Thomas is introducing a new paradigm for economic development in Mexico: a modernized and competitive channel for traditional shops. Through his hybrid community based solution, Thomas is showing that it is possible to preserve small neighborhood mom and pop shops and maintain their role in society that are simultaneously able to compete, offer modern services, and sustainably grow and thrive.
The New Idea
Tenoli, meaning “bridge” in Náhuatl, is Thomas Ricolfi's hybrid solution to the problems faced by the small corner store owners in marginalized urban communities in Mexico. Tenoli’s vision is to connect micro businesses with the public and private sectors to achieve true economic inclusion. Thomas's model is based on human relationships, carefully established trust in the communities, shared expertise, strategic modernization, and creating new market connections through non-traditional commercial partners.
When small corner store owners are listened to, become actively involved in the store owner community, and are presented with a holistic and customized solution, the community of store owners begins to create a new reality for themselves and their families, decreasing vulnerability and insecurity, and increasing profitability and diverse opportunities. When these shops can be intentionally integrated into the formal economy and provided with more links and connections, they can truly begin to thrive.
Thomas and his team establish a physical presence in each neighborhood and begin by gathering baseline data and generating interest among shop owners. They then begin to host classes, workshops, and topic-specific conversations in their center, coupled with community business experts giving personal visits and follow-ups from shop to shop, creating relationships and identifying personalized needs of each shop owner. As shop owners begin to trust Tenoli through this consistent process of real human contact, the community grows and strengthens. Through these connections and increased business, financing, diversification and capacity building opportunities provided by the multi-sector bridge solution, store owners can become more resilient to market competition increasingly dominated by multinational chains.
There are approximately 850,000 small, independently owned corner stores in Mexico, which account for over 50% of the distribution of all convenience stores in Mexico. These stores generate an aggregate annual revenue of 500,000 million pesos (about 30B USD) -- 5 times that of OXXOs, the largest convenience store chain in Mexico. However, these stores have very limited access to capital and diverse markets, and most are not formally registered. As a result, they lack the opportunities to diversify and expand their businesses in a sustainable manner. As chain stores continue to have the advantage of central management and bulk purchasing, small, informal corner stores will have to modernize and find their competitive edge to be able to survive.
Over 50% of Mexican workers fall within the informal sector. To combat the negative consequences of such a significant informal sector, the Secretary for Labor and Welfare has launched programs such as the Program for the Formalization of Employment on a national level. While this is a move in the right direction, this program mostly consists of awareness campaigns promoting formal registration, with certain punitive components. Most federal programs have traditionally focused themselves on the punitive measures, rather than facilitating a more accessible and simpler way of formalizing businesses, or incentivizing the process with benefits and a social safety net. These programs have not effectively offered solutions to the barriers of small, informal businesses, such as lack of adequate capital acquisition, difficulty accessing social services, tax complications and basic legal and business education.
Not only is it difficult to formalize the sector, but even the basics of finding capital to begin or expand and business trainings in marginalized communities is extremely difficult. Micro banks and loan sharks can charge well above 100% in interest rates, putting store owners into serious debt. Getting professional know-how is usually prohibitively expensive and time consuming, and the networks among store owners are typically not strong enough to contribute to shared learning or collective organization. Most stores use the same providers for products, with little diversification or differentiation due to a lack of opportunities to connect with different suppliers. Without these advantages that large convenience stores have, small mom and pop corner stores often do not make enough profit to adequately support the store owners' families, and eventually go out of business.
All of Thomas’ initiatives are geared towards creating greater and better opportunities for small store owners and increasing and diversifying their revenue streams. Having a physical Tenoli center in each neighborhood is the core of this model. Between 350 and 500 store owners can be served per center. This physical center establishes a clear social investment in the community, giving store owners a place to congregate, learn, and utilize the center’s internet to synchronize and update their sales and inventory data. Most importantly, this center creates bonds of trust between the store owners and Tenoli staff, allowing all of the efforts to have a real and intentional, rather than scattered, impact in the community.
Understanding that a holistic solution must engage store owners at all stages, Thomas implemented a three phase approach to maximizing small store owners' ability to survive and compete in an ever changing and modernizing ecosystem. The first phase is informing, educating, and sharing experiences. The second is equipping and providing paths for access to technology and capital. The third phase is diversification through creating nontraditional business connections with different suppliers to increase sales and profit margins, as well as contributing to the financial sustainability of Tenoli. Through this three phase approach, the store owners form a more resilient and strategic community, able to compete, grow, and become part of the formal economy.
The education programs include introductory material that is imparted through courses at the community centers and is then followed up with individual consultation with the individual store owners. The short, 30 minute classes at the Tenoli Center expounds upon the real and specific needs of the shopkeepers. These sessions are both technical and social, and end with a conversation between the store owners about worst and best practices, and creates a space for shared learning. The topics covered during this phase are business administration, marketing and social media, fiscal accounting, legal management, planning and investment, management of inventory, IT systems, among others. This transparent information sharing and establishment of credibility and relationship is the essential start of a resilient community.
