Social Enterprise: Hapinoy
Social Entrepreneur(s): Bam Aquino and Mark Ruiz
Sector(s): Enterprise Development
Leverage existing infrastructure to introduce new products and services to underserved markets, rather than building a distribution system from scratch.
The Innovation Explained
In poor, rural villages throughout the Philippines, people lack access to life-enhancing goods and services such as medicine, mosquito bed nets, safe drinking water and electricity. When Hapinoy co-founders Bam Aquino and Mark Ruiz looked at this problem, they realized it would be more cost-effective to leverage existing infrastructure than to build a new one to market and distribute such products in poor communities. They reasoned that, just as Coca-Cola is in every village and sold in tiny shops called “sari-sari” stores, they could harness that same distribution network to sell medicine and solar-based energy.
Even with the numerous advantages of this approach, issues had to be resolved. Most of the hundreds of thousands of sari-sari stores are run by uneducated, female microentrepreneurs with no business training. To identify high-potential storeowners receptive to new product lines, they used CARD (their strategic partner and the Philippines’ largest microfinance institution), which had existing credit relationships with thousands of sari-sari storeowners. Once identified, they incentivized storeowners to join the Hapinoy network. By aggregating the demand of several thousand stores, Hapinoy offered a financial incentive in the form of cheaper staples, particularly in deep rural areas. Next, they developed educational content focused on record keeping, store efficiencies and product diversification, to strengthen store operations and increase profits. Hapinoy also built a sense of community, offering storeowners monthly meetings to do peer learning exercises.
Today Hapinoy works with over 10,000 sari-sari stores across 200 communities in southern Luzon. They are actively developing new products and starting a mobile money remittance solution across their network.
Why This Matters
Currently, about half of the world’s population resides in rural areas. In developing countries this represents a significantly large proportion of the poor, who remain isolated from market access due to poor infrastructure and/or remoteness. Many social enterprises that develop a new product or technology (a solar lamp, for example) are tempted to build a proprietary sales and distribution infrastructure, which greatly adds to the cost-per-unit sold.
Organizing the informal economy into a formal network presents challenges, but by strengthening the existing sari-sari store infrastructure (Hapinoy’s core service offering) and outsourcing non-core activities, Hapinoy has achieved significant cost efficiencies and is poised for rapid scaling. It will continue to be an ideal entry point and distribution channel for both large companies and social enterprises eager to enter underserved markets.
Focus on the core and partner out the rest. “The magic formula of the Hapinoy model is business training, plus access to capital, plus new product lines that have higher profit margins,” says Ruiz. “We do the training, which is what we’re best at, and our partners do the rest. CARD provides the injection of capital that allows stores to improve their current product mix and add additional inventory, leading to cost savings. Companies and social enterprises supply what we call the ‘social impact goods and services’, like medicine and bed nets. And we have a joint venture with a large-scale distribution company (Tao) to manage distribution as we scale.”
Don’t be married to the biases of your model. “At some point we realized we could not scale our existing model because we ended up absorbing the costs of distribution,” adds Ruiz. “We … realized we would have to shift models, which is what led to the decision to shut down our warehouse and instead create a joint venture with Tao. You have to take an honest look all the time. We’ve made so many zigzags and adjustments I like to joke [that] we are on version 22 of our model.”