Tale of two very different bakeries
A dusty communal yard in Alexandra leads to the three cramped rooms of Loxion Bakery. Cracked brown tiles cover the floor and go halfway up the walls. Age, not dirt, gives the scrubbed tiles their colour.
Loxion Bakery opened in December 2008. Standing in the heat of the kitchen, lit only by the dull glow of the ovens, owner Agrineth Shiburi said: "This bakery lived long before that. It is a dream I have had for many, many years."
Shiburi remembers the day the bakery opened. "We made 70 loaves of bread and we sold them all. We were so excited. We were like 'wow!'"
Loxion Bakery now employs 10 people, including Shiburi. The business runs two shifts, operating "almost 24 hours" a day. On a busy day, Loxion sells more than 1 200 loaves of bread.
About 3km from Shiburi's home-run bakery is Pick n Pay, an anchor tenant of the glass- and-steel-finished Pan Africa Mall in Alexandra. Oliver Phaahla, partner and director of operations at the store, said about 10 000 pairs of feet go through the supermarket every day and about 4 000 of these customers bought a loaf of bread.
Insight and determination
Tashmia Ismail, head of the Gibs Inclusive Markets Programme and co-author of New Markets, New Mindsets, said three billion people worldwide live on between $2 and $10 a day and this market has a purchasing power of about $5-trillion, representing a hugely "underserved" market.
But breaking into this market needs insight and determination, which have been common to the success of both the Alexandra-based businesses.
Shiburi said one of the reasons for Loxion's success was that she is from Alexandra. She grew up in the home that now houses the bakery and shared the yard with uncles and cousins.
"Everybody knows me and I know everybody. They see me as part of them. That helps," she said.
Shiburi knows the habits of her market, which is why the Loxion Bakery doors open at 4am every day. "The working class, at four o'clock in the morning they get their bread and they go to work.
"Come seven or eight o'clock it is the people who buy confectionery – the muffins, the red cake, the Chelsea buns – they are going to take with tea," she said.
At Pick n Pay in the late afternoon, lines of customers wait expectantly next to the bakery counter for fresh bread. Many customers would rather have a loaf of hot in-house bread than the more expensive packaged brands. Usually the in-house white bread is the third-biggest selling item at the store, but in winter it is number one, Phaahla said.
Both stores capitalise on shoppers' demand for fresh, hot bread. At Pick n Pay, a large clock announces when the next batch will be ready so shoppers can plan their shopping around it.
But, Shiburi said, Loxion has a key advantage – it is conveniently located. Her customers do not need to walk far, or pay taxi fare to buy bread or a donut.
"They want it hot now. If they go to Pick n Pay, by the time they get home it's not as hot as they want it. If there's a special at Pick n Pay and they buy maybe two loaves, they need to freeze it and it's no longer as fresh as they want it," she said.
Large retail stores largely dictate the bread price in Alexandra. A white 600g loaf at the store sells for R5.99 and a brown loaf for R4.99. A loaf at Loxion costs R5. The two stores compete on price, but the bread plays vastly different roles for each business.
At Pick n Pay "it's a crowd-puller", Phaahla said. He admitted the profit margin on the bread is low.
"You have to know your market," he said, referring to the pricing decision. "LSMs [living standards measure] 1 to 3 depend mostly on social grants. If you're selling bread at R4.99, they can buy a loaf and survive."
Phaahla and his colleagues negotiate lower prices with flour suppliers. "They cut the costs and we transfer [the price relief] to our customers."
Pick n Pay makes up for the low profit on the other purchases customers make. It also has a policy not to take business from the spaza shops, which can buy bread for resale at a reduced price from Pick n Pay.
At Loxion, bread is the backbone of the business and competing with the low prices of a large store raises concerns about the sustainability of the smaller bakery.
But, according to Ismail, Loxion "can compete successfully".
"Loxion's overheads are much lower than Pick n Pay, which has high staff, rent and marketing costs. Shiburi operates out of her home."
Ismail said Loxion's high volumes are the key to its success. Shiburi increased sales by supplying spaza stores and was "better able to negotiate with the small spaza stores, being a small business herself".
The lower margin on bread is "offset by the volume she produces to supply these spazas", Ismail said, and concentrating on distribution and volume was "one of the golden rules of operating in low-income markets".
Behind the scenes at the Pick n Pay bakery, the process is largely automated with high-end equipment, which is serviced regularly.
In contrast, although Loxion's machines have been operating only for three-and-a-half years, "they look old, old, old" and often need expensive repairs, Shiburi said.
The business does not have the capital to buy high-quality machinery. "In the long run, it is costing us more money," she said.
Loxion has applied to banks to finance higher-quality equipment but "the banks want collateral", she said.
"Financing is key," Ismail said, acknowledging this need. "It would be wonderful if banks would scout for growth opportunities in low-income areas and take on micro-businesses with potential such as Loxion.
"They could also help develop programmes to improve management skills, thus protecting their investments."
Shiburi sets production targets at the beginning of each shift, conducts regular financial projections and holds performance reviews with her staff to maintain a healthy business.
"The vision that I have is to create a township version of Fournos Bakery," Shiburi said. "In 10 years' time, I'd like to see Loxion Bakery represented in every other township."