Transcript - May 25, 2007
BRANCACCIO: Welcome to NOW. We're about to hit the road to east Africa for a hard look at franchises. Not ones like these that sell Whoppers with cheese. I'm talking about franchises that sell healthcare, for people throughout Kenya who have a tough time getting healthcare. It's part of a new beat on this program we're kicking off called "Enterprising Ideas." ... Reporting on innovative solutions to social problems. Over the next couple of years, we're gonna take a look at how people are using business skills with the bottom line goal of making the world a better place. Can franchising serve that tall order in Kenya? Dan Logan produced our report.
BRANCACCIO: Way up in the highlands of Kenya, along the Equator, you find muddy roads, modest villages, and ... surprise ... a fast-talking guy from Brooklyn. Michael Seid is one of the world's top experts on franchising. Often, he consults for big clients like Burger King, Holiday Inn, and 7-Eleven.
But now ... Far away from the boardrooms of corporate America ... he's looking into a different kind of bottom line.
SEID: I've never had the chance ever to say, "I might be able to save somebody's life." I may be able to save more then one life. And that's—that's—that's a heady kind of statement for a guy who just does franchising. I mean, I do hamburgers, and I do hotdogs, and I do hotels, and I do—you know—dog sitting services. And all of a sudden I can save lives here? I've gotta come back.
BRANCACCIO: Seid is in Kenya to evaluate a franchise called Child and Family Wellness Shops, or CFW Shops ... that's the brand right there. It's a network of tiny drug stores and medical clinics ... each owned and operated by Kenyans.
It's an odd gig for one of the most sought-after consultants in the world.
SEID: You have to realize that I'm standing in a place where there's no electricity. You have to realize I'm standing in a place where water comes out of a bottle or it comes out of a canister. When she washes her hands after each patient, she had to carry that five-gallon jug of water here. You know, doctors in the United States haven't had to do that since Lincoln was President.
BRANCACCIO: But at the end of a long day's journey into one of the poorest places on Earth, Seid discovers a kindred spirit. Her name is Credence Maina, a shop-owner who is as sharp as any tycoon.
SEID: All of a sudden you got this entrepreneur, and you got to get excited about this. Her stock is up strong. She's got a full retail offering. She did not go to business school or management school or marketing school. This is great. This made my day.
BRANCACCIO: Driving all this is a hope that the entrepreneurial spirit of Kenyans like Maina ... trained in healthcare, harnessed by the franchise business model ... could become a powerful new tool to take on the African health crisis.
KIMBO: What I like about franchising is that, the franchisee is self-motivated to do this activity. In our case, our mission is to serve the poor.
BRANCACCIO: Liza Kimbo was a Kenyan business executive who once managed a chain of high-end pharmacies. Bothered by the inability of so many of her customers to afford medicine, she joined CWF Shops ... opening their first stores seven years ago.
She's convinced that the streamlined efficiency of franchising can benefit her entire continent.
KIMBO: Our plan is to grow from 64 outlets today, to about 250 outlets in the next five years. And we have plans and dreams that are even bigger than that. We see this model being successful, not only in Kenya, but in a lot of our neighboring countries.
BRANCACCIO: Where did people go before you? Before there was a CFW shop, if they needed medicine, what could they do?
MAINA: They were suffering a lot. Because they had to go far, very far, for medicines. And some stayed at home. Because they had nowhere to go.
BRANCACCIO: Credence Maina was one of the CFW Shops' very first franchisees when she opened her store in the town of Kiburu, a three-hour drive north of Nairobi, not far from Mount Kenya. First, she had to figure out a way to raise the equivalent of $300 to pay a franchise fee ... just like you would for starting any Dunkin' Donuts in the U.S.
Where'd she get the money? She liquidated some interesting assets.
BRANCACCIO: Was it hard when you started the store to raise the money necessary to open your first one?
MAINA: Yeah, I had—to sell cows and goats at home to manage the franchise.
BRANCACCIO: In return, the central office gave her business training and a micro-loan to get the shops outfitted with medicine. These resources allowed her to be her own boss and bring in what she says is a decent living.
BRANCACCIO: So how many patients do you see in a typical day?
MAINA: It is from fifty to a hundred.
BRANCACCIO: Fifty to a hundred people come through here?
MAINA: And sometimes—yeah. Fifty, sometimes sixty, sometimes eighty
BRANCACCIO: So, actually, if you start adding that up, 50, 60, 80, 100—
BRANCACCIO: Over the course of a month, that's a lot of people.
