF MICROFRANCHISING POTENTIAL
PARTNERSHIP
The CEO of Africell offered to make IRC or an affiliated party one of five wholesalers at a much
lower entry price. However, this still would require a trusted and capable partner. Balani & Sons
also represent another potential partner. However, they could offer little in the way of
Mobile Phone Company
Africell, Zain, Comium
Large Wholesaler Selling Agents
(e.g. Balani & Sons)
“Top Up” Resellers Transactions: Mobile
to Mobile Unit Code Cards
End
Cu
sto
mer
49 | P a g e
additional value add to the microfranchisee than what they would receive from another
wholesaler. Talks with Splash have been more productive and Splash has indicated that they are
negotiating a better ate for air time units and will pass almost all of the margin on the their
microfranchisees, thus allowing them to make a 5% profit margin instead of the 3-5% currently
available to wholesalers. By working with Splash, selling air time units could be a nice adjacent
business to the mobile banking practice for the microfranchisees and help them supplement
their income in the short term as the mobile banking practice takes time to build.
SCALABILITY
The mobile phone industry’s top up service is not very scalable as a youth microfranchising
employment model. Due to the high availability of this service and saturated market of sellers
without a strong brand-user connection, it would be difficult to create additional jobs in this
sector. Perhaps the best way to increase employment is to overcome the lack of capital
problem. However, this will require significant capital infusion, making it difficult to scale to
target numbers of microfranchisees. As was mentioned, providing multiple or more innovative
mobile services has greater potential to scale.
SUSTAINABILITY/PROFITABILITY
In the short term, the mobile phone industries’ top up service does not show potential for
extreme profitability. Only coupling this service with other services would the microfranchisees
and the microfranchisor turn a reasonable profit in the long-term. Through conversion
franchises, there could be potential to strengthen the profitability of this model; however, since
each youth entrepreneur can sell any type of brand, the profitability remains capped for those
at the individual seller.
CONCLUSION We do not recommend IRC partner with a mobile phone company to have their youth sell top
up services because the market is already saturated with sellers of this service and the mobile
phone companies have not shown to be quality partners. Since the youth entrepreneurs and
top up service are such a small part of the mobile phone companies programs, their
partnerships would be very weak in supporting the desired job growth, training component, and
business innovation. The top up service alone is also not very scalable as a youth
microfranchising employment model. However, air time sales may be an excellent adjacent
business to launch for mobile banking microfranchisees, like those involved with Splash to help
supplement their income. We recommend taking this approach to the air time sales sector.
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CONCLUSION After analyzing each of Sierra Leone’s most viable business sectors with the intent to identify
optimal microfranchising opportunities, FCG highly recommends IRC continue to explore
innovative partnerships in the following four industries:
Mobile Banking
Ice
Water Sachets
Popsicle and Frozen Treats
Having researched Sierra Leone’s youth labor market, current market demands and consumer
trends, in addition to exploring the major business industries in our analysis, these four sectors
provide the best opportunities for IRC’s youth microfranchise initiative. Under the right
conditions, each of these industries had strong potential partnerships when measured against
our three main criteria: management team, scalability, and profitability. In particular, we
recommend IRC solidify partnerships with two established businesses, Splash and Ice Ice Baby,
which would allow IRC to take advantage of all 4 industry’s market opportunities.
SPLASH: MOBILE BANKING
Partnering with Splash in the mobile banking
industry, IRC youth microfranchisees will gain an
immediate market edge on this burgeoning financial
services market. Splash has a quality management
team, a highly scalable service, and profit-earning
potential. Splash’s management team welcomes
innovation and has already expressed interest to
work with IRC and FCG to develop the
microfranchising system. Splash also has venture
capital support from Manocap to ensure oversight for
its management team and provide access to capital
for growth. In addition, Splash has agreements with the three major telecommunication
companies giving it a market penetration advantage and access to all potential user networks.
We will explore this industry and partnership further in our subsequent microfranchising
business model report for Splash.
ICE ICE BABY: ICE, WATER SACHETS, AND
POPSICLE AND FROZEN TREATS
We also recommend that IRC further develop its
established youth microfranchise partnership with
Ice Ice Baby due to its quality management team,
potential scalability, and profitability. Like Splash,
Ice Ice Baby has an innovative management team
supported by Manocap. Ice Ice Baby is highly
interested in expanding its operations and
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deepening its distribution by expanding its youth microfranchising networks. Already meeting
the high demands for ice with its quality recognized brand, Ice Ice Baby is an ideal partner
poised for growth and product diversification. Should Ice Ice Baby begin producing water
sachets and popsicles, its strong reputation coupled with the high demand for these products
will lend legitimacy to the youth microfranchisees and help facilitate sales. This partnership will
also lead to high profitability for both the microfranchisor and the microfranchisees. In a
subsequent microfranchising business model report for Ice Ice Baby, we will discuss our
recommendations further for how this partnership should unfold.
Returning to IRC’s objectives, this report addresses objective #1, sub-questions a. through f.,
which is to identify potential businesses that could successfully partner with IRC in their three-
year microfranchise strategy. FCG will continue to expound on our findings in the subsequent
two microfranchising business model reports for Splash and Ice Ice Baby. In those additional
reports, we will address sub-question g. from objective #1, which is to outline the proposed
microfranchising model, accounting for its strengths and weaknesses, and compare it to other
similar international microfranchising models where relevant. Those two additional reports will
also culminate our initial five week analysis by addressing IRC’s last two main objectives with the
following sub-questions:
2. Business conversion and definition of path to scale for micro-franchises;
a. What specific activities will be required to support each selected businesses’ conversion into micro-franchise operations?
b. Who will be engaged in providing support to each of the selected businesses (IRC, local partners, other market actors)?
c. What is the expected timeline for scaling micro-franchise operations (provide specific numbers along timeline)?
3. Definition of cost-efficiency and sustainability plans for micro-franchises; a. What is the expected cost of implementing micro-franchise operations for
businesses (per youth)? b. What is the expected cost for buying into micro-franchises for youth?
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APPENDIX
Salon Market Size Total Market
Market for Men 83,796,300,000L Market for Women 440,501,406,959L 524,297,706,959L
20,949,075$ 110,125,352$ 131,074,427$
Number of Men Number of Women
1,037,876 1,104,124
518,938 552,062
488,412 519,588
518,938 552,062
488,412 519,588
% that pay to style Hair % that pay to style Hair
10% 15%
15% 25%
25% 45%
60% 65%
75% 85%
No of Trims/yr No of Styling/yr
8 1
10 1
12 3
14 5
16 6
Average Cost Per Trim 83,796,300,000 Average Cost Per Styling 54,617,476,546
500 1,000
1,000 1,500
1,500 3,000
5,000 6,000
10,000 20,000
Average Frequency of Relax Average Frequency of Relax
- 1
- 1
- 2
- 3
- 6
Average Cost Per Relax - Average Cost Per Relax 180,582,842,784
- 20,000
- 25,000
- 30,000
- 40,000
- 60,000
Average Frequency of Weave Average Frequency of Weave
- 1
- 1
- 2
- 3
- 4
Average Cost Per Weave - Average Cost Per Weave 205,301,087,629