Thursday, May 15, 2008

CareShops in Ghana: Conversion Microfranchises

The post below was authored by Julia Tran and ran a couple weeks ago on NextBillion. It is about a franchise called CareShops in Ghana that converts existing small businesses into franchised shops. I did my graduate work in Ghana and had some interaction with one of the individuals who launched CareShops (who has since been recruited by Freedom from Hunger to launch their HealthKeepers social enterprise). The extent of the network of "chemical sellers" in Ghana was really quite remarkable; in nearly every village I visited I was able to find a chemical seller. The problem of course is that their medications were of questionable quality and their inventory varied considerably. CareShops is a brilliant effort to do nothing more than strengthen this existing network with branding, standardization of medications, and increased training. In theory the government already provided these services to the chemical sellers but in reality the government has far too few resources to be able to follow through on all their regulations to demand compliance. On the other hand, CareShops, as a for-profit business, has an incredibly high motivation to demand compliance in order to maintain the integrity of their brand. The concept of conversion should cause any social entrepreneur thinking of building a franchise system to do their research to understand current networks of business in the informal market before building anything from scratch.

Though I'm no longer on WRI and NextBillion's staff, I'm glad to announce the release of WRI's latest What Works business case study, CareShop Ghana: Improving access to essential drugs through conversion franchising. This study is authored by Joel Segre (Harvard Business School, '08) and myself, and was made possible through the generous support of the Horace W. Goldsmith Foundation.

NextBillion has discussed pharmacy microfranchises in the health sector on numerous occasions, but CareShop is unique among them as a conversion franchise that recruits existing drug store owners, rather than a "green field" franchise model that establishes new outlets. A conversion franchising strategy has great potential especially in Ghana, where an extensive network of 8,000 individually run retail drug stores, known in Ghana as "licensed chemical sellers," already reaches every corner of the country.

CareShop's founders interpreted the prevalence of easily treatable infectious diseases in Ghana as significant unmet demand for better access to more affordable drugs, and endeavored to meet this demand by working with chemical sellers in a franchising arrangement. CareShop, as the frachisor, runs on a for-profit basis and generates revenue from product sales to chemical sellers as its franchisees. CareShop provides franchisees with valuable business and healthcare training, branded materials, and the convenience of having products delivered directly to their doorstep. CareShop is a program run by Ghana Social Marketing Foundation Enterprises Limited, which itself is a for-profit subsidiary of Ghana Social Marketing Foundation (GSMF), a non-profit organization.

To date, there are 276 CareShops operating in Ghana, the oldest of which joined the franchise in 2003. CareShop has been in operation longer than many drug store microfranchises, which afforded Joel and me the opportunity to work with a larger set of business records and observe clear trends in CareShop's outlook. In the case study, we endeavor to present a thorough analysis of both the inherent challenges of implementing a conversion franchising model and the benefits of such a model to franchisees and to some extent, the pharmaceutical retail market.

The case study may be of especial interest in light of the recent discussions on NextBillion regarding scaling strategies and on the value of fostering talent at the BOP. Franchisees eagerly embraced training opportunities at the time of their conversion. Indeed, GSMFEL's well received training program helped CareShop to scale rapidly during its first couple years of operation. Franchisees were selective, however, in which lessons they chose to apply. Changes in business practices that led to immediate payoff were more popular than changes that do not have readily apparent benefits. Yet some franchisees even resisted behavior changes that seem to offer advantages over old ways of doing business, such as using GSMFEL's delivery service rather than having to travel to wholesalers in the city.

The mixed success of GSMFEL's training program offers insight into the advantages and disadvantages of working with an existing group of entrepreneurs. Download the case study for more details on this topic and other lessons learned from GSMFEL's experience serving the base of the pyramid by engaging microentrepreneurs.

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