MAINA: Yeah. Yeah.
BRANCACCIO: Are you the champion at CFW shops for having so many patients?
MAINA: Yeah. I am the champion.
BRANCACCIO: If CFW Shops had one of those signs on their stores like McDonald's, it would read, "over a million patients served."
But let's get real. That's a small fraction of the number of people suffering in Africa ... and that's something Scott Hillstrom knows full well. He's a corporate lawyer and businessman from Minnesota who had the brainstorm that led to this innovation.
One day, while reading the paper, he came across a fact that became more shocking the more he thought about it.
HILLSTROM: I had read an article, I believe it was in The Wall Street Journal, that said 25,000 children died each day in the world because they didn't get medicine. I remember looking out the window after I read this and thinking, "What would 25,000 dead children look like if they were in my front yard?" And I pictured having to navigate to get out to my Lexus to go to my indoor parking. And sit in my office with all the fine appointments. And I realized that if I had an experience like that, I would be living a very different life than I was.
BRANCACCIO: The classic response to a thought like that by a wealthy person might be to find an organization that is addressing this problem and start writing some checks.
HILLSTROM: (Laughs) Well, I actually had been doing that for quite a long time.
BRANCACCIO: Hillstrom's problem was with the results of those checks. Over half-a-trillion dollars in foreign aid has been given to sub-Saharan Africa over the last forty years by one count ... yet terrible health conditions remain endemic.
HILLSTROM: The money's already flowing into Africa. So it isn't really a question is money available. The real question is are there better ways to use the money that's already flowing in?
BRANCACCIO: So Hillstrom, who had never visited Africa, traveled to Kenya in search of a new solution.
HILLSTROM: I made several trips over the following 18 months or so. And—each time chartered a vehicle and a guide and went deep into the backcountry in Kenya visiting hospitals, dispensaries. I visited on place where there was a malaria epidemic and—people dying everywhere. And begin to understand why it's happening.
BRANCACCIO: He discovered that the cost of drugs was only part of the problem. In fact, 70% of childhood illness and death in Africa is caused by a short list of easily preventable ailments ... like malaria, respiratory infections, and diarrhea ... that could be cured by the cheapest of medicines.
HILLSTROM: I discovered that the cost of this medicine was less than a cup of coffee. So it was affordable even to poor families in remote Africa.
BRANCACCIO: Furthermore, most African governments ... Kenya included ... try to offer those drugs for free.
The problem, says Hillstrom, is how the drugs are being delivered. Just take a look at those roads for starters. A combination of poor infrastructure, weak regulation, and unreliable government supply chains are preventing good quality drugs and care from getting to people in the first place.
For instance ... many drugs in Kenya are counterfeit.
KIMBO: Sometimes it's just very poor quality drugs. Poor quality generics, but it can also be counterfeit medication.
BRANCACCIO: It might even not do what it's supposed to do?
KIMBO: It might not have any active ingredient at all.
HILLSTROM: They just wrap it up in a little piece of paper. And it's a pill. It could be a sugar pill or chalk. And a desperate mother will do anything to get the medicine. So they take advantage of that market opportunity.
BRANCACCIO: In fact, Kenyan experts are on the record saying that more than two-thirds of the pharmacies in the country are operating illegally. The reason? Limited law enforcement, according to Douglas Kimani, the medical correspondent for Kenya's largest newspaper, The Daily Nation.
KIMANI: The Ministry of Health for the whole country of 33 million has less than 30 drug inspectors.
BRANCACCIO: Thirty drug inspectors.
KIMANI: Thirty drug inspect—
BRANCACCIO: For a country about the size of Texas and the population equivalent to California's population.
KIMANI: Yes. Less than 30 drug inspectors.
HILLSTROM: So the question became is it possible to come up with a different distribution system that would address those shortcomings of the present one?
BRANCACCIO: That's when Hillstrom hit upon franchising.
The franchise business model establishes strict rules for consistency and quality that Africa so desperately needs.
HILLSTROM: Probably the best way to explain it is to use an illustration. We're all familiar with Subway sandwiches.
BRANCACCIO: Oh yeah.
HILLSTROM: If you go into a Subway anywhere in the world, you'll find that they wrap the chicken wrap exactly the same way. We need to be diagnosing and treating disease that consistently in a network of that size to make a real big impact on public health.
BRANCACCIO: And if a CFW shop-owner can't pull off that consistency, there's a penalty.
