BURN, a leading Kenya-based cookstove manufacturer, offers a range of clean cooking solutions sold in 13 countries across sub-Saharan Africa. A Clean Cooking Alliance (CCA) Venture Catalyst portfolio company, BURN is raising US$7 million of debt and equity in a Series C round to scale-up its operations. Founder and CEO Peter Scott recently spoke with Peter George, Senior Director of Private Sector and Investment, about BURN’s exciting growth prospects.
This interview is the latest in a series of conversations CCA’s Private Sector and Investment team is having with business leaders across the clean cooking sector.
Peter George (George): BURN has been involved in the clean cooking sector for nearly a decade now. Tell me the origin story of the company – from the early days as a design lab in Washington state to a rapidly growing and increasingly diversified manufacturing company in Kenya.
Peter Scott (Scott) In 1990, I was traveling through the Democratic Republic of Congo (DRC). It was there that I witnessed the deforestation caused by charcoal production for household cooking. Since that time, I have dedicated my life to saving the forests in Africa through the design and manufacture of fuel-efficient cookstoves.
After joining Aprovecho Research Center in 1997, I spent 13 years as a cookstove consultant in Central America and sub-Saharan Africa. In 2010, I launched Burn Design Lab and BURN Manufacturing Co. on Vashon Island in Washington State. On a shoestring budget, BURN assembled a team of world-class designers and engineers who were also committed to designing the world’s most fuel-efficient cookstoves.
In 2014, BURN launched its full first-of-its-kind manufacturing facility in Kenya, where it still remains the only vertically integrated modern cookstove company in Sub-Saharan Africa. The solar-powered facility currently has a capacity of 55,000 stoves per month and employs over 400 people, 60% of whom are women.
When BURN started, frankly there was little faith in the cookstove sector to deliver tangible results. However, over the last 10 years, BURN has built a profitable business while proving that cookstoves can deliver transformative social, financial, and environmental impacts. A recent study done by the University of California at Berkeley shows that a US$40 household investment to purchase a Jikokoa (a BURN-designed stove) generates a staggering US$1,000 economic return for society.
George: That is staggering, but it also makes sense in the context of a recent report by CCA, the World Bank, and Modern Energy Cooking Services that estimates US$2.4 trillion in economic, social, and environmental costs globally associated with households cooking with traditional fuels. So, let’s dive a bit deeper. Set the context in terms of the market BURN is addressing. Who are your target customers? What is important to them? What is preventing them from transitioning to products such as liquified petroleum gas (LPG) and electric stoves used by higher-income households?
Scott: In Kenya, 80% of all rural and urban households use either wood or charcoal for cooking, so our two core products serve both of these markets. We target low- and middle-income customers, but even higher-income customers use charcoal for special meals. Our customers purchase the stove for fuel savings but love it because of the reduction of indoor air pollution and the improved cooking experience.
While many low-income households do purchase LPG stoves and cylinders, the challenge they often face is the additional cost of cylinder refills. Companies like Progas in Kenya – which have reduced the retail price of LPG by ~30% – have led to the large increase in LPG usage in Kenya over the last three years. So, we see this as another area of growth.
Electric cooking is the most expensive cooking method in Kenya. So as of now, very few rely on electricity. However, highly efficient electric pressure cookers can change this reality dramatically, so we are also looking into the feasibility of manufacturing electric pressure cookers in Kenya.
George: Speaking of LPG and electric cooking, there is a lot of discussion about modern energy cooking solutions and cleaner technologies that move beyond more efficient biomass stoves. As a leading efficient biomass cookstove manufacturer, what is your take on this?
Scott: BURN has expanded its product line to include not only biomass stoves but also electric, LPG, and hybrid biomass+electric cookstoves. We believe that an “all of the above” approach will be relevant across sub-Saharan Africa, but that biomass will continue to dominate, especially in rural settings. Urban households will accelerate their move to modern energy cooking solutions – more so in certain markets such as Kenya and Ghana – whereas countries like DRC will continue to rely heavily on biomass, even in urban environments. We believe that BURN, as the only modern manufacturer operating at scale on the continent, is positioned to be the leading manufacturer across all fuel types (biomass, electric, and LPG).
George: There are many different kinds of cookstove technologies being manufactured by other companies operating across Africa and throughout many developing markets. What sets BURN’s products apart from its competition?
