Kenya’s Marketforce shuts down the ecommerce unit, RejaReja. This business has raised more than $103 million. It follows old Konga, OLX, Kalahari, Mocality, and other big funded ecommerce companies which have folded in Africa: “YCombinator-backed Kenyan retail startup Marketforce has announced the shutdown of its e-commerce arm RejaReja. The company’s co-founder, Tesh Mbaabu, via a blog post, disclosed that the shutdown was due to struggles with profitability.”
In a seminal article in Harvard Business Review, I quoted Kalahari CEO as he closed the business: ‘In closing some of their e-commerce properties, Naspers, a media and internet empire, noted that it was a “sad day for e-commerce” in Africa and cited “unprofitability” as a reason.’ Yes, the same thing the Marketforce team is citing.
Structurally and without a postal service, it is a waste of time to start an ecommerce business in sub-Saharan Africa unless you have shops for pick ups. Companies like the new Konga will be fine (they have many pick up locations via sister companies under Leo Stan Ekeh empire), but others which do not have those physical networks will struggle to make money.
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From Kalahari to Mocality, OLX to old Konga and Jumia, the result will be the same: B2C ecommerce is a waste of time.
Jumia is going on because it has resources even though it continues to lose state-level budget as a loss: “African online retailer Jumia reported a loss of $98.6 million before tax from continuing operations in 2023, which is a 52% decrease from 2022.“ The “decrease” is partly because of currency “loss-gain” and exit from some markets.
The challenge is marginal cost paralysis which destroys value as you scale the business. In other words, you cannot compound and leverage anything because your unit economics does not improve as you expand the operations. When a company operates in that type of market, your success will simply destroy you, as an inflection point will NEVER arrive, for a positive marginal cost positioning.
I refer you back to secondary school on marginal revenue, marginal price, marginal profit and marginal cost. In ecommerce in Africa, you will expect to see marginal loss! Simply, it is hopeless without a postal system!
Kenya’s Marketforce shuts down the ecommerce unit, RejaReja. This business has raised more than $103 million. It follows old Konga, OLX, Kalahari, Mocality, and other big funded ecommerce companies which have folded in Africa: "The company’s co-founder, Tesh Mbaabu, via a blog… pic.twitter.com/HBAv9qFKZt
— Ndubuisi Ekekwe (@ndekekwe) April 19, 2024
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A case of what happens when excitement trumps logic. Most people mistake selling online for e-commerce, but they are different; the progression in one is linear while the other is exponential. You can sell online profitably, since you are largely selling unique products to a small customer base, while charging a premium, but same is not tenable for e-commerce, under the current conditions here.
Most things that will fail are known from the beginning, but emotions have a way of making people feel that they stand a chance, even when the road they are on leads to nowhere.
Now that funding is drying up everywhere, time to rethink everything and build from ground up.
Postal system alternative “what3words” easily solves the location issue after all both postal address and “what3words” require GPS to locate the target. Establishing a new network of neighbourhood shops to deliver to solves distribution e.g. Collect+ or yodel in UK. So ecomerce in Nigeria is is alive.
The real problem is poverty. The middle class who keep retail ticking along in UK / USA is large. Add to that the massive availability of credit to power consumerism then finally infrastructure (electricity, roads, rail, sea, security etc) that enables you to provide your service at as low a cost as possible. Compare that to e.g. Nigeria where your cost to serve is tough to keep low and the rich aren’t large enough. Even new Konga dey struggle in this inflationary Nigeria today otherwise post me their actual profit. Amazon took years and AWS subsidy to get where it is upon all the sweet postal address system there.
Disposable income in Nigeria competes with a lot of things that ecommerce will always feel challenged. Let’s be fair Ndubuisi go to your average QSRestaurant and pay for a meal. What’s the ratio of that meal to the current minimum wage. Even if you increment minimum wage by a factor of 3 to 5 (and freeze wage inflation) does it make sense that food in a QSR is so high?
Cost to serve in Nigeria is high.
Correction – in my post I omitted the word “existing” basically I meant
An ecommerce startup e.g. Konga could have
“Establishing a new network of existing neighbourhood shops to deliver to which helps solves distribution e.g. read up Collect+ or Yodel delivery model in UK. Basically you have millions of mom&pop shops, NNPCL, petrol courts, eateries even hotels, schools etc across the country. Every single one of those sites is close to your target consumers location and hence could form a new delivery network on a revenue share model. And all sites do is store goods for pick up. Sites qualified on security provided etc and customers given a short pickup duration to reduce package time at premise can also provide the sites with digital locals to help and text codes to customers to unlock.”
Basically Ndubuisi I worked on Collect+ years ago in UK and it’s not perfect but join that model with “what3words” and e-commerce is good to go. No need investing scarce resource in new last mile distribution – what3words will get delivery to your home or to neighbourhood participating local shops etc in the network. As you know – heaven help you on profitability when some roads are so bad e.g. Benin bypass (only now being repaired) easily circumvented if there was good rail connectivity or the excess number of checkpoints & agberos/touts across our roads blocking the roads with trees and extorting money from you lool sadly good luck being an Amazon revenue generating startup in Nigeria. That’s why payment rails are making billions in Nigeria…no touts, postal location issue like delivery encounters. Take away consumer credit in UK or / and the welfare state and everything scatters in days.
I have a map which shows the location of the stream. But that does not mean the app will fetch the water. Knowing the location is a different thing from having logistics to deliver the items affordably. The US postal service has NEVER made profit in the last 22 years in America. It runs losses to ensure the US economy remains competitive. Without that service, Amazon will fade. But as that happens, the US will tax the economy and recover whatever the USPS has lost.