Ecommerce players step up their game to survive and thrive
Early day ecommerce businesses in Africa were plagued by several challenges starting with trust deficit from customers to patchy Internet to unreliable online payments infrastructure.
To quote Charles Dickens, “It was the best of times, it was the worst of times…” While the pandemic has piqued the entire world with the uncertainty and anxiety over the last one year and beyond, it has also provided opportunities for change. As pandemic-induced lockdowns have become the new normal, businesses and consumers across African countries are increasingly going digital spurring the demand for ecommerce. As internet access gets better, trust among consumers for ecommerce-based transactions grows and logistics improve, ecommerce, undoubtedly, has become the new sunrise sector in the continent.
Early day ecommerce businesses in Africa were plagued by several challenges – starting with trust deficit from customers to patchy Internet to unreliable online payments infrastructure. Even if these issues were overlooked, the logistics of ensuring deliveries within the stipulated period was equally tricky. However, over the years, there has been a lot of innovation around the supply chain and payment mechanisms, which has been a silver lining for many economies in the region. A shot in the arm for the sector was the Covid-19 crisis, which opened up a plethora of new opportunities for players in this sector.
“The partial and full lockdowns mandated in countries on the African continent and globally have necessitated ecommerce behaviours that may extend beyond the pandemic period. Consumers have initially focused on necessities such as food and medical- or health-related items, due to the uncertainty of the supply chain, low or unreliable discretionary spending, and consumer wariness. However, e-commerce markets may experience an increasing volume of shoppers exploring other retail offerings as behaviours change post-pandemic,” finds ‘The e-Conomy Africa 2020 report’, a collaboration between International Finance Corporation and Google, which sheds light on the great potential of Africa’s Internet economy.
Already 37 percent of South Africans have reported shopping online more than usual during this public health crisis. After the pandemic subsides, the anxiety surrounding large payment transactions that usually results in cash-on-delivery for products such as consumer electronics and clothing items may also subside as consumers become more accustomed to online shopping, the report said.
Overall, Africa has 631 online marketplaces, which recorded 2.2 billion visits in 2019. In 2019, the total traffic for African marketplaces made up less than 10 percent of the traffic on Amazon.com. This is according to the publication titled, ‘Business and Policy Insights: Mapping e-Marketplaces in Africa,’. Ten countries were responsible for 94 percent of all online business in Africa. South Africa, Egypt, Nigeria, Algeria, and Kenya together account for 78 percent of total marketplace traffic.
Going forward, Africa’s Internet economy has the potential to reach $180 billion by 2025, accounting for 5.2 percent of the continent’s gross domestic product (GDP). By 2050, the projected potential contribution could reach $712 billion, 8.5 percent of the continent’s GDP, stated ‘The e-Conomy Africa 2020 report’. Driving this growth is a combination of increased access to faster and better quality Internet connectivity, a rapidly expanding urban population, a growing tech talent pool, a vibrant startup ecosystem, and Africa’s commitment to creating the world’s largest single market under the African Continental Free Trade Area.
Explaining the current landscape of the ecommerce sector in the continent, Apoorva Kumar, senior vice president, Jumia, Africa’s largest online marketplace, said, “I have very closely watched the Indian and Chinese ecommerce scenario. Typically, the explosion in ecommerce happened in eighth or ninth year of operations in these countries. For instance, in India, it began when Flipkart probably started scaling up the business in 2015-2016. I think Africa is going through a similar kind of leap, probably a little before; probably in 7-8 years, which is supported by the global awareness of ecommerce and also with mobile technologies like 4G coming through faster.”
After eight years of iteration, Jumia’s delivery arm now consists of a network of over 300 courier partners and proprietary technology for tracking optimal delivery routes, inventory, and payments. It also includes over 110,000 sq. meters of warehouse space across the continent as well as a vast network of drop-off and pick-up stations that offer the company a wider offline presence. Jumia’s logistics arm has been exclusively available to vendors on its marketplace—until the recent past. In November 2020, the company opened up its logistics services to third party users across 11 countries in Africa. It is a move that sees Jumia instantly become one of the biggest players in e-commerce logistics space across the continent. The company is also likely betting on quickly gaining traction by winning potential customers through its years of experience in logistics, from product handling to last mile delivery.
I think Africa is going through a similar kind of leap, probably a little before; probably in 7-8 years, which is supported by the global awareness of ecommerce and also with mobile technologies like 4G coming through faster.
Apoorva Kumar, Jumia
Speaking about the rationale behind this move, Kumar said, “There was a substantial impact of Covid-19 on the logistics infrastructure in Africa. At this point, we realised that it's not just only about the seller selling on Jumia, but also the wider business infrastructure and wider SMEs in Africa; we have developed what is probably one of the best last mile delivery systems in Africa to cater to Jumia sellers. Our mission is to enable the SMEs in Africa and we did this by opening up our logistics services to the public. We have the right infrastructure, people, partnerships, and technology required to help third parties and partners solve logistics challenges.”