KIMBO: If you get warnings, and you do not—you know, whatever infraction it is, you're not addressing it. Then, according to the franchise agreement, you will be closed down.
BRANCACCIO: Plus, it's a business model that's suited for replication and expansion on a large scale ... Because the overhead to run the entire network of shops gets so much cheaper per store.
HILLSTROM: It took Subway something like ten years to reach some number like 75 or 80 stores. But in the 30 years that followed, they reached 26,000 stores. If we had as many franchise outlets delivering health care in developing countries as Subway has sandwich shops, we've estimated that we could serve about 120 million people a year.
BRANCACCIO: All good in theory, but can the business model that brought us donuts and foot-long chicken sandwiches really save people from dying in Africa?
To find out, we went to Kibera ... on of the biggest slums in the world, located in Nairobi.
Conditions in Kibera are dire. As many as a million people live here in makeshift homes made of mud, sticks, and corrugated metal. Sanitation is awful ... clean running water is a rarity. Children can be spotted picking through garbage piles for whatever food and other items they can find.
NYANJA: You can see the hygienic conditions of this area are very bad.
BRANCACCIO: Well, we have almost this—
BRANCACCIO: —sewer here.
NYANJA: Yeah. One of the major illnesses that we treat here is malaria. The area is—is a good breeding place for—for the mosquitoes.
BRANCACCIO: Dorah Nyanja is a nurse with a degree in public health who owns a CFW Shop here. Most of the shops have a trained nurse on-staff.
She says the government health facility nearby isn't able to meet all needs.
NYANJA: We have a facility which is about—300 meters from here, which offers free treatment. You know, absolutely free. You don't pay anything.
BRANCACCIO: So, how can you compete with that?
NYANJA: The patient goes there. They get the free treatment, and they don't get better, because maybe the medication is not up-to-date.
BRANCACCIO: And such facilities are notorious for their long lines.
KIMANI: Even if you went there at 6AM, you wouldn't be attended to until maybe 8 in the evening.
BRANCACCIO: And you're sick.
KIMANI: And you're sick. You could die waiting.
BRANCACCIO: There is a long list of reasons government facilities are overburdened, but a major one is the scourge of HIV-AIDS. Unlike government facilities, CFW Shops don't dispense anti-AIDS drugs ... they're set up for widespread but cheaper-to-treat diseases.
Evaline Magoto came to Nyanja weak and vomiting, five-and-a-half months pregnant ... looking for something simple without a prescription.
NYANJA: I told her, no, no, no, no. I cannot just sell for you drugs over the counter. Please come in. I'll not charge you anything for consultation.
BRANCACCIO: It turned out she had malaria—potentially life threatening for a pregnant mother and her child—which had been treated ineffectively elsewhere. Nanja gave her the anti-malarial medicine at the right dosage.
Now, Evaline is on the road to recovery.
NYANJA: There's been no payment so far. But they promised they bring something. And here we generally work on faith. Whether there's money or not, the most important thing is to maintain that relationship.
BRANCACCIO: But Dora, this is a for-profit business, in theory. How can you afford to help somebody who can't pay right away?
NYANJA: This is for-profit, I agree. But there's no way I can send that patient away.
BRANCACCIO: Are there many patients that can't pay?
NYANJA: Seventy percent of the patients here cannot pay their bills fully.
BRANCACCIO: Seventy percent can't pay fully.
BRANCACCIO: But somehow you can keep this store going.
NYANJA: Once they know you're giving them quality care, they come in numbers. So with the little profits that we are making out of the few patients who can pay, then it makes up for the rest.
BRANCACCIO: But that profit is nowhere near enough to sustain all of the services provided to the shops, including business training, marketing, and transporting medicine. That's why the franchisor that provides those services is set up as a non-profit, funded largely by charitable donations.
KIMBO: ...but the franchisee is for profit.
BRANCACCIO: So, it's an interesting hybrid, really, the ... we have sort of the donor model, kind of, at that part of it. But then, the real magic of this is the for-profit at the franchise level.
KIMBO: Yes. Yes.
BRANCACCIO: The profit motive and the opportunity to serve the community have Nyanja working around the clock.
BRANCACCIO: Dorah, you're not here seven days a week, are you?
NYANJA: Oh, oh, David. We cannot afford to close for a single day.
BRANCACCIO: She even makes house calls. We followed her through a maze of back alleys in Kibera to visit some of her regular patients.
Antanas Mutaruki works as a security guard in Nairobi and suffers from tuberculosis. Nyanja wanted to make sure he was taking his medicine.
