0930. online retail in ssa · sites jumia and kaymu. the other platforms include konga,...

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Uqalo Research

AnOverviewoftheOnlineRetailSpaceinsub-SaharanAfrica

October2016

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Onl ine Retai l in sub-Saharan Afr ica October 2016. www.uqalo.com

Contents

Introduction...........................................................................................................................................2

Africane-commercetoday.....................................................................................................................3

Limitations......................................................................................................................................3

Mobilee-commerce.......................................................................................................................5

Majorplayers.........................................................................................................................................7

JumiaGroup.......................................................................................................................................8

Jumia..............................................................................................................................................9

Kaymu...........................................................................................................................................10

MallforAfrica....................................................................................................................................12

Konga................................................................................................................................................13

Kilimall..............................................................................................................................................14

Conclusion............................................................................................................................................16

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Introduction

Online retailore-commerce1 isevolvingacrossSub-SaharanAfrica (“SSA”).The rhetoricof “Africarising” with its burgeoning African middle class and consumer market has been slightly deflatedsincethebeginningof2016withaverageGDPgrowthacrossAfricasinkingbelow5%.2Perceptionsofthesizeandgrowthtrajectoryoftheconsumersectoralsovarywithsomeforecastsclaimingthatonlineretailsales inSouthAfrica,willrisetoUS$770mby20183whilstothers4suggestthemarketwillbeworthUS$50bnbythen.5

GrowthoftheconsumermarketinSSAisstillsetexpandasthe“youngandconnectedmiddleclassisgrowing fastandstilldecidingon its favouritebrands, in short it’sbrimmingwithpotential”.6 Inthiscontext,onlineretailremainsrelevantasAfricanconsumersturntonewandinnovativewaystotransact.

Theoptimismoftheexpansionoftheonlineretailsectorhasbeentemperedbylimitedbroadbandexposure and slow changes in consumers’ shopping cultures and as it stands today, online retail,even in the more developed markets of South Africa and Nigeria, largely remains in its infancy.Accordingtoa2016report7forthefirsttimeintheSouthAfricanconsumermarket,onlineretailinSouthAfricacouldreach1%ofoverallretailduring20168

“While 1% represents a very small proportion of overall retail, it is also a psychologicalbarrierforinvestmentine-commerceinitiativesbyphysicalretailers”9

Given these limitations, measured optimism and extensive potential, the e-commerce spacepresents a unique value proposition for investors, retailers and consumers in SSA.10Most of theonlineretailspace inSSAremainsuncharteredwithpotential lying in innovativewaystoencourgeAfricanconsumerstomovetowardstransactingonline.

Several dominant players have emerged across the region, attempting to apply the e-commercemodelsofe-commercegiantssuchasAmazonandeBayandChina’sanswer toeBay,Alibaba.Thesector continues to be dominated by African InternetGroup, now known as JumiaGroup,whosesuiteofonlineplatformscontinuestogaintractionacrossvariousmarkets,especially itstworetailsites Jumia and Kaymu. The other platforms include Konga, MallforAfrica and Kilimall which areseeking to apply traditional e-commerce models in the African context in order to captureconsumerstotheonlineretailspace.

1Therearemanydifferentterminologiesforonlineretail,includinge-commerceande-tailing.ThisreportusesthesetermsinterchangeablybutnotesthedefinitionusedforthismeansofretailingastheOECDdefinitionof“thesaleorpurchaseofgoodsorservices,byenterprises,individuals,governments,andotherpublicorprivateorganizationsconductedovercomputernetworks”.Thisreporthasfocusedspecificallyontheprivateconsumersector.2Nielsen,February2016,Africa’sProspects:MacroEnvironment,Business,ConsumerandRetailOutlookIndicators3FinancialservicescompanyPwC4MarketresearchconsultancyFrost&Sullivan5http://qz.com/689864/the-dawn-of-an-african-e-commerce-goldrush-may-be-a-false-one/6ATKearney2015AfricanRetailDevelopmentIndexreport7SouthAfricanmarketresearchcompanyWorldWideWorxreportOnlineRetailinSouthAfrica.8http://www.worldwideworx.com/retail2016/9ArthurGoldstuck,managingdirectorofWorldWideWorx10http://www.howwemadeitinafrica.com/sectors/retail-sectors/

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African e-commerce today

E-commerce currently presents a similar picture to that of formal retailing across the SSA region;thatofstarkcontrastsfromonecountrytothenextwiththeformalizationofretailtakingplaceatvery different rates owing to regulatory and infrastructure limitations. These include high importtariffsandtheabilitytosourceproductslocally.Owingtothelackofamanufacturingbase,retailersareoften forcedtosourcegoods fromoverseaswhich increasestheircostsandmakessupply lessreliableasaresultofpoortransportinfrastructureandthehighcostoftransport.11Theselimitationshaveplayedaroleininfluencingthedevelopmentofe-commerceowingtothepotentialvalue-addposedbyonlineretailing.