Expanding offerings and realigning operations
With the lockdowns thwarting people’s movement, over the last one year, e-mobility and food delivery startups have expanded their offerings beyond rides and the more typical fast-food style deliveries to accommodate orders of essential items such as medicine, groceries, and essential personal care products. In different parts of the continent, where fast-food delivery is restricted during the Covid-19 pandemic, food delivery firms pivoted to groceries and medicine to meet demand. For instance, companies such as Twiga Foods, which is normally a B2B food supplier, and Jumia Kenya, have both begun delivering food directly to consumers as a result of Covid-19. In Nigeria, Max.ng and Gokada shifted focus from from ride-hailing at the outset of the pandemic in order to concentrate on logistics. Similarly, in Uganda, SafeBoda, a motorcycle (‘bodaboda’) taxi hailing app launched an e-commerce platform to connect market vendors with customers after the country went into lockdown last year following the Covid-19 crisis. Customers place orders through the SafeBoda app and pay through its mobile wallet feature, then riders based at the market deliver the groceries.
Furthermore, there is a shortfall in African infrastructure investment of between $67 billion and $107 billion annually, hampering development in the logistics sector as it imposes a 40-60 percent surcharge on the cost of goods. For this reason, the importance of logistics startups cannot be overstated.
Investments in the private logistics sector are enabling an increase in the movement of goods and services; more investments and interest in the sector could catalyse even broader development across the entire ecosystem. Startups are taking advantage of connectivity to build a more efficient supply chain. Startups are delivering significant efficiency gains, especially in economies dominated by the informal sector.
Twiga Foods is bolstering the food supply chain in Kenya by providing a trusted marketplace to connect rural farmers with urban retail vendors. This, in turn, is eliminating waste and lowering food prices. The company has supported the connection of more than 17,000 farmers with 8,000 vendors to date.
E-logistics platforms such as Kobo360, Lori Systems, Sendy, and Truckr are reducing the cost of cargo and local transportation logistics for businesses. By way of example, Kobo360 connects cargo owners with a network of 10,800 truckers in Nigeria, and Truckr services more than 250 businesses with approximately 18,000 trucks. Trendlines project that long-term growth will rapidly accelerate as elogistics companies scale and pivot to support rapid ecommerce growth; and that logistics companies will expand geographically as they look to connect rural areas with regional supply chains.
Meanwhile, Kenya based B2B e-commerce startup Sokowatch is working towards revamping supply-chain markets for Africa’s informal retailers. From Nairobi, the company has created a platform that connects merchants directly to local and multinational suppliers — such as Unilever and Proctor and Gamble — and digitizes orders, payments and delivery-logistics. Since launching in 2016, and raising a $2 million seed round in 2018, Sokowatch has expanded within Kenya and into Rwanda, Tanzania and Uganda.
On-demand fastmoving consumer goods (FMCG) delivery services provide 24/7 marketplaces for retailers to use when ordering products. They also consolidate a highly fragmented supply chain and allow retailers to pay as they go, providing higher profit margins for micro- and small retailers. By aggregating informal retailers and connecting them directly with large FMCG manufacturers and distribution supply bases, these companies allow access to opportunities that were previously unavailable, cost-prohibitive, or otherwise inaccessible to informal retailers. This helps to increase revenues for low-income retailers, particularly those focused on everyday staples.
The birth of agricultural ecommerce
The pandemic also gave rise to agriculture ecommerce globally, including in Africa. In Rwanda, the government recommended e-commerce platforms to the public during the lockdown, including those providing fresh produce from farms. And in Nigeria, new e-commerce platforms emerged to connect farmers and consumers, such as Farmcrowdy Foods.
Twiga Foods in Kenya, Sub-Saharan Africa’s largest agri e-commerce player, has signed a partnership agreement with Jumia, an e-commerce platform. This new venture has allowed consumers to buy fresh produce as well as processed foods distributed by Twiga Foods on Jumia’s platform. Similarly, in Nigeria, FarmCrowdy, a crowdfunding platform for farmers, has leveraged its brand and digital tools to launch a new agri e-commerce service in response to Covid-19. FarmCrowdy started developing the marketplace model in 2019, but fast-tracked its launch to enable farmers to sell produce during the lockdown. The platform enables FarmCrowdy to collect produce from its network of more than 25,000 rural farmers, and store and sell produce in Lagos – where consumer demand is high. The marketplace received organic orders via digital channels during its pilot phase, without any significant marketing campaigns.
Since digital agriculture value chains have greater transparency and fewer middlemen than traditional systems, farmers can reach more potential buyers and increase their margins. In addition, e-commerce business models can reduce food waste, helping farmers find buyers during the harvest season instead of having to plow under produce.
The Covid-19 pandemic has reinforced the fact that digital startups in Africa are able to provide innovative solutions when they are needed most. To complement the work of ecommerce players, governments across Africa should develop infrastructure such as physical addressing systems, roads, railway networks and other means of transportation that could improve logistics for e-commerce and also integrate e-commerce markets in Africa. Providing appropriate logistics and integrating e-commerce markets in Africa will increase the value of the region’s e-commerce market.