GARRI PROCESSING BUSINESS - Simplified Pricing and Distribution Structure
Written by Mr Kazeem Lamidi
As a commercial processor, having a knowledge of how to sell and where to sell your garri will determine if your business will be sustainable or not. A commercial processor whose factory is located within a farm settlement because of availability of cassava tuber will struggle to sell profitably within that same village, especially if he chooses to sell same ways as the local cottage garri processors. This is simply because of difference in their cost of production due to obvious reasons.
A commercial processor thus needs to strategize on how to sell and where to sell.
As attractive as selling directly to bulk buyers is, only few Commercial Processors can afford to meet up with cut-throat price that garri dealers intend to buy. Bulk buyers and garri aggregators are used to the low price at which they buy garri from rural be processors. And no matter how quality garri from Commercial Processors is, bulk buyers will offer to off take at same ridiculous price they buy from rural Processors or even less.
It is only when a Commercial Processor is able to leverage mass production at low cost production that he can access the bulk buyers market at a profit. Even with a profit margin of 5% and an average turn out of 15-20 bags on a weekly basis, he will be able to stabilize and scale up within a short period of time.
In any market area you are operating, you can not down play the influence of bulk buyers in market accessibility. Especially, our Igbo brothers. They have the money and the leg work. They can go as far as Oyo town, Iseyin and even into other inner towns Oke Ogun axis of Oyo state to bring garri down into Lagos market. They buy from cottage processors in rural areas at cheap prices and often spend not more than N500 to transport a bag because of the their bulk movement at a time. Some of them even go as far as Benue State to bring garri down to Lagos. Same thing with their Yoruba bulk operators. You find them across major garri markets like Idi - Oro and Daleko markets in Mushin, Idumagbo market in Lagos Island, Agege market, Oyingbo market, Ile - Epo market, Mile 12 and many more across Lagos metropolis. You also find many of them with big garri stores within residential areas across the cities. They are very strong forces to be considered and reckoned with in planning the distribution strategy for your garri, if you have chosen to operate in the commodity market. As a matter of fact, after the cost price of cassava tubers, they are the major determinants of prices of garri across markets. They can bring low price garri from Oyo and Iseyin to crash prices of Garri from Oja- Odan, Siun and Odeda. They can go all the way to Benue to bring low price garri to Lagos market.
Taking the price/profit structure from a retailer's end. Because retailers sell in units which could take a number of days before they complete selling a pack or bag of product, a profit margin of between 18-25% is generally considered as attractive at this level. This means that any product that does not yield profit within this margin at retail level is considered not profitable and thus not attractive. You can check this out with most of consumer goods you find on retail shelves.
Bear this in mind as a Commercial Processor, it is only the retailers that can enable mass distribution and accessibility of your products to the consumers. But it is often difficult and more costly for Processors to access these retailers directly. That is where the bulk buyers (or what we call whole-sellers) come in.
Since garri at this market level is mostly sold as commodity, no matter how good your product is, you need to leverage on the power of retail market to make it accessible. And it is now your decision to either access this retail market directly or through the bulk buyers.
At the moment, a custard rubber of good quality white garri will conveniently sell at N800 from retailer to the consumer. That cummulate to N17,600 revenue on a bag of 22 custard rubbers. If your retailers are able to buy this bag of garri at N14,700 or less either from your bulk buyers or directly from you as a processor, this means a profit margin of 20% or more is guaranteed to them. With this, they will be happy to buy and sell your garri.
Largely; at the start up stage, a Commercial Processor need not focus too much on bulk buyers, who can only offer to buy at a ridiculously low price that will not even cover his production cost. If he is able to identify with 5 - 10 drop points in residential areas that are able to take between 3-5 bags of garri on a weekly basis, he is good to go. Those drop points will sell in bags to retailers. It is often good to identify with people who are already dealing in other food items for this purpose. If the processor is able to work out a selling price that will guarantee up to 10% profit margin with these drop points, he is good to go. For instance, he sells a bag of 22 custard rubbers to these drop points at N13,300 and the drop points in turn sell at N14,700 to the retailers. This is a good profit flow for the drop points and the retailers. The drop points are at the profit margin of 10% and retailers are at 20%. This pricing strategy is in tandem with the standard pricing psychology across trade in consumer goods. And with a selling price of N13,300 from your factory; if you are able to manage your material cost and production cost well, there is no way you will not be making up to 6% as your profit margin even if you are the one responsible for the delivery cost.
You can choose that woman selling palm oil on your street as your drop point. You can make use of your church member who has a shop at a strategic residential location. Your wife, Aunty, Sister can become your drop point. It will give you loyalty opportunity that you need to get consumers to experience your quality product at the in starting stage.
At the start, look beyond the regular garri dealers that may stand to frustrate you with their bad pricing. Look for freshers in the business. You can register them as an extension of your business so that those Garri Sellers Associations will not be disturbing them. Over time, you will be surprised on how those already established dealers will come to you and request to also be part of your distribution arms.
This business is not yet organized in terms of pricing, which is largely due to the fact that rural cottage processors are neither costing their self efforts in the processing not adding it as part of their cost of goods. Which makes the commercial price of garri in the market to be lesser than its suppose economic price. That is the problem a Commercial Processor face when trading in the commodity market.
Going with the distribution and pricing system explained above, over time; a Commercial Processor will be able to stabilize his sales in the highly price competitive garri commodity market
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