Digitizing the Corner Shop’s Supply Chain in Tunisia

Rather than having a direct link between the small shops and the factories, we have a series of mediators who are all profiting,
explained Oussama Ourahou.

Ourahou has an interest in criticizing other middlemen: he’s the head of growth at a new company called Kamioun which aims to break into the same market by streamlining logistics and connecting local manufacturers with small retailers using a phone application. Wholesalers have a lot of power to control pricing. Manufacturers have to sell to them because the alternative—running their own storage and distribution system—is “not cash effective” according to Ourahou.

“The easiest way to get rid of your goods as a manufacturer is to drop them off at one of a group of large wholesalers,” Ourahou explained. Meanwhile, small retailers are at the mercy of wholesalers’ ability to weather consumption patterns. Apart from having access to bigger lines of credit, wholesalers also have up to 90 days to pay manufacturers for their goods. This gives them ample time to reinvest their earnings from the sales of one product into another before having to pay back the manufacturer, selling at a loss for goods that sell quickly while keeping the prices for slower-selling goods high. “Wholesalers have the capacity to sell at a loss and often do so to get hold of the cash to do something else with the money during that 90 day period. For the basic stuff like flour, tuna, and olive oil, profit margins are very low, between 2 to 5 percent; but these goods move very quickly,” Ourahou told Meshkal/Nawaat. “For cleaning products, biscuits, and other goods that move slower, profit margins are around 20 percent. So I can lose one percent on canned tomatoes or olive oil, for example, selling at a loss, and use the money to try and gain more profit on these slower goods.”

For purchases involving the public sector, Article 104 of Decree 2014-1039 sets a 90-day time limit for full payment to be made; Ourahou claimed that this 90-day lag is also used in the private sector and is recorded on receipts held by some of the manufacturers Kamioun works with. The case Kamioun is making is that large wholesalers’ level of control over the domestic retail sector is hurting the income of both small retailers and manufacturers. But not all small grocers or dawarjis see a problem with the current system.

The Reluctance of Small Retailers

Instead of an app, small retailers say they already have their own way of getting around middlemen: their own personal connections that they have developed over time with competing suppliers or the manufacturers directly. Meshkal/Nawaat spoke to a number of small retailers—corner shops (Attar) and small groceries (superettes)—and all of them were skeptical of alternative ways of getting their goods. We asked Said, an employee at a small grocery store in La Marsa called Freshka, what he thought about using an online system to buy supplies. “Here, when you want something you make a call,” he said. He also explained that a lot of their goods, such as tuna, come straight from the factory and that the shop rarely uses dawarjis [independent transporters].

Sometimes the dawarji is cheaper, sometimes the wholesaler. With wholesalers you can just call them and they come right away,
said Sami.

“If I can find a good price, I even go through manufacturers.” Sami Ben Slim and his brother own a corner shop on Avenue Mohammed Ali in La Marsa. Ben Slim told Meshkal/Nawaat that his supplier was the least of his worries compared with drunk people and people asking for free things. “Around fifteen dawarjis will come every day selling random stuff. I like doing business with dawarjis because I have a good experience of working with them, and I can send them an invoice and pay them later,” he said.

Tarek, who owns and runs a slightly smaller shop 100 meters down from Ben Slim’s, expressed the same satisfaction with the current system. “Around 10 people come and sell goods to me: chocolates, biscuits. These people have roughly the same goods but their prices are different, and this depends on how much the darwaji buys and sells,” Tarek explained to Meshkal/Nawaat.

“No, there is nothing I would change.” The existing logistics networks rooted in personal connections that small retailers have developed is something Ourahou of Kamioun also recognizes. He told Meshkal/Nawaat that one of the things Kamioun underestimated was how hard it would be to interfere with small retailers and their distribution networks. Working within this partially informal sector of the domestic economy is difficult for startups like Kamioun. To be a dawarji and distribute goods in Tunisia you need a travelling retailer license and must pay a monthly VAT tax of between 7 to 19 percent, depending on the type of goods you trade in. However, Ourahou claims that most dawarjis don’t declare the vast majority of their goods—meaning they work within Tunisia’s informal sector. Similarly some small retailers told Meshkal/Nawaat that they would be reluctant to hand over invoices and financial details to a business partner—details Ourahou said Kamioun would need to draw up business reports for manufacturers—out of fear that they may have to pay more taxes for doing so.

Small shops will run away from anyone who waves ‘transparency’ at them. When working in this sector it is better to find a way to profit from the informality while keeping the status quo instead of going against it,
Adnen Ben Haj Yahia, Executive Director and co-founder of the social innovation hub El Space.

Rather than analyzing the retail sector simply through the lens of profit-margins, Yahia said businesses should look at the “psychological and social aspect of the decision making process of small shops”. “Being mainly ‘mom & pop’ shops means that the owners are reluctant to change or to use anything new,” Yahia said.

Ups and Downs of an Online System

Recently new businesses that use the internet to deliver groceries to consumers directly have appeared, such as FarmTrust, O’Frais, and Magasin Général’s Founa. Kamioun is betting a similar model could be successful on the business to business side too. Meshkal/Nawaat asked Hamza, one of Kamioun’s two dawarji, what benefits the app-based system offered. “Everything is sorted for you on the application. With the new system, I don’t need to have any phone calls with wholesalers,” Hamza explained. For Hamza, not having to negotiate with wholesalers, and instead picking up pre-purchased goods from manufacturers has removed part of the economic uncertainty involved in being a dawarji. Hamza had only been working for Kamioun for two weeks when he spoke with Meshkal, and under their current business model said he earns a salary through the commission he makes off every sale. Hamza and the other dawarji employed by Kamioun were the only individuals currently using the Kamioun’s app. But Hamza believes that when it is eventually transformed into an online market, Kamioun may face other difficulties when engaging with smaller retailers.