Thomas understands that these trainings must be accompanied by real equipping efforts by providing access to technology and capital resources that are essential for stores to grow sustainably. These products and services are not often available to small, informal shops, and thus Tenoli is providing that necessary bridge. The equipping phase involves the introduction of the Tenoli mobile application, sales force automation, and in the near future, energy saving installations and access to microinsurance and microcredit. The mobile application includes the Tenoli workshop calendar, a live chat with Tenoli business experts, and inventory and accounting tools.
Even with the infusion of business know-how and modern resources, without access to new markets and suppliers, these small stores cannot aptly compete. The third phase introduced involves creating new connections, new partnerships, and diversifying products to find each store’s competitive edge. One of the essential aspects of diversification and increasing profit margins is collective purchasing. This is organized and executed by the store owners, who can opt in to the collective, joining effort and capital to be able to buy in bulk and save both time and money. As for creating new and varied supplier connections, there are several pilots going on currently to see if there is a real market demand for these different products. In these pilots, the medium sized suppliers benefit by testing new markets and getting their products seen and known. The store owners benefit by diversifying their products and differentiating their shop. Community members benefit by having greater variety of products to choose from and being able to continue to shop at these small corner stores to get the products they need.
So far, about 350 store owners and their families have benefited from the first Tenoli center in Iztapalapa, Mexico City, and a second center recently opened in March after the initial data was fully collected and a baseline established. Tenoli has recently acquired private sector funding for the opening and operation of ten new centers, and plans to open three more by the end of 2016. The ability to expand and create a spider web of centers in various cities in Mexico is the key to Thomas´ impact. These centers can collaborate and perhaps be socially franchised in the future to grow into a powerful network connecting thousands of small business owners. Currently, Tenoli's main sources of funds are large commercial partner relationships, which are characterized by Tenoli offering market access services such as urban market studies, generating demand, and facilitating the distribution chain.
With a growing team of 20 current employees to accommodate the opening of ten new centers, Tenoli will have the capacity to partner with around 3,000 store owners and their families. These centers are planned to open both in Mexico City and in two other states outside of the capital. The 2016 budget is approximately 330,000 USD, which provides enough funding for the additional centers and a significant growth in employees. The financial sustainability of the Tenoli model is created through agreements and partnerships with commercial suppliers who are looking for new markets-precisely what Tenoli stores can provide. Thomas envisions Tenoli centers first growing on a national level, each center being specifically suited to the particular needs of the community needs, but based on the same three-phase model, and being funded through supplier partnerships as well as through supplementary grants and donations.
Through this infusion of technical skills, an empowered commercial community, and increased and nontraditional market access, Thomas is creating new paths and opportunities for small corner store owners at the bottom of the pyramid to sustainably grow, maintain more consistent income, and strategically compete with more modernized competitor chains.
Thomas has always been interested in economics and business, but he changed his approach significantly along the way to make the transition from working at a hedge fund in London to collaborating with store owners at the bottom of the pyramid in Mexico City. Growing up, Thomas moved around because of his father´s work and learned how to adapt to different environments. Thomas attended one of the best business school in Europe, HEC Paris, and soon after, started working at a large hedge fund in London, England. While he initially enjoyed the demanding environment where he was constantly learning and being challenged, he found that he was not content with the impact his work was creating. Thomas realized that his skills would be better put to use elsewhere.
Thomas looks back on this point as a critical life changing moment, in which he shifted gears, changed directions, and quit his London job to search for something more fulfilling. He started networking with people and institutions in the social sector, making connections, partnerships and eventually forming Planet of Entrepreneurs (currently called Im’prove), which supports social enterprises in monitoring their social impact. He personally supervised dozens of impact evaluations and learned about local development efforts through site visits in Ethiopia, Senegal, Brazil, Argentina, Indonesia, the Philippines and India. Thomas' focus on impact and evaluation lead him to work closely with both Ashoka and HEC Pairs to teach courses about social impact evaluation for social businesses.
He continued this interest by entering into the Master’s program in Public Administration and International Development at Harvard University. It was here that his interest in the informal sector and micro businesses first began. His thesis and field study focused on the inclusion and formalization of mom and pop shops in Venezuela. From this research and from his connections he made at Harvard- most importantly his cofounder Rodrigo Sanchez Gavito- the idea for Tenoli was born, with a vision to strengthen the thousands of informal micro businesses in Mexico. Shortly after completing his degree, he moved to Mexico City and began creating connections and relationships in what would be Tenoli’s pilot location, Iztapalapa, Mexico City. Tenoli officially launched in 2015, and with Thomas’ leadership and vision, it continues to be shaped and molded by continuous conversations and a genuine focus on community needs as these relationships and networks deepen and broaden.