• In the basket

    While other sectors faltered under the pandemic, e-commerce continued to accelerate 

    In the basket

    Through autumn 2020’s hard national lockdown, South Africa’s suburban streets were deathly quiet – save the buzz of delivery motorbikes transporting groceries via the country’s e-commerce network. While brick-and-mortar stores were either shuttered or out of bounds to cautious foot-traffic customers, online sales flourished during the pandemic.

    According to the recent Online Retail in South Africa 2021 report, published by World Wide Worx with the support of Mastercard, Standard Bank and Platinum Seed, e-commerce in South Africa grew 66% in 2020, bringing the country’s online retail sales to ZAR30.2 billion. ‘The most astonishing aspect of this total is that it is more than double the ZAR14.1 billion reached in 2018, in just two years,’ says World Wide Worx MD Arthur Goldstuck. ‘It is also 50% higher than the total forecast for 2020 three years ago, when online retail in South Africa was expected to reach ZAR20 billion by 2020.’

    Jonathan Smit, MD and co-founder of online payment gateway PayFast, painted a positive picture at a recent virtual summit, saying that the COVID-19 pandemic had fast-tracked e-commerce by three to five years. ‘It’s a great time to be in e-commerce,’ he said. ‘Logistics is easier, payment is easier… Everything is in place now for online to grow and become a significant part of the [retail] industry. 

    ‘The beautiful thing about technology specifically is that it democratises the landscape, making it possible for smaller businesses to compete against larger ones. Yes, having deeper pockets helps, but it’s so easy to get going selling online. You don’t need a huge team of people; you can start very small. It’s not expensive anymore, barriers are low and you have what you need at almost at a click of a button.’

    That’s true in South Africa and, increasingly so, in the region’s two other major markets. A recent Visa report notes that South Africa, Nigeria and Kenya remain the top drivers of e-commerce volumes in sub-Saharan Africa, with Ghana, Zambia and Mauritius also emerging as key players. ‘The three leading markets in [sub-Saharan Africa] are starting to mature, providing the region with an established foundation,’ says Lineshree Moodley, head of Visa Consulting and Analytics in sub-Saharan Africa. ‘When twinned with the growing penetration of e-commerce, it offers players in the payment space an opportunity they can capitalise on while helping to further accelerate the expansion of e-commerce in the region.’

    We’re talking big numbers here. Visa sees the global e-commerce sector growing to US$7 trillion by 2024. 

    In Nigeria specifically, the bulk of the growth is being driven by two behemoths: Konga and Jumia. The latter is listed on the New York Stock Exchange; the former is reportedly weighing up its options, with at least one international IPO believed to be imminent.

    Konga, which started as a Lagos-only baby, beauty and personal care online retailer in 2012, is aiming for turnover of US$10 million a day by 2024 (‘We shall attain half of this target at least by 2022,’ Konga Group co-CEO Nick Imudia proclaimed in early 2020). The company spent the beginning of 2021 launching brick-and-mortar stores across Nigeria.

    Jumia, meanwhile, launched in Kenya in 2012 and now has warehouses in 10 countries, with the capacity to make deliveries in 11 – including South Africa, Egypt, Côte d’Ivoire, Nigeria, Ghana, Cameroon, Tanzania and Uganda. It became the first African start-up to be valued at US$1 billion following its NYSE listing in April 2019; and began 2021 by setting up a new tech centre in Egypt, while making noises about expanding into the notoriously tough markets of Ethiopia, Angola and DRC.

    Some e-commerce giants are expanding their offerings by providing logistics capabilites to third-party vendors

    Both Konga and Jumia now find themselves where both Takealot and global e-commerce giant Amazon were in the early stages of their business journeys: bursting with promise, but low on cash. Amazon and Takealot both famously failed to turn a profit for almost the entirety of their first decade, a fact that makes the three years that Alibaba took to move from the red to the black all the more remarkable. As many businesses of many sizes have learnt the hard way, there is a world of difference between market share and profitability – especially in the capital-intensive world of e-commerce.

    Konga co-CEO Prince Nnamdi Ekeh admitted recently that the company ran at an NGN400 million per month loss in its early days. That, he said, has since been brought down to a monthly loss of around NGN100 million. ‘Although we have received several offers from interested investors, we are content with the group that is currently funding Konga,’ Ekeh said in mid-2020. ‘Our investors have assured us of enough capital to survive the next five years at least. This was why we did not accommodate a valuation of US$300 million from a consortium of global investors [in 2019].’

    Jumia, meanwhile, reported losses of EUR33.7 million in Q1 2021; notably, those losses were 24% down year-on-year. It aims to turn a profit in 2022, but – like Konga, and like Amazon and Takealot before them – it’s spending a lot of money trying to shift consumers from tried-and-trusted shops and markets to shopping in an online space.

    Nairobi-based business-development expert Wiza Jalakasi explains the challenge in a recent interview with Rest of World. ‘Jumia is essentially paying for consumer behaviour change for the first time on the continent. And they’re doing it at scale, which nobody has ever done before. So it was never going to be cheap, and somebody was going to have to pay this price anyway to get people into the habit of buying things online.’

    In their quest to become profitable, both Konga and Jumia are changing their approach to e-commerce, creating a compelling model for Africa’s other e-tail hopefuls. Rather than selling its own huge inventory, Jumia has whittled down its warehouses and transformed into a vendor marketplace, allowing independents to sell their goods on Jumia’s platform while Jumia takes a tidy commission. 

    To enable that third-party marketplace strategy, Jumia created its own exclusive payments service, JumiaPay; and then built a network of courier partners, supported by hundreds of pick-up/drop-off stations and proprietary parcel-tracking technology. In the process, Jumia has gone from an e-commerce business to a 360-degree logistics service.

    ‘Businesses across the country are re-examining their costs, especially during COVID-19,’ according to Jumia Kenya CEO Sam Chappatte. ‘For many, logistics is a major cost driver and headache to manage. At the request of our partners, we are opening up our logistics arm for B2B and B2C deliveries, with the hope that we can provide a better quality of service, at lower cost.’

    In June 2021 Konga took that a step further, launching a digital healthcare-distribution subsidiary called Konga Health in Nigeria. Its first big mission? To enable Nigeria’s national COVID-19 vaccine roll-out.

    Again, it’s a shift from pure e-commerce to a broader logistics offering; and again, the approach appears to be: if the infrastructure for e-commerce doesn’t exist, we’ll just built one ourselves. And why not? The e-commerce revolution is looking more and more like a lasting, long-term change.

    In April 2021 a survey by South African e-tailer OneDayOnly found that only 33% of respondents still shopped online as frequently as they did during the 2020 lockdown, with the majority of consumers (66%) splitting their purchases between e-commerce platforms and brick-and-mortar stores. That, of course, was inevitable as lockdown levels eased.

    A more useful finding is the 71% of respondents to the World Wide Worx study who said they would continue to shop online after the pandemic. They will – in South Africa, Kenya, Nigeria and across Africa – because they now can. 

    The new wave of Africa e-commerce giants, with their ever-expanding logistical networks, is seeing to that.   

    By Mark van Dijk
    Images: Gallo/Getty Images