Some of them won’t understand how to use it,
Hamza said.

Ourahou of Kamioun is aware of this issue and said they are considering sending out an employee to provide training to small retailers. But even with training, retailers’ ability to access an online marketplace is entirely dependent on them having smartphones, internet connection, and reliable mobile internet networks. The digital inclusion and mobile sector taxation report conducted by GSM Association in 2015, recorded that smartphone share of total network connections during the second quarter of 2015 averaged at around 30 percent. Additionally, a more recent 2017 report by Freedom House found that although there were 7 million mobile data subscriptions in the country as of March 2017, average bandwidth remained very low and connectivity is highly dependent on physical proximity to existing infrastructure.

Protections for Small Retailers

In an unpublished Euromonitor report on Modern Grocery Retailers in Tunisia, one of the reasons neighborhood grocery shops account for such a large percentage of the retail market is because of their proximity to consumers. Another reason is legislation protecting the market from international competition. Neighborhood grocery shops’ hold over the retail market is aided by long standing legislation which limits the expansion of foreign supermarkets and retailers.

According to Article 2 of (relating to the conditions of certain commercial activities), foreign nationals or companies are forbidden from entering the commercial market unless they are part of joint venture with a domestic firm. Article 412 of the Code of Commercial Companies states that the majority of the capital in such ventures must be held by the Tunisian party, while Article 470 requires that both parties of this joint venture have a company headquarters based in Tunisia. Additionally, the 1998 amendment of the ministerial decree issued on 14 September 1961 states that the foreign national or company must also obtain a trader’s card issued by the Ministry of Commerce who assess whether the foreign national or company will be an asset to the Tunisian economy.

It was through this legal procedure that Tunisia’s Ali Mabrouk, founder of Mabrouk Group developed his company from a domestic wholesaling firm into a supermarket chain, partnering up with the French retailer Casino in the nineties to open the first Monoprix store in 2005. The other two big supermarket chains—Carrefour and Magasin Général—are also partly owned by foreign firms. Each of the three holds a third of Tunisia’s big retail market—which itself represents only 20 percent of the market compared to the 80 percent of small retailers, according to a report by the bank Nordea.

But this hasn’t stopped these big three from trying to break into the small retail market. In 2010, Carrefour launched in Tunisia its first Carrefour Express—a small “superette” grocery market—designed as part of a strategy to meet the proximity needs of consumers. However as of 2019, there were reportedly only 42 Carrefour Expresses in Tunisia, a relatively small amount compared to the estimated 210,000 to 250,000 small retailers. In 2014, Aziza, another chain of small grocery stores linked to the private agricultural conglomerate Group Slama, tried to cut into the market. By 2017, Aziza had 91 small stores in mostly working class neighborhoods according to one report.

Another protection for small retailers are regulations on pricing. The Tunisian state has several mechanisms to control the prices of goods, including through direct subsidies, indirect subsidies through public investment, tax incentives, or direct price setting by state-owned manufacturing, monetary policy, and a competition board organized under a 2015 law to address “requests related to anti-competitive practices.” Additionally, Articles 43 to 49 from this same law on competition—law number 2015-36—outline a clear set of legal offences and sanctions for anti competitive practices, such as a fine of up to 100,000 dinars and one month in prison for anyone who “increased or reduced artificially or who tried to increase or to reduce the prices of products or services, by any means or who has proceeded to speculations to influence the normal level of prices”

However, none of the traders or retailers Meshkal/Nawaat spoke with appeared aware that any such board and pieces of legislation were active, and many felt that there was no regulation of prices that might help their businesses. “The government has no influence over the price of goods. In some cases, I was buying some products at a good price, but with other goods, I was not making any money,” Hamza the dawarji said.

Not in Full Operation

Kamioun is not the first startup in the region to provide a service that connects manufacturers with small retailers. Maxab, an Egyptian startup founded in 2018, offers a similar service and now distributes 1,200 different products to around 22,000 retailers in Egypt. “We are trying to build a kind of Amazon for manufacturers and small grocery shops. What we are doing is bringing technology into the sector,” Ourahou told Meshkal. To use Kamioun, manufacturers pay a service charge and will be given reports on how their goods sell in certain areas through data and invoices provided by the small retailers who also use the marketplace. However, unlike Maxab, Kamioun doesn’t currently have a full catalogue of goods to offer small retailers.

Right now we are still operating as just another wholesaler who provides detailed reports to manufacturers on how their goods are selling,
Ourahou said.

“We sell goods to around thirty cornershops [attar] in the La Marsa area, buy goods from three to four different factories producing different goods [tuna, mayonnaise, and canned tomatos], and have two dawarjis working for us.” Once Kamioun has a full catalogue of goods they plan to introduce the app to small retailers and manufacturers and become an online marketplace, charging manufacturers 5 percent of all profit margins that are made through the online market. Currently, manufacturers are unaware of this next technological step and pay no service charge for Kamion’s business reports. The app is only in place for the dawarjis who use it as a tracking device to pick up goods that have been sold to Kamioun and to record their door to door sales to retailers. However, getting to this next stage is financially challenging.

As Kamioun are buying smaller volumes compared to wholesalers, they don’t yet have competitive prices and are working at a loss in order to compete with wholesalers. Ourahou told Meshkal/Nawaat that Kamioun will need an investment of around 1 million euros from a venture capital fund by the end of the year if they are to survive. Nevertheless, Ourahou is optimistic, and they even have plans to expand into Algeria and Morocco in the next two years because he believes their supply chain systems resemble Tunisia’s. “It’s a huge, big sector and no one is tackling it,” Ourahou said.

This article was produced as part of a reporting partnership between Nawaat and Meshkal