BRANCACCIO: Does she take good care of you?
MUTARUKI: Yes. Sanna, Sanna.
BRANCACCIO: In fact she's even looking for a new job for him.
NYANJA: I'm just praying that we'll get something lighter for him in the new—near future, so that he doesn't have to keep on going for—for night guard.
BRANCACCIO: So you talk about more than just medicine? You talk about jobs and just the whole—your whole life, really?
NYANJA: Yeah. Because he's strong enough to—
NYANJA: You know, to, yeah.
NYANJA: Yeah. He's strong enough. Yeah.
BRANCACCIO: The company also visits schools, like this one north of Nairobi. CFW Shops staff showed how to purify water ... and then conducted a free medical screening, checking the children for malaria and worms.
Michael Seid is an old hand at this kind of marketing technique.
SEID: So what CFW was able to do today is get them to link clear water with maybe a little candy, with maybe an experience of education. That's what they're gonna remember. They'll remember the CFW brand and that they learned about clean water and health from them.
BRANCACCIO: Seid is fascinated with the operation. But at the end of his visit to Kenya, he is promising a tough critique.
SEID: I'm going to have ... and my rabbi hopefully doesn't hear this ... I'm going to have a come to jesus meeting. I'm gonna take them down and put the fear of God into 'em, because we—we're not on a miss—you know, it's—we're not a mission from God, we're on a mission from commerce. God forgives, business people don't. What I need to do is get their minds set on commercial franchising. They still have a little bit too much of an NGO mentality.
BRANCACCIO: Hillstrom agrees ... and proposes a solution.
Right now, CFW headquarters receives charitable donations to fund their budget. Under a new system, those donations would go to a separate account which would directly pay for medical care at the shops. CFW headquarters would turn into a normal American-style franchisor and pay for itself by selling products to the stores at a profit and charging royalties.
HILLSTROM: Rather than getting more revenue by getting more grants, they would get more revenue by helping franchisees deliver more services. That means that that franchisor organization needs to be really good at delivering services to franchisees.
BRANCACCIO: That incentive, says Hillstrom, would spur on the franchisor to open more stores.
But remember, this is a social enterprise. And the very bottom line is not profit ... all this proposed expansion is a way of getting healthcare to Kenyans who need it
And Kimbo argues, the ability to efficiently open more outlets is another strength of this business model.
KIMBO: You can maintain costs at a relatively fixed level. And the—open the outlets, you know, pretty much exponentially.
BRANCACCIO: Exponentially is a strong word ... but Hillstrom has crunched rough numbers for the entire continent of Africa.
HILLSTROM: If we could deliver two billion patient visits for $2 billion while maintaining standards, targeting the short list of diseases which are responsible for 70 percent of the illness and death in Africa, well that would be the best bargain the world ever saw.
BRANCACCIO: Even now, on a high floor in an American skyscraper, franchising as a social tool is getting top-level attention.
This month, Hillstrom invited some of the biggest names in franchising to Minneapolis to talk healthcare in Africa. Michael Seid was there, along with people like Jim Amos, the CEO of Tasti D-Lite and former head of Mailboxes, Etc., and Sid Feltenstein, CEO of the company that controls Del Taco.
They are being recruited by Hillstrom to devise the plan for how to get CFW Shops from sixty-five stores to a number that can more extensively contribute to the health needs of a continent.
But the promise of franchising will not be realized in a corporate boardroom. It's people on the ground ... like Credence Maina.
Every morning, she's up at 5:30 to make the hour-long journey to her shop over often muddy roads. The sun always sets at 6 o'clock on the Equator, and she'll care for many dozens of patients until she goes after dark.
There are no days off, but Maina says there is compensation.
BRANCACCIO: Your success in this shop, has it changed you in some way? Has it changed your life?
MAINA: Very much. Because now I can feed well. Dress well. I'm comfortable. I have something in the pocket.
BRANCACCIO: Her daughter Isabel has opened up another shop ... in a village serving a poor rice-growing region.
BRANCACCIO: Do you compete for who has the highest sales, mother versus daughter?
MAINA: We cannot compete because—I am very high.
BRANCACCIO: You can't compete with—
BRANCACCIO: —with Credence. It's too hard.
BRANCACCIO: It could be the beginning of a family business dynasty. Maina's son is about to graduate from pharmacy school ... and is already making plans to set up his own CFW shop.
And that's it for NOW. From New York, I'm David Brancaccio. We'll see you next week.