When you move on the congested roads of Lagos, you notice more than just other vehicles. You now see delivery motorcycles shuffling between cars to beat traffic. Some years ago, that was a rare sight. When these operations began, e-commerce giants such as Jumia dominated deliveries. But today, your chances of seeing a delivery bike from an unknown company are higher than ever. That proves a little of how much e-commerce is evolving in Africa. Data also backs this up: retail spending on mobile apps is skyrocketing.
Jumia and Konga are the most popular e-commerce platforms in Africa. Their poster-child status almost makes you believe they were the first platforms. But that’s not the case. Both were pre-dated by BuyRight Africa, with Leo Stan Ekeh as its founder over 12 years ago. However, BuyRight Africa could not stay longer than 18 months as there was barely enough infrastructure, such as the internet. Card payments and other e-payment channels were also not popular, so they arrived too early.
Today, the story is not the same. Africa is more accommodative of this mode of commerce. Its young population and growing middle-class want convenience. In 2020, the African e-commerce market was estimated to be worth $20 billion, and between 2014 to 2018, the number of online shoppers on the continent increased annually, at an average growth rate of 18 per cent, higher than the global average of 12 per cent.
There’s no contention that Jumia and Konga are the continent’s largest e-commerce platforms. Before the tech boom, Jumia was one of Africa’s first unicorns. It was even called the Amazon.com of Africa. Konga also entered the market with a lot of hype and became a top player. But the road has been anything but smooth for these e-commerce giants. Both firms have gone through years of huge investments but have not gotten desired returns. Other e-commerce startups that rode on hype, such as Mall for Africa and Payporte, have shut down operations.
Africa’s large market is warming up to e-commerce, with Nigeria taking the lead. In 2020, online shopping accounted for seven per cent of all purchases in Nigeria. Google also shows that online searches on the continent are rising, with commercial queries showing a significant jump. But it appears the e-commerce leaders have not yet figured out how to serve this market.
Jumia and Konga are chasing elusive profits
Last month, Jumia released its third-quarter earnings report. The report showed that the company nearly doubled its sales volume of fast-moving consumer goods, while food delivery grew by over 40 per cent. Jumia gained popularity through the sale of some other flagship items such as electronic gadgets. But the report marks the company’s shift to selling more groceries and essential items customers order more frequently. The numbers point towards increased sales, but it questions the company’s quest for profit. Customers are spending increasingly fewer dollars per order. Since the company went public, the average value of a Jumia sale has been declining, falling from $41.50 in the third quarter of 2019 to $28 this year. At $64 million, Jumia’s third-quarter operating losses were higher than in any other year since it became a public company. At the close of business on Nov. 16, Jumia’s stock had fallen to $14.96 from $18.52 a day before and nearly 80 per cent less than its $65 all-time high in February.
Konga has also taken on heavy losses since its inception. The company started with N400m monthly losses and celebrated its reduction to N100m last year. But Konga seems to have a better time finding its footing in the market. It pioneered the third-party marketplace structure, which Jumia pivoted to in 2020. Konga also launched an omnichannel strategy, which is now the mainstay of its business model. Global e-commerce giants such as Amazon, Alibaba and others have also adopted this model. Konga has also cut losses by over 45 per cent and achieved growth of over 800 per cent in the past 18 months. But most of this growth happened under new ownership, implying that its former owners couldn’t crack the market.
Still anyone’s game
Many e-commerce startups have shut down operations for different reasons, including the failure to evolve. Jumia and Konga are still in business but have not made profits. Other startups that follow their business models are likely to face the same problems. But these startups might not have the same leverage of funding and media hype that Jumia and Konga had. Therefore, a different model is needed to thrive. However, that is not very common, meaning there is still plenty of room to dominate the e-commerce space.
Africa’s e-commerce industry is still small but is also somewhat complex. The market is in different layers, and the biggest competitor is not Jumia or Konga but social media. The e-commerce industry bets on increased internet penetration for growth. But social media reaches people before any e-commerce platform does. Furthermore, there are now more independent logistic companies than ever before. As a result, a lot of online shopping happens without e-commerce platforms. Social media platforms are now integrating shopping features into their applications to ease social commerce.
A study by the United Nations Economic Commission for Africa and GSMA says social commerce accounts for the bulk of e-commerce activity in markets such as Chad, Equatorial Guinea and São Tomé and Príncipe, and the Central African Republic. Globally, according to GSMA, social commerce represented 5 per cent of e-commerce sales in 2018 and was expected to more than triple to 17 per cent by last year.
Social commerce appeals to entrepreneurs because one doesn’t have to be very tech-savvy to use the apps, compared to business software and other tools that call for more sophisticated digital expertise. Also, most sales in many parts of sub-Saharan Africa are generated through informal channels. The wide usage of social commerce implies that people want simplicity in ways e-commerce platforms have not given.
Most large e-commerce platforms are betting on Africa’s middle class and aiming at their disposable income. However, the larger market is outside the middle class. Unsophisticated people outnumber the middle-class and are a largely untapped e-commerce market. African problems need African solutions, and those who provide them early will ultimately win.
Written by Oluwatosin Ogunjuyigbe