The elusive fortune at the base of the pyramid

cimg7634It’s been an exceptionally busy week, beginning with the 2014 edition of Fortune Brainstorm Green (selected videos are online here) and ending with a holiday weekend visit from my new grandson, so I’m going to quickly post a link to my latest story for Guardian Sustainable Business.

It’s a long-ish story about doing business at the bottom of the pyramid, an idea popularized by the late C.K. Prahalad in a book published a decade ago. Here’s how the story begins:

When CK Prahalad‘s book, The Fortune at the Bottom of the Pyramid, was published in 2004, the book made an immediate splash. Its argument was irresistible: The world’s poorest people are a vast, fast-growing market with untapped buying power, Prahalad wrote, and companies that learn to serve them can make money and help people escape poverty, too.

Microsoft founder Bill Gates called the book “an intriguing blueprint for how to fight poverty with profitability”. BusinessWeek’s Pete Engardio described Prahalad, a professor at the University of Michigan business school, as a business prophet. He was awarded honorary degrees and sought out by CEOs.

Ten years later, businesses big and small continue to pursue profits at the bottom of the pyramid. The global uptake of mobile phones has proven that poor people will buy cell service if it’s available at low prices. (It costs a fraction of a cent per minute in India.) Single-serve packages of shampoo, toothpaste and soap dangle from shelves of tiny storefronts in rural villages. Products ranging from eyeglasses to solar panels are being designed and marketed to people earning $2 a day.

The bottom-of-the-pyramid (BOP) market leader, arguably, is Unilever, with its Anglo-Dutch colonial heritage and a chief executive, Paul Polman, who is determined to improve the world. Unilever generates more than half of its sales from developing markets, with much of that coming from the emerging middle class. Its signature BOP product is Pureit, a countertop water-purification system sold in India, Africa and Latin America. It’s saving lives, but it’s not making money for shareholders.

And there’s the rub. If there is a fortune to be made at the bottom of the pyramid, it remains elusive. Partly that’s because doing business with the poor is unavoidably complex, and partly that’s because the notion was oversold, says Mark Milstein, director of the Center for Sustainable Global Enterprise at Cornell’s business school and an expert on the BOP.

“I haven’t seen anyone making a fortune,” Milstein told me. “Unilever’s made money on some products, but they’ve been challenged. Other companies are making profits, but not enough to matter to their organization.”

The story goes on to report on successful and not-so-successful efforts to do business with the world’s billion or two poor people. We’ll be considering this topic again next month at the Guardian, with a live tweet chat on Tuesday, June 10, at noon. You can read the rest of my story here.

The candy bar at the bottom of the pyramid

Last week, Nestle, the world’s largest food company, launched a barge called Nestlé Até Você a Bordo – or Nestlé Takes You Onboard – on an 18-day voyage up the Amazon River in Brazil. This so-called floating supermarket will bring more than 300 well-known Nestlé brands, including  Ninho (packaged milk), Maggi (soups and seasonings) and Nescafé (instant coffee) to 800,000 potential customers  in 18 cities who, who, until now, managed to get by without those products, or such treats as Nestle’s Crunch, Push-Up or my childhood favorite, Baby Ruth.

Nestlé Barco

In a press release, Ivan Zurita, the chief executive of Nestlé Brazil, is quoted as saying:

It will be a service to the population of the Amazon, who has streets and avenues in the form of rivers.  It is a project aligned with our concept of Regionalisation, based on the different profiles of consumers, where we deal with each region as a different area.

SnoCaps_ImageNot everyone is cheering. Under the headline, All Aboard for Ice Cream: Nestle Peddling Junk Food on Amazon River to Reach Brazil’s Slums, Michele Simon, a public health lawyer and author of a book called Appetite for Profit: How the Food Industry Undermines Our Health and How to Fight Back, calls this “especially disgusting news” and says of the Amazon dwellers:

I don’t think these people are lost or have been camping out too long, they’re just living their lives. They probably don’t even realize they are missing out on Toll House, Raisinets, and Sno-Caps. But no matter, if there are people out there so backwards to still be subsisting on food found in nature, Big Food will find them, by land or by sea, and set them straight.

Hmm. Simon’s outrage seems a little over the top, as libertarian blogger Katherine Mangu-Ward argues at The Atlantic website. Her first reaction to the Nestle story was a little different: [click to continue…]