DATABASE

Case study

LPG (liquified petroleum gas). Mobile retail dealers in Bangladesh

completed



Country
Bangladesh

Year
2005


Issue

Solutions

Link
www.facebook.com/totalgaz.bd


Abstract

In Bangladesh 90% of the population uses biomass for energy use. Following the opening of LPG market to private companies Totalgaz Bangladesh started a project to distribute LPG in households and small businesses with a door to door delivery strategy. Some 2,000 LPG mobile retail dealers have found an employment. .


Project Description

140 million of people in Bangladesh, 88% of population, rely on biomass for their energy uses. Given the population density, this generates environmental and health problems especially in urban areas. Despite the country’s natural gas resources, the distribution network is still very limited. Significant urban areas are dominated by slums where an extension of the natural gas infrastructure is considered not feasible today. LPG becomes the best alternative to burning biomass for cooking. The 1996 Energy Policy opened the LPG market to private companies. Totalgaz started its activity in 2002 and few years later ran a survey to identify the LPG market potential and penetration barriers. The main finding was that for many potential customers the entry level cost of the equipment was not being paid back due to the the poor retail and distribution service. LPG suppliers were not easily available, scarcely known and offered a poor and unreliable service. The project consisted in introducing mobile retail dealers (MRD) to visit customers in the Dhaka urban area door to door and offer them 12kg LPG cylinders. The dealers were given bicycles or rickshaws for their deliveries. The company gave out the LPG equipment for free to boost LPG sales. The project is now growing autonomously. The MRD strategy has been replicated in other urban areas and by other LPG companies. Currently there is a network of some 150 LPG distributors and 1,930 registered MRDs. The MRDs experience is a successful commercial strategy with a positive impact on access to energy.


BENEFICIARIES

Urban areas in Bangladesh, households and small and medium size energy related enterprises such as restaurants, tea rooms, hotels, bakeries. 2,000 mobile retail dealers employed.


Results

There are currently 1,930 registered MRDs with over 150 distributors opened since the beginning of the project. Informal distributors are not registered with Totalgaz. They appear to be numerous, and to be an ordinary business practice, in the cases of other companies that have introduced a similar retail system. Each MRD is estimated to work with some 300 customers on average. Despite it is not possible to separate the ordinary business activity from the project results, the number of customers supplied by the MRD chain can be estimated at some 600,000. Initially the project targeted small- and medium-size gas consumers such as restaurants, tea rooms, hotels and bakeries; subsequently MRDs have started to supply households. The MRDs receive a basic training on LPG uses and basic security and installation guidelines to follow. The average monthly salary for a retailer is estimated at some 130$ including tips and small LPG-related works carried out. The project has an impact on energy, environment and employment opportunities.


Business Model

The business model evolved during project implementation. Totalgaz started to give out LPG cookers and transport means, bicycles and reshew, for free and MRDs used to be paid a fixed monthly salary of 45$. Lately MRDs were paid by a fixed commission on each cylinder delivered and they were asked to pay back the bicycle within one year. Each MRD is supplied by a local distributor who is also paid by a fixed commission. They have been trained to improve the quality and security of the service.


Lessons Learnt

There is a market for LPG in the urban areas of Bangladesh. Price was not the main barrier against the penetration of LPG. A reliable supply chain from a LPG producer to local distributors and final dealers was needed. As the preliminary market research found out, the supply needs to be reliable in terms of availability and product security. Since the smaller cylinder weights 12 kg, provision of transport means is necessary. Final customers were reluctant to switch to LPG as they were not aware of distributors location and did not trust the availability and reliability of refills. Distributors and MRDs are now asked to share the initial, limited investment costs to improve project sustainability.


Key Feature

The project is based on a business strategy to access new LPG potential customers. After nine years the business idea proves to be sustainable and capable of autonomous growth. It originates from market research to identify LPG access barriers in Bangladesh urban areas. The inception phase is over and the company does not need to support the strategy any longer. New distributors and MRDs are spontaneously growing where there is a market opportunity to supply LPG. Totalgaz offers the technical training. The LPG chain is supported by profits from cylinder sales. The project started in Dhaka and spread out in all the country. The business model has been replicated by other LPGs companies and by Total in other countries. In South Africa the company reduced the minimum cylinder to 5kg to facilitate the access to energy by the urban poor. Totalgaz proved that access to energy can be improved by simple innovative ideas based on an understanding of the elementary needs of the beneficiaries. The project has also a positive self-employment impact.


Other significant information

The project shows no involvement of a third party, such as NGO, government or local partner. It has been the mere implementation of a Totalgaz sale strategy. The project has not encountered any regulatory restriction. MRDs do not need any license or patent to carry out their work. The Department of Explosives requires a license if LPG is stored or moved in a quantity of 500 kgs or more. A rickshaw typically carries about 6 cylinders, while a bicycle can carry two. The involvement of Totalgaz consists in the initial market research and in the financing of the initial phases. Then the company steps back, leaving the distributors to play the major role in identifying the most reliable MRDs, explain them the terms of the business, give them a job opportunity. Totalgaz limits its action to coordinating and supervising the MRDs network. At present LPG demand in Bangladesh exceeds national supply and special effort has to be dedicated in controlling the product price at the retail level.


Main Donor

TotalGaz Bangladesh
(Private sector)

Implementing Actor

TotalGaz Bangladesh (Private sector)