How OmoAlata works: Business Model insights

(Author of this post & Steward of jaraCake.com)

Agriculture! Agriculture! Agriculture! Everyone and their grandmother is talking about Agriculture as Nigeria’s answer to the very ‘oilly’ mess we’ve gotten ourselves into. Unlike the generation that went before us, the new generation of Entrepreneurs wants to: Plant it, Process it and Package it for Easy consumption and Export. This is where OmoAlata comes in.

WHO IS OMOALATA FOOD?

The name OmoAlata literally means the ‘Son or Daughter of a Pepper Seller’

OmoAlata is a Nigerian based startup focused on the processing and packaging of blended pepper mixes and spices. Her flagship product of the OmoAlata pepper mix (McPepper) (see picture below). The pepper mix is a combination of tomatoes, peppers, habaneros, and onions; blended, parboiled, packaged and frozen ready for sale. It is NAFDAC approved.

Before
Picture of OmoAlata’s Pepper Mix (Past and Present)

FACTS, FUNDS, FOUNDERS & FIGURES

    • Founders: Kasope Ladipo-Ajai (Face of the startup); (unknown to SD)
    • Founded: 2012
    • Headquarters: Lagos
    • Staff: 10 (4 permanent. + 6 contract)
    • Coverage: delivers all across Nigeria (retail store coverage: Lagos)
    • Social media: Twitter(2,208k followers) Facebook(625 likes) Facebook(8 ratings)
    • Awards: Winner of She.leads.Africa Entrepreneurs startup competition 2015 (prize: $10,000 cash from GTBank; mentorship, technology prizes from Etisalat and 3 months support from Zippy Logistics)
    • Figures:
OmoAlata Money Tree
OmoAlata’s Money Tree

THE BUSINESS MODEL CANVAS

OmoAlata’s business model shall be laid out using Alex Osterwalder’s 9 blocks Business Model Generation Canvas. See the diagram below.

OmoAlata Business Model Canvas
OmoAlata Business Model Canvas

OmoAlata’s Business Model breakdown by www.startupdemands.com

Each block in the canvas will be expanded upon below:

  1. Customer segment

OmoAlata has 4 main customers as the canvas above shows:

⇒ Retail stores: retail stores are OmoAlata’s main target. while she stocks in independent retail stores, retail stores with chains across the country are OmoAlata’s major target, for example: Shop-rite and CityDia. Retail stores are great amongst other things because OmoAlata gets to tap into their already existing customer base. Also, by negotiating with retail chains,OmoAlata maximises her efforts. One negotiation with the head of merchandise for a chain store like ShopRite can secure the pepper mixes in all ShopRite stores.

OmoAlata retail store coverage in Lagos
OmoAlata retail store coverage in Lagos. source: http://www.omoalata.com/index.php/retail-store

The type of families that shop at supermarkets are at least middle-income families.  Retail stores have freezer sections and they ‘most likely’ keep their electricity on 2X/7. This might reduce the amount of inventory OmoAlata would hold per time. OmoAlata’s website shows that 81% of the retail stores that currently carry her pepper mixes are on the Island. One might argue that since the OmoAlata factory is located in Ikoyi, it makes sense to her a greater Island presence. relying on information from her website, it appears OmoAlata products are only in 21 retail stores in Lagos

⇒ Corporate and events: These customers ‘might’ be the most profitable for OmoAlata with regards to paying cash now!. One thing Nigerians are definitely known for is our parties. I am sure it is safe to say that in any given Weekend, there’s at least 100,000 parties going on across our dear country (sorry, no survey or opinion poll was made to arrive at this figure, just a guesstimate). Moving on, what’s the main food at 99.8999% events? Wait for it…. Jollof Rice and fried meat/chicken/fish tossed in a rich tomato and pepper base sauce (myfoodiesideondisplay). Those who cater for events buy their ingredients in bulk because they cook in bulk. Usually, they would buy the peppers, tomatoes, and so on, in bulk; get people to sort and clean the peppers, blend the peppers and then use it to cook. The ish however with the major players in this space is that whereas OmoAlata pepper mixes might be a more continent option, it’s easier for caterers to scheme off the top when they have to go to the market to get the ingredients, and also, when they have to charge clients for the number of people who help sort and clean ingredients. so the question becomes 

⇒ Families: They are OmoAlata’s main customers because they are the end users of the product. They are young families who work, raise kids, and are secretly part of the microwave generation. They want things fast; they want it now, they want it at the click of a button. They do not want to spend hours in the kitchen cooking like the previous generation did/is still doing. The biggest issue with this customer group is that while they would use the product often (at least they’ll eat stew once a week), they only buy in small quantity because of factors like constant electricity outage, since the product has to be kept frozen. Unlike the older generation OmoAlata hopes that her product can grow as the family grows and thereby making the use of OmoAlata an easy habit for the next generation.

  1. Value Proposition

OmoAlata operates a B2B and a B2C business, so, different values are enjoyed by different customers. Below are the various values to the different customer segment.

⇒ B2B (Business-to-Business)

The main value proposition for retail stores is payment flexibility, depending on the kind of agreement that OmoAlata has with the retail store:

  • some retail stores have no financial obligation to OmoAlata till all the pepper mixes are sold. What this means is that they are not financially liable for not selling the mixes, and they (the retail stores) will not have their cash tied to OmoAlata stocks. 
  • some retail stores only pay OmoAlata 60 days after delivery of the pepper mixes. This is a better incentive to them than having to pay OmoAlata cash upfront.

See the revenue section below for the impact of this payment structure on OmoAlata’s revenue.

Another value (although a very little value) for these retail stores is that they are helping promote a ‘made in Nigeria’ product, and this is good for their image.

⇒ The B2C (Business-to-Customers)

As seen in the above canvas, OmoAlata has quite a few value propositions customers enjoy.

What OmoAlata is selling to its customers include convenience, ease of use and time-saving. Notice what is not in the list ‘price’. As of right now, it is actually not cheaper to buy OmoAlata for reasons that will be expanded upon in the ‘cost’ section below. The prep work involved in some Nigerian dishes can be a big turn-off even for the cooking enthusiast.

Another value OmoAlata is giving customers is Customisation. Customers can have varying degrees spice level: ‘mild’ and ‘hot’. So, a customer can conveniently cook two different pots of stew if some like it hot, and others don’t.

Lastly, they make their mixes completely free of preservatives and additives. They market their product as an all natural product.  OmoAlata hopes this appeals to the more health conscious Nigerian.  

  1. Customer relationship 

One of the ways OmoAlata established customer relationships is through personal assistance online or via the  telephone. Customer/potential customers can call OmoAlata on the phone or online to answer their enquiries.

  1. Key resources

OmoAlata’s key resources include her staff both permanent and contract. There are different individuals in charge of various things. For instance there’s an Organisation in charge of OmoAlata’s graphics and e-commerce, and someone else in charge of sales and business strategy. Another resource is her website and her factory equipments for the processing and packaging of her pepper mixes. 

  1. Channels

⇒ Blog

Blogging is a tool that many companies, especially start-up companies use to communicate their brand, build trust amongst customers and market their product. The last recorded blog post from the OmoAlata team was on the 25th of September 2014. OmoAlata’s blog posts revolve around various contents including few food recipes, nutritional facts about its raw material and so on.

⇒ Facebook

Facebook is another tool used by OmoAlata. Apart from their post dated 14th march 2016, advertising the availability of the pepper mix in a new retail store, the last activity on the platform was dated 23rd November 2015. It seems her Facebook activities in the past have been largely in two parts. Communicating to people the stores they can buy the pepper mixes, and informing, and soliciting votes for the SLA 2015 competition OmoAlata took part in and won in the later part of 2015

⇒ Twitter

OmoAlata’s Twitter activities is a little similar to its Facebook activities. She however has a lot more content on Twitter. OmoAlata’s last tweet was on the 19th April 2016. 

⇒  Instagram

Surprisingly, there is no Instagram account under the name ‘OmoAlata’. It is safe to say that they do not operate an Instagram account

  1. Key Activities

OmoAlata’s main activity/most important activity is the buying, sorting, cleaning, blending, building, cooling, packaging and freezing of her Pepper mixes. 

Apart from the above, OmoAlata also has to liaise with various retail stores to stock her products, and also she also has to sign agreements with the stores regarding payment terms and stock replenishment.

OmoAlata sells pepper mixes to individual customers via her website, so she has to fulfill each online order as it comes in.

Although not very frequent, OmoAlata does some promos. For instance the Valentine’s Day giveaway.

Finally, just like it was highlighted in the Hotels.ng post about the Hotels.ng founder, Mark Essien, Kashope Ladipo-Ajai also does a few PR related activities in the form of interviews she conducts sharing her entrepreneurial journey so far. For example, her SLA interview 

  1. Key Partners

Some of OmoAlata’s key resources include

Farmers: having a partnership with farmers to give OmoAlata priority of farm produce will mean that OmoAlata is adequately supplied farm produce even during off sessions. Also, by leasing directly with farmers, their costs are lower. It is, however, worth mentioning here the impact of the ban on the importation of tomato paste. Players like Dangote, Erisco and a few others have entered this space, and will also be negotiating priority with various farmers for bulk supply of their tomatoes. 

Logistics company which supplies OmoAlata pepper mixes to various retail stores, and retail stores that actually agree to stock the OmoAlata pepper mix. What these two have in common is that they are totally dependent of refrigeration 

  1. Cost structure

As seen in the Canvas above, OmoAlata has a few costs:

  • The first and one of the biggest is the factory space. This space was needed to satisfy the NAFDAC certification requirement. Depending on how the factory space was rented, OmoAlata might have had to spend money to set up the factory in a way that would suit her production demands.
  • Another big cost driver is ‘human resource’. OmoAlata has tried to reduce this cost by hiring more contract staff than permanent staff. More precisely, she has 4 permanent staffs and 6 contract staffs. Since OmoAlata does not produce pepper mixes every day, it obviously makes no sense to put the pepper cleaner and sorter on her payroll as well, hence making them contract staffs.
  • The other big cost drivers are machineries. Machineries for: preparing, chilling, packing, sealing and storing the pepper mixes. Maintenance of those machineries
  • Generator plus its maintenance fee, and fuel to power the generator. Even though OmoAlata doesn’t produce everyday, we have concluded that she holds come stock. This means that the pepper mixes, which has to stay refrigerated in retail stores, also has to stay refrigerated in the factory till it gets to the end-user. So whether OmoAlata uses a cold room or big freezer to store her mixes, the mixes have to be kept cold even on no-production days. (The price of fuel isn’t Constance, so this has a big downside when it comes to cost)
  • The Raw material for the pepper mixes: peppers, onions, tomatoes and habaneros are also cost drivers. In the long run, when OmoAlata begins to buy her raw materials directly from the farmers in the north, the cost will be significantly reduced. (These raw materials are way cheaper in the north, so, OmoAlata has to eliminate the middleman and go directly to farmers to cut her costs) For now, the cost is high because OmoAlata buys her raw materials from the open market everyone else buys from, and at a similar price. Although she has agreements with some specific vendors to reserve the nice looking raw materials for her, she still pays market price. Also, these raw materials do not grow all year round; which means that market prices for them will fluctuate. They would be more expensive to buy in the market when they aren’t in season. This is definitely a problem for OmoAlata because she could run the risk of major profit fluctuation because the prices for her mixes are largely fixed, but the price of her raw material aren’t. This can impact her revenue.
  • Logistics: the costs of transporting the raw materials from the market to the factory.
  • Discounts, tasters and promo’s are always a necessary *evil*, especially for new and unfamiliar products still trying to gain acceptance with the general public.
  • Other miscellaneous one-off costs, include company registration, NAFDAC certification, product package design costs, website development.  
  1. Revenue Stream

Omoalata’s revenue can be broken down into two streams. These streams all flow from one product, which is the pepper mix, but differ based on the customer segment. From the corporate stream, mainly retail stores, OmoAlata has done what many startups in her shoes might do. It has given varying financial incentives to retail stores. Some retailers only pay OmoAlata 60 days after delivering the pepper mixes, some don’t even pay OmoAlata till they sell the last pepper mix in their store. The major downside to the business having this kind arrangement is that the startup has very limited cash. Running out of cash can actually make or break any company talk less of a start up.

The second way OmoAlata gets money is by selling her pepper mix directly to customers through her website. The 1ltr. and 10ltr. pepper mixes can be bought and paid for via the website, and she guarantees a ‘next day delivery’ (outside Lagos?). Depending on where the customer lives, OmoAlata charges a delivery fee of N400-500 for Island and Ikeja deliveries and N800 for some other locations. If I live in Iju, it will make no sense to order just one 1ltr pepper mix, since the price of delivery is the same as the product. Apart from the 1ltr and 10ltr packs OmoAlata makes bigger sizes to suit particular customer need and request. For instance, a caterer might want 50ltr. worth of pepper mix, they would have to call and negotiate a price directly with OmoAlata.

Although they haven’t started this yet, another possible lucrative source of revenue is the exportation of her pepper mixes beyond the shores of Nigeria.

OmoAlata produces an average of 80-100 packs of her pepper mixes every day; remember however that she does not produce everyday.  As at September 2015, OmoAlata had sold about 3000 packs and had spent around N8.3m till that date.

If we assume that ‘2500’ 1ltr. mixes were sold at N800 and ‘500’ 10ltr. pepper mixes were sold at N7550 then:

2500 x N800=N2M

500 x N7500= N3.8M

=N5.8M (Gross)

Simply put, OmoAlata has to sell volume to create a profitable business. While this is easier said than done, one of the major factors that can influence OmoAlata’s profitability is the ‘OmoAlata pepper mix’. this will be explained briefly 😉 below.

To preserve or not to preserve? That is the question.

The answer to the above question can actually have a direct impact on whether OmoAlata scales or not. before I proceed, I have some questions?

Off the top of your head, have you seen any tomato kind of product sold in frozen form? If your answer is yes, was it produced by a big brand? What you are used to seeing is tomato-ish products in a tin. Even if the product is not in a tin, it at least doesn’t need to be kept in the freezer section before it is sold. It is bad enough that Nigeria has a very terrible electricity problem, however, to have the storage of your product completely dependent on refrigeration not only limits the number of retail stores that can sell your product, but also limits the amount of customers that might buy the product. This, therefore, affects a number of mixes you produce on any given day, especially because you do not want to carry plenty inventory.

The choice of manufacturing a product that needs to be sold frozen means that the product has a shorter shelf lifespan. Currently, it has a six-month lifespan if kept frozen.

If the product is sold without the need for refrigeration, retail stores without freezers can stock them, it can be placed in hamper baskets, it’ll be cheaper and easier to ship out of the country, and even your local mallam can stock them.

Having said the above, however, it is important to state that to achieve selling a non-refrigerated (*is that even a word!) Pepper mix, the product has to have some sort of preservatives, whether natural or artificial.

Hmmm, this is where the story gets complicated; the founders have resolved to keep OmoAlata as close to what customers would get if they go to the market and buy and blend the peppers themselves. This means no preservatives. Having no preservatives is great for many things including bragging rights. Like PepsiCo bragged in the 70’s about 7up: “No artificial anything”).

Let’s be honest it does look good on a product to see the words ‘no preservatives’ (*well maybe). With OmoAlata holding strongly to this position, the next question we should ask is this: “do OmoAlata’s customers really care whether the product is all natural and has no preservatives?” Obviously, retail stores and caterers don’t care. Whether families care, I’ll let you be the judge of that by answering another set of questions: have you ever stopped to check whether ‘Titus aka Sardine’ and ‘Gesha’ have preservatives?  Are there preservatives in the tin tomatoes you buy, or in that bottle of Heinz ketchup, or in that can of baked beans in your cabinet? In fact, when last did the fact that a product was “free from preservative” inform your buying decision ? I’ll wait.. It’s ok to go check the food products in your cabinet. The truth of the matter is that we don’t have these answers up the top of our head and sadly, many of us do not care. While I am sure there are some customers out there who would appreciate buying an all natural pepper mix, many more potential customers do not care and have other factors that inform their buying decisions and their continued patronage.

Why did I make the above *rant*? It’s because the OmoAlata pepper mix is simply a convenience product. The startup’s ability to effectively produce, distribute and market the product as such will determine how scalable the model is.

Recommendation

It appears OmoAlata doesn’t have a Social media strategy, or maybe she just needs to re-strategies. Her end-users are on-line, and so OmoAlata needs to make better use of the social channels she has. OmoAlata will do well to have a good brand placement strategy.

Conclusion

OmoAlata is solving a major problem and it is great to see innovation in the food space beyond a tech type innovation. Many more startups like OmoAlata will rise in the near future if they haven’t already started. In a country of around 150M people, the table is big enough for more invites. We wish OmoAlata all the best and hope they break every rule in the book and grow an all natural, no preservative line of products that will make her very profitable.

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Sources

  • https://omoalata.wordpress.com/category/ingredients-basket/
  • https://www.facebook.com/OmoAlata/timeline?ref=page_internal
  • https://omoalata.wordpress.com/category/social-diary/
  • http://www.omoalata.com/
  • https://inspireusng.wordpress.com/tag/omo-alata/
  • http://sheleadsafrica.org/index.php/kasope-ladipo-ajai-building-omo-alata/
  • http://www.omoalata.com/index.php/retail-store

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Comments

  1. I think that Omo Alata has a unique product. You raised a valid point about preservatives. I would conduct some type of market research to see if lack of preservatives matter to the end consumer. Based on that analysis and market sizing, they can even create one line with preservatives and the other without preservatives.?

    1. Thank you so much for your comment Teniola. According to my research the founders are very insistent on ‘no preservatives’ (whether natural or artificial). I think at the end of the day, the ‘moment of truth’ for the customer is ‘taste’. If you say no preservative but fail the taste test, what do you really have? I would love to learn the result of your market research if you do not mind 🙂
      watch out for a short post next week about my experience with Easy sauces’ ‘obe sauce’. Easy sauces is a company doing what OmoAlata is trying to do. Have a great weekend and Stay Insightful.

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