Scott: BURN’s approach has always been to meet the customer where they are, and then to move into the future with them. We began by selling charcoal stoves and later woodstoves, given that these fuels were readily available. Trying to move people straight to a fan-driven forced-draft stove, for example, that requires a special fuel is an incredibly difficult undertaking. BURN has built a profitable model on our core business, which has given us the time and resources needed to pilot new stove/fuel business models. Our new Turbo and TurboPro cookstoves, which utilize a fan to burn dry or wet wood or agricultural waste briquettes, have required long R&D timelines before they were ready to scale to profitability.
George: How is it that you are able to design and manufacture products in Kenya and compete with the alternatives coming from China or other centers of high-volume manufacturing?
Scott: Many manufacturing companies are moving out of China due to the high cost of labor. Our labor costs are more than 50% lower than those in China. When you factor in tariffs and shipping, you can clearly see BURN’s advantage. Fortunately for us, there is a significant barrier to entry for competition due to the high cost of establishing modern manufacturing capacity on the continent.
George: Beyond the products themselves, tell me a bit about your business model. Particularly for investors who have been unable to identify commercially viable and scalable opportunities that enable better biomass cookstoves for bottom-of-the-pyramid consumers, what in particular differentiates BURN as an investment opportunity?
Scott: BURN has been net income positive since 2017 and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) positive since 2018. 98% of this is from margin on products sold to business-to-business distributors. An additional 2% is from carbon revenue, although this is expected to grow over the next few years. We do not rely on carbon credits to be viable, but we can leverage carbon markets with the potential for an enormous upside to investors. BURN owns and manages two Clean Development Mechanism (CDM) carbon assets and one Gold Standard Voluntary Emissions Reduction (VER) asset. Next year, we will issue ~1 million Gold Standard VERs with a value of up to US$10 per VER.
BURN has been fortunate to raise significant grant funding to support the research for and development of new products and new markets, as well as continuous improvements to existing products. This grant funding helped us build the foundation for the business and position the company for its first significant capital raise.
The last thing I would mention here is how fundamentally different our business model is from much of our competition. Many of our competitors design their stoves in the US or Europe and utilize a contract manufacturer to produce them in China. In some cases, they then use a third-party marketing company to sell them in Africa. We believe this is an inefficient and expensive approach, especially with a product that requires constant refinement to optimize product-market fit.
George: Tell me more about your current team and operational capacity. I have had the pleasure of visiting your facility outside Nairobi numerous times over the past several years and have witnessed an impressive journey in terms of the depth of the team talent, physical operations, and manufacturing capacity you have built up. For those who have not seen it firsthand, it would be great if you could share more.
Scott: Over the past few years, we have grown our factory from the original 20,000 square feet to 53,000 square feet, We are currently selling 25,000 units per month with the capacity to produce 55,000 stoves and are on track to reach 90,000 stoves per month in 2021. We have gone from being a single product/single country business to one that has eight different products marketed across 13 countries.
This year, we have actually seen sales and revenue increase during COVID-19, resulting in Q3 as our best quarter yet, with Q4 expected to be just as successful, if not better. Additionally, at the beginning of this year, after struggling with recruiting since 2011, we finally hired a Head of Recruiting who made 40 key hires and assembled my dream C-suite.
George: You are seeking to raise US$7 million. Share more about your company’s financing strategy and plans to utilize this capital for growth. What new markets and products are on the horizon?
Scott: We are raising US$4 million of equity and US$3 million of debt which will augment significant grant funding over the next two years. We also expect to generate several million dollars in revenues from the sale of carbon credits in 2021. These funds will go toward three key categories of spend:
First, we will invest in the commercialization of new products. We will scale up our production of new products including an electric stove, a hybrid (biomass + electric) stove, a lower-cost mass-market biomass cookstove, and an LPG appliance.
Second, we will invest both in our geographic expansion and expansion in our existing markets. We will expand sales and marketing efforts in Tanzania, Uganda, Zambia, Rwanda, Nigeria, Ghana, Ethiopia, Mozambique, and DRC. The launch of our lower-cost mass-market biomass stove will more closely align the retail price of the product with customers’ willingness and ability to pay in many of these countries. Combined with market activation efforts – which we have refined over several years in Kenya – this will drive volume growth across the region.
And finally, we will invest in increased production capacity. We plan to boost our stove production capacity from 55,000 units per month in 2020 to 120,000 by 2024. Given the upsurge in efficiency we expect to achieve by centralizing production for the near future, our Kenya facility will produce all of our stoves until at least 2023.
George: Peter, thank you for your time. It has been great to hear more about your exciting plans for BURN in Kenya and beyond.
Scott: Thank you!
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