Why Jumia seems to be getting it right in Africa
Despite difficulties and some naysayers, Nigerian start-up Jumia shows the way by finding an e-commerce niche in Africa
Africa’s largest e-commerce player, Jumia, has struck up a fruitful partnership with Vivo Energy — owner of Engen-and Shell-branded fuel stations. The result is a distribution network that will tackle the problems it has faced with last-mile delivery.
Prompt delivery in cities with limited addressing systems has been difficult for Jumia. It will now use Vivo’s network of 2,000 fuel station outlets to get around some of those problems. Customers will be able to collect orders and pay for them at a fuel station.
That relationship will begin in Kenya, Morocco, Senegal and Ivory Coast before it is extended elsewhere. Jumia has a presence in 14 African countries, while Vivo operates in 23.
Nigeria-based Jumia is essentially a marketplace with external sellers, which it connects to consumers of goods such as electronics and fashion.
It also has a distribution network and payments system.
In April it became the first African tech firm to list on the New York Stock Exchange. With a market capitalisation of $1.494bn, it is considered to be Africa’s first unicorn — a start-up with a valuation exceeding $1bn.
The MTN-backed business is often compared with global players such as China’s Alibaba and Seattle-based Amazon, and its operation in its own region is now larger than that of both the global giants. MTN owns about 31% of Jumia’s stock, while German start-up investor Rocket Internet owns 21.7%.
Jumia seems to be succeeding where others have fallen short. The continent is a tough place to start an online retail space. Its success, particularly in markets like Nigeria and Egypt, comes amid the struggles of regional players such as Konga.com and Yudala. Others, including Nigerian online sales platform DealDey, have shut down altogether.
Senior consumer analyst at Fitch Solutions Josh Holmes says e-commerce in Sub-Saharan Africa is held back by underdeveloped logistics, low internet uptake, lack of a mass affluent class and high proportions of the population living in rural areas.
Many places in Africa don’t have well-defined road networks or addresses, which are a major challenge for distribution.
However, Holmes says the region also has some of the largest, youngest consumer bases globally.
"Provided these operational obstacles are carefully navigated, long-term expansion opportunities in e-commerce can be capitalised on," he says.
Jumia’s share price was $15.30 at the time of writing, 39% down since its IPO in April. The company’s stock soared 75.6% on its first day of trading as investors lapped up the excitement of an African success story.
But a month after listing, short-seller Citron Research labelled the company a fraud, which sent Jumia’s shares down 40% in two days. Investment bank Citigroup, one of Jumia’s IPO leaders, soon released a report debunking Citron’s claims, though it did say: "Jumia could do more to provide disclosure on some aspects of its operations, as a matter of transparency and best practice."
The company’s African heritage was also called into question, given its largely European founding and shareholding. French nationals and former McKinsey employees Sacha Poignonnec and Jeremy Hodara founded Jumia in 2012. The company is registered in Germany, headquartered in Dubai and has its team of developers in Portugal. The hashtag #JumiaIsNotAfrican became popular on social media and the company has struggled to shake off this stain on its image.
By the end of 2018, Jumia had 4-million active consumers on its platform. In SA, it operates online fashion retailer Zando, whose competitor is Naspers-owned Superbalist.
Despite relative success in its home market, Naspers-owned Takealot – SA’s largest online retailer – has yet to venture beyond SA’s borders.
Byron Lotter, portfolio manager at Vestact Asset Management, says moving out of SA is probably the next step for Takealot.
However, Naspers-owned e-commerce businesses, which include Superbalist and Mr D Foods, are yet to turn a profit.
"Remember these are loss-making businesses," Lotter says.
"Amazon has shown that to get scale, you have to put in a lot of money."
Lotter says setting up the right systems to compete effectively is an expensive exercise. Takealot would need full backing from Naspers to do it properly.
Fitch Solutions Macro Research says competing in markets where incomes are low, delivery networks are underdeveloped and theft or fraud are common, presents operational risks. This means firms need capital to address logistics, staffing and technology.
Still, it says Africa’s e-commerce market will grow by an average of 13% a year to reach $16.5bn in 2022, up from $11.6bn in 2019.
Lotter says this is an opportunity for retailers that are willing to take the risk.
"If you live in Nairobi and you have the choice of fighting the awful traffic, finding parking and going to shop for your stuff — or just order it all online, it’s a no-brainer to do it online."
But the practical truth is that it is "incredibly difficult" for outsiders to operate in some African countries, Lotter adds.
"I think a lot of SA companies have learnt that the hard way. Tiger Brands went and bought Dangote Mills and had three or four employees held hostage in Nigeria."
Online retail offerings may just be the way to get into Africa, while limiting the risk that comes with this type of growth.