Top 5 challenges E-commerce start-ups must overcome to be successful in Africa.
Despite rapid growth of internet use in Africa estimated at 28, 7% of the population according to World stats, internet access is still limited across the continent in a way that it remains a big problem for e-commerce companies in reaching consumers. Indeed, the world average internet penetration rate is at 50, 1% and today, only few African countries have registered a penetration rate higher than 50%. The ones I can mention as examples are Morocco, Kenya, South Africa and Nigeria.
However, more are entrepreneurs who choose to invest in Africa considering the growth in internet penetration rates and the rising population. Investors, start-uppers, companies are convinced about one thing: Africa is one the fastest growing economy in the world.
The common strategy is to replicate occidental business models on the African continent. However, the hurdles to face have restrained more than one. In fact, to succeed in Africa start-ups must count on strong investors to build business models from almost no e-commerce system established. Plus, it is a necessity to bring solutions adapted to African consumer behaviour. Here I am, talking about Jumia, one start-up which is attempting to tackle these issues and creating a market place in Africa: the African Amazon.
WHAT IS JUMIA?
Jumia is an online shop created in 2012 in Lagos, Nigeria by a team of entrepreneurs that includes Jeremy Hodara and Sasha Poignonnec. The start-up raised funds with Jumia group, (until recently known as AIG: Africa Internet Group), the African branch of Rocket Internet. Jumia is an online retailer which sells and delivers a wide range of products from electronics to home goods. Today, Jumia is leading the market by covering 10 countries across the continent and Jumia group valuation is over 1 billon dollars, which made it the continent’s first unicorn.
Jumia is revolutionizing the African consumption behaviours by supplying brands and products that African couldn’t access . Yet, the company is still not profitable. According, to Fortune, Jumia made a loss of $18.8 million on sales in the first trimester 2016.
THE KEYS FACTORS JUMIA IS BETTING ON TO TURN PROFITABLE
To turn profitable, it is critical for Jumia to create strategies that face the challenges of e-commerce business in Africa.
1/ Distrust of the banking system: As I talked in my last article about mobile money, most African don’t own a bank account and thus don’t use payment cards and online payments possibilities. To overcome this issue, Jumia offers through Mobile Money, the alternative to the use of banking services to pay the goods ordered. For that solution, Jumia formed partnerships with telecommunication operators such MTN in Nigeria.
Plus, for those who don’t use Mobile Money yet, Jumia differentiates itself by offering users to pay on delivery. In that way, customers wouldn’t’ have to pay until the product is shipped to their doors. This solution may be at high risk, but regarding the African consumption behaviours, it is one of the best ways to mitigate this challenge.
2/ Limited access to the internet network: According to McKinsey, about a third of the African population has internet access but predicts that this will rise to 50% by 2025. Most commonly, Africans get access to the web on their mobiles, but browsing from the mobile for a long time has a high cost. While, in Europe we can access to unlimited internet through affordable subscriptions, in Congo a 3 hours browsing could cost the user $50 prepaid internet. Thus, Jumia put a specific focus to break down the barriers to shop online. The start-up signs another agreement with the MTN telecommunication operator. The agreement enables MTN internet users who download the Jumia application to browse for free on the online shop.
3/ Citizen’s education: Jumia has the aim to provide its services to the entire continent citizens. Yet, some countries as Burkina Faso, Chad and Niger have literacy rate under the 30% of the population. Low level of literacy and education impede the African online retailer’s development. To ease that challenge, Jumia is investing in the education of populations and thus to teach on how to use the online marketplace.
4/ Poor road networks: The pitiable condition of roads in most African countries is one challenge that cannot be underestimated. Road infrastructure in Africa is essential to Jumia’s success. The inability to access certain regions and cities means fewer potential customers to attract. Furthermore, the lack of working roads constraints products deliveries and inevitably increase the cost of moving goods per kilo-kilometer. The solution Jumia has chosen to broken roads is to create its own fleet of motorbikes and trucks. The company wants to become versatile.
5/ Postal system: When an online retailer like Amazon is doing business in Europe or US, to deliver its goods it can rely on existing postal systems infrastructures. In Africa, Jumia doesn’t have this advantage. In some regions, the postal network is not functioning. This challenge is a complicated one as it depends on governments to work on national address system by identifying housing and company site. For now, the start-up is counting on drivers to deliver doors to doors although this solution increases the cost of the last kilometer. Furthermore in Kenya, the online retailer has made a deal with the national postal corporation (PCK) to create click and collect service that will permit customers to pick up goods purchased from the marketplace to 500 post offices in the country. This partnership could ease deliveries difficulties due to the lack of sure postal addresses for lucky customers who can access to a post office.
By adapting its strategies to the continent’s challenges, Jumia has brought innovative solutions that introduce an e-commerce experience as unknown before. The start-up chooses to invest highly in long term strategies that inhibit it to be profitable today and to balance this short-term pressure (to turn profitable) by working with other companies.
I can point out that long term strategies were success to Alibaba which had turned profitable 10 years after launching its business. Thankfully, Jumia can count on its strong incubator Rocket Internet until breaking even.