OnlineretailoffersimmensevalueforAfricancitydwellingshopperswhodonotwanttositthroughgridlockedtraffictoreachmarketsorshoppingmallsandevengreatervalueforthoselivingoutsidethebigcitieswherethechoiceofgoodsavailablemaybe limited.12Potentialalsoexists foronlineretail in terms of more streamlined sourcing of goods and, in turn, a reduction in prices forconsumers.

Limitations

Variousobstacles toe-commerceexistacross theregion includingunreliable internetconnections,logistical challenges, lowbank cardpenetrationaswell as a generaldistrustof transactingonline.Internet access poses as the most inhibiting limitation for the sector across SSA as this remainsinadequate and expensivewith restricted broadband across the region and home internet accessconstrainedtoasmallwealthyelite.Internetusageacrossthecontinentispredictedatonly26.8%of thepopulationmakinguseof the internet,withonlya7.231% increase in internetpenetrationfrom2000to2015.13

Infrastructural issueshavealsoaffectedonlineretailing in thesamewayas formal retailhasbeenaffectedintheregion.Non-functioningpostalservicesandpoorlogisticsnetworksnegativelyaffectleadtimes.Someonlinebusinessessuchas JumiaandKonga inNigeriaandKilimall inKenyahaveturnedtotheuseofdeliverymotorbikestoreduceleadtimesandthusthecostofdoingbusiness.

Coupledwiththeselimitationsistheneedtochangeconsumermindsets.Thegrowthofonlineretailworldwide has been hindered by the need to adjust consumers’ perceptions to trusting onlinepayment methods. This includes trusting that they will receive the correct product that theyordered,inatimelymannerandinanacceptablestate.

In most African countries people are often sceptical of online shopping due to online fraud.14 InNigeria, for example,where phishing is common, people are sceptical of putting their credentialsonline. This has led to some companies offering the option of cash-on-delivery to mitigate thischallenge.15

11KPMG2015ReportTheAfricanConsumerandRetail.12http://www.howwemadeitinafrica.com/sectors/retail-sectors/13AfricanBusinessMagazine,July201614Nielsen,February2016,Africa’sProspects:MacroEnvironment,Business,ConsumerandRetailOutlookIndicators.Citing2012NielsenEmergingMarketsInsightsreportwithinformationsourcedfromNigeria,Ethiopia,Uganda,Kenya,Tanzania,Zambia,DRC,Angola,Ghana,Mozambique,Namibia,Zimbabwe,Cameroon,Madagascar,BotswanaandCoteD’Ivoire15http://techcrunch.com/2014/11/26/rocket-internet-backed-jumia-raises-150m-for-its-african-e-commerce-business/

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Figure1:InternetusageactivitiesinSSA

A more challengingmindsetchangeintheSSAcontextisthatoftheopenmarket and the informalmarket which stilldominate retail in mostcountries.

In most countries thereare “markets”everywhere; frominformalpavementstores,to open markets,supermarkets and evenunemployed youth sellinggoods at traffic stops inmajorcities.

An e-commerce companywould have to beat theseentities on prices to be

competitive and owing tonearly all e-commerce

firmsbeingformalisedforaccesstothebankingsystem,theypaytaxes.Forexample,inRwanda,an18%VATcouldputanonlinebusinessatadisadvantagewheninformalcompetitorsdonotcollectthesame.

BecausetheformalconsumersectorisstillinitsinfancyinmostAfricancountries,theadoptionofe-commerce inAfrica ismoreaboutadaptingandcreatingshoppinghabits. Thisoftenentailspeoplemakingtheirfirstbigbuys,likesmartphonesandfirstonlinepurchasessimultaneously.Forexample,topromotethecrossovertoonlineretail,regionale-commerceretailplatformJumiahasdeveloped“customeradoptioncentres”whereprospectiveshopperscannavigatethecompany’swebsitewiththeassistanceofcompanyrepresentatives.16

Coupledwiththeissuesofinfrastructureandintegