Lodi’s story elucidates tiny businesses in developing countries

By: Jax, Chiu Man Lung

It was a hot but nice Monday morning. The Jagna market was flush with Filipinos and auto-tricycles.

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Following the direction Mr Lefler told us, Angeline, Blessing and I was searching for Lodi’s snack shop on the first working day. However, what we saw in the market were a row of snack shops having identical arrangements and selling similar foods and drinks. Most of them did not have a banner or sign displaying their shop name, so did Lodi’ shop. We were having a hard time finding Lodi or her shop (we were told she was out of town for few days), so we decided to walk into one of the snack shops and asked where her shop located. Luckily, we got help from an old woman, leading us towards the side entrance of the market. The old woman introduced us to Lodi, who was a woman aged around 40 to 50. Yes, Lodi was here, although she told that she would return to Jagna on Wednesday.

In the first instance, Lodi’s shop was bright, having blue-coloured walls with no burning stains while the others did have some fumed areas on walls. Products were well-displayed in a glass-cupboard. Cooking utensils and tableware were also placed in a very neat manner. Based on what I saw, I felt that everything was clean and comfortable. I would also feel safe and find no problems with the hygiene if I had my snacks here. But… Customers were sitting in the others snack shops instead and enjoying their food. Lodi was free because only us and her staff, Elsa, were here. I hoped this was merely a rare scene in her business by chance.

 

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“We are students from…” We started our conversation.

“Ah…” Lodi told nothing else but smiling. Obviously she was so shy.

We asked her several questions on her business. She didn’t reply directly but kept smiling. I could say from her beaming eyes that she welcomed our coming but just didn’t know how to respond. Occasionally customers came and asked for take-away cakes or puto maya (stick rice with ginger and milk). Elsa did all the work and Lodi just pretended to be busy.

Amy, Lodi’s friend, who also knew Angeline, came with her daughter, Hale, for breakfast. They joined the conversation. Amy was talkative and she held the discussion for us. Lodi spoke in Filipino a lot with Amy and laughed frequently. The atmosphere was relaxing and we started to acquire a brief picture of Lodi’s business.

Lodi snack shop was started by her mother 60 years ago and she inherited it because her mother was old. The operation was very simple and type of products currently selling was limited, including drinks, instant noodles, cakes, sticky rice etc. There were no any printed or written menus so we temporarily knew nothing about all kind of snacks and their prices. We also avoided asking her one by one because it was a tedious topic. Instead, we asked how she felt on her business currently and anything she wanted to improve.

“She loves her business. People have very good relationships among shops and customers. I come here for breakfast when I am free. I love chatting with Lodi.” Amy answered for Lodi.

Customer loyalty is common in tiny businesses. I believe this is because those customers are not price sensitive. The food Lodi sold was cheap compared to a normal meal in restaurants in the market. For example, a popular set of sticky rice with a cup of hot chocolate cost for 20 pesos only. Slight difference in price would not make them go to another shop. They enjoy having a fun time with the shop owner.

“How much do you make every day? “

A silence for few seconds. “One thousand? Yes, around one thousand. On market day, one thousand and five hundred maybe.” Lodi talked slowly with thinking.

When it comes to profitability, Lodi could only tell a rough estimate by her experience. She didn’t know how much she earned every month because of the lack of accounting system. We asked her why didn’t record the daily revenues and expenses. Lodi laughed. Amy told us owners of such a tiny shop would not spend time on recording and calculating. Everything would be alright as long as profits covered daily expenses and got some money left for saving.

“We are satisfied and happy with our business. The job is easy. But, of course, we want to make more money.” Lodi explained with a soft chuckle.

The conversation lasted not more than one hour. Amy shared her ideas and feelings on the Filipino culture most of the time. It was fun and inspiring but Lodi didn’t talk too much. It ended when Amy was ready to leave. Lodi also told us she was leaving Jagna in the afternoon until Wednesday, so we all agreed to meet again on Wednesday.

It rained heavily for the whole night. Tuesday remained cloudy. It was a market day.

Since Lodi was absent, Angeline and I decided to do general market observation and reconnaissance, as well as competitor analysis. We entered the market from the side entrance. The first shop we saw was Lodi’s shop and it was opening. Actually her shop had a very good location in terms of customers’ movement. It was next to a music instrument shop. Pop music kept playing, occasionally along with an irritating noise from the electric current.

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We saw Lodi cutting newspapers into smaller pieces for the use of take-away meals.  Yes, she was here again. (Her presence was unpredictable because she was absent on Wednesday. That’s why I had time to write my blog about her.)

She was friendly and hospitable. I could tell from her sincere smile. She asked us to sit down and was ready for discussion. She was much more active than she did on Monday. She initiated the topic of ingredient supplies when we mentioned costs and expenses for the business. She described prices patiently but hesitated when talking about the sale amount – the same issue due to the lack of accounting habits. I took a look on the food she made and estimate roughly. Everything seemed reasonable and matched the figures she gave me on Monday. I realized that the daily earning of one thousand pesos was basically the revenue with expenses excluded. Therefore, profitability was lower than I expected when everything was taken into account. This reminded me of what Banerjee and Duflo told in the book ‘Poor Economics’ – the grass roots in developing countries mainly operate tiny businesses and these businesses are making very little money. They are energetic and resourceful and manage to make a lot out of very little. But most of this energy is spent on businesses that are too small and utterly undifferentiated from the many others around them. As a result, their operations have no chance to earn a reasonable living.

This was a fruitful conversation. We had known her business model in details with some basic accounting figures. We aimed and planned to help her in the coming three weeks, focusing on what she needed but she didn’t know – marketing and accounting skills, which are fundamental elements in operating a business.

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(Lodi was absent for two consecutive days. We could not find her to take a photo and show you her smiley face.)

To be continued.

 

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