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Distributorship, agency business models face extinction

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Distributorship, agency business models face extinction

By AYOOLA OLAOLUWA

Distributorship and agency business models are currently facing existential threats in Nigeria, as companies, which had before now relied on their services to get their products to consumers, are employing technology to achieve the same objective, Business Hallmark can report.

Particularly affected by the shift in the old business models, checks revealed, are distributors of high tech companies, like GSM, payTV and energy firms.

In the 70s, 80s, 90s and early 2000s, securing a licence to distribute a popular product or brand is a major achievement.

Apart from distributors, who secured the licences to distribute the goods and products of firms becoming instant millionaires, they were revered in the society, and respected by their fellow traders at the lower rung of the ladder with no connection of financial muscle to break into the exclusive league.

Many successful Nigerian businessmen and women of standing, BH findings revealed, made their fortune distributing products manufactured or marketed by big companies like Vono Foams, NASCO carpets, Nigerian Bottling Company, Guinness Nigeria, John Holt, UAC, UTC and Dunlop Tyre.

The entry of Cable TV operators into the country’s media and entertainment space, as well as the liberalization of the telecoms sector, and later electricity sector, further led to the empowerment of many distributors, who served as middlemen to the new companies.

For instance, many Nigerians became millionaires serving as distributors to GSM companies like Econet (now Airtel), MTN and Glo.

“These dealers made tonnes of money selling the companies starter packs and their accessories like Internet modems and recharge cards.

“Also, middlemen distributing products offered by pay-TV firms, especially those distributing Multichoice products were daily smiling to the bank.”

However, the high cost of doing business, which is forcing many companies and buyers to embrace the use of modern technology to directly reach their customers, is threatening the continued prosperity of the hitherto thriving agency and distributorship business.

At the last count, more than 60 percent agency (agents) and distribution businesses operating in the country have closed shops, while those still in business have drastically scaled down their operations, industry experts informed our correspondent.

Distributors and agents in the telecoms industry, one of the most affected by the shift to online apps by consumers, while speaking with BH, lamented, that the coming of e-commerce has distorted the market.

According to the respondents, not only has the downtown in sales caused by the shift to e-commerce affected small retailers selling recharge cards, it also affects licensed Value-Added Services (VAS) providers in the telecom industry.

According to the Nigerian Communications Commission, NCC, services offered by VAS include recharge cards, vending music and video streaming, gaming, caller tunes, missed call alerts, astrology and news.

However, VAS providers in the country lamented that the GSM companies, banks and fintechs now provide the same services, thus crowding them out of business.

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Speaking on the predicament of his members, the President of the Wireless Service Providers Association of Nigeria (WASPAN), the umbrella body of telecom VAS providers, Chijioke Ezeh, said his members would soon close shop due to declining business, leaving only banks and fintechs to serve Nigerians.

“I can’t remember when I last saw people selling recharge cards on the streets. The banks have taken over the business. They have eliminated the small recharge card sellers. With what’s happening, the recharge card business will soon fade away”, said.

The WASPAN president appealed to regulators to stop banks from selling airtime and data through their ATMs or USSD codes, arguing that they do not contribute to the networks they profit from.

“Banks are not supposed to sell recharge cards because, originally, that was not part of their licensing. They are merely extracting value from the telecommunications sector without contributing.

“When they came to the NCC to ask for a shortcode, it was not for recharge card, it was so that people would check their balance. From there, they started selling recharge cards and every other service that the VAS providers are licensed to give”, Ezeh lamented.

Apart from VAS providers, kiosks and road-card sellers are also being pushed out of the market as phone users increasingly embrace digital platforms provided by their banks to purchase airtime.

A recharge card vendor in the Abule-Egba area of Lagos, Esther Bassey, told BH that recharge card business has gone south since the foray of fintechs into the business.

According to Bassey, she made a minimum daily profit of N4,500 from recharge card business from 2013 when she started and had been able to provide for her family through the business.

She, however, claimed she started noticing a downward trend in sales some years back. Unfortunately, the trend failed to halt, leading to the collapse of her business.

“I was introduced into this business in 2013. It was very lucrative that apart from earning enough to take care of my family, I built a house under five years from the proceeds.

But I started noticing a change in 2017 when sales began to drop. I observed that I was no longer seeing some regular customers. When I later met some of them and asked why they stopped patronizing me, they said the stopped coming because they were now buying airtime online.

“Though sales was low, I was still scrapping through and making small profits until the outbreak of COVID-19 in 2020.

“As you can recall, Nigerians were shut in during the pandemic and forced to do most things remotely.

“Unfortunately, when the pandemic ended, most Nigerians, who had developed the habit of buying their goods online decided to fully embrace the method.

“From observations, I noticed that only people without bank accounts are the ones still patronizing recharge card sellers.

“Unlike before when I sell cards worth N40,000 daily, I hardly sell N1,000 worth of recharge cards. In order to survive, I have to add POS service and other goods like minerals and beverages to my wares.

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“Even the POS business is no longer moving as before as the cash scarcity caused by the CBN monetization policy taught Nigerians how to survive without holding plenty cash”, she said.

BH gathered that telecoms companies are happy with the development as it is saving them huge operating costs that would have gone into printing of recharge cards.

“The real winners are telecoms providers, who are savings billions of naira from printing security featured recharge cards and subscribers, who now buy them for free”, said a staff of a telecoms firm.

Apart from distributors of telecoms companies, whose businesses are facing hardship, distributors serving pay-TV providers and energy firms are also lamenting the near collapse of their businesses.

BH checks revealed that virtually all the major distributors of Multichoice have either closed shops or scaled down their operations.

Unlike small dealers and agents, super agents, it was learnt, are required by pay-TV providers to meet huge requirements in order to become distributors.

According to BH findings, a major distributor must provide a fully furnished bungalow or duplex equipped with Internet facilities, uninterrupted power supply and trained staff, as well as a substantial deposit for it to be granted a licence.

However, due to the loss of one of their income streams, (subscription payments), the dealers are finding it difficult to keep up with their large office structures.

Many of them, our correspondent learnt, have moved to smaller and more efficient offices.

For instance, the Multichoice Isheri Office located on the first floor of an office complex inside World Oil Filling Station on the Lagos-Ibadan Expressway, had moved to a two-room office complex inside OPIC Estate.

Also, the New Oko-Oba Office of Multichoice located in a shopping complex on Charity Road, before Abule-Egba roundabout, had scaled down from a whole floor to just two-rooms office apartment in the same complex.

A staff at the Isheri Office of Multichoice, who did not want her identity revealed, confided in our correspondent that business has not been good for the company for quite a while.

“The crisis, if I am correct, started about 10 years ago with the development of the DStv and Gotv apps by Multichoice.

“Since the apps were introduced, most subscribers, who normally visit our offices now transact business online.

“Apart from that, you can also make payments through banks and fintechs using the apps and USSD codes.

“To add salt to the injury, Multichoice also introduced self service options, where subscribers can resolve complaints on their devices without needing to visit a physical office.

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“All these culminated in a huge drop in sales and services, which would have earned agents millions of naira in proceeds from sales and commissions.

“While branded in Multichoice colours, most of these offices are individually owned, with franchise to trade in Multichoice products.

“Apart from selling hardwares, most of our businesses have been taken away by banks and fintechs. That is why you see this place looking desolate with only me here to attend to customers.

“Before now, I used to take home at least N,2,000 daily as tips from customers, who asked me to keep the change”, the staffer stated.

Likewise, many Nigerians, findings revealed, rather than visiting retail outlets, now purchase their electricity tokens from their devices.

An energy vendor with Ikeja Electric, who spoke to BH, said he charges N100 on every energy purchase and was making N2,000 from service charges on average of 20 customers daily.

“I was once working as a school teacher, where I was being paid N25,000 monthly. In 2017, a friend introduced me to this agency business and things were going well until recently.

“From selling energy tokens alone, I used to make about N60,000 monthly. If I add charges on DStv and GOtv subscription payments to it, I made over N120,000 monthly.

“But now, I hardly make N20,000 a month. The bulk of my income now comes from charges on POS”, he stated.

Some Nigerians, who spoke on the matter said they now prefer doing their transactions purchases since it is cheaper and more convenient.

“Before now, I used to pay N100 on each energy purchase or Gotv subscription I made through agents. This is outside the cost of transportation.

“However, since I discovered making payments online, I no longer visit vendors. From my app, I can recharge my phone anywhere.

“In fact, I can even borrow from my service provider if I don’t have enough money in my account. You can’t get that from a vendor.

 

“Fintechs have even added icing on the cake by giving out cashbacks on all transactions. At times, I received up to N200 cashback on a purchase. I also get as low as N5, N10, N20 and N50 cashbacks on some transactions.

“So, tell me why I should leave these mouthwatering offers for agents that will charge me money for their services and still collect commissions from the service providers?”, asked Tajudeen Abass, a civil servant residing in Lagos.

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Findings also revealed that fntechs are stealing customers from vendors by enticing them with attractive offers as cashbacks and discounts, making them the preferred choice for many Nigerians.

While banks and fintechs are busy encroaching on the territories of agents and distributors, big e-commerce giants and retail outlets like Jumia, Konga, Bazaar, Adide, Shoprite and Justrite have swept the carpet off the feet of distributors by largely taking over their businesses.

Like goods’ manufacturers, who are busy engaged in direct marketing to retailers and setting up depots in neighbourhoods to cut down on costs, e-commerce giants and retails shops, apart from having their own haulage logistics arms, which helped in transporting goods at a much cheaper rates, are also setting up outlets in inner streets, leaving agents and distributors in the cold.

In his reaction, a logistic expert, Bolaji Akinola, said technology and increasingly efficient logistics systems now allow producers to sell goods directly to end-users, bypassing distributors.

“Distributorship in the business of transporting products, and fuel prices play an important role in a company’s overall profitability. Many distributors pass this cost to manufacturers in the form of fuel surcharges. To find ways around this problem, manufacturers now engage firms with robust logistics that could help deliver their goods to consumers at no extra cost.

Also speaking, an economist, Dr. Dapo Benson, said relationships between manufacturers, distributors (wholesalers), retailers and customers are shifting every day.

“For years, most wholesalers and retailers served as middlemen by purchasing items in bulk from the makers and sell them to consumers at a higher rate.

“However, with the rise of the internet, the distribution business model is evolving. Producers are increasingly skipping distributors and selling products directly to consumers.

“In the distributorship model, manufacturers made small profits compared to distributors’ profit margins. Yet, producers can’t sell directly to consumers without the consent of wholesalers.

“But things have changed with globalization. Producers can now reach consumers without middlemen. They have seen that selling directly to consumers comes with benefits. Things could get worse for inflexible distributors without innovations”, Benson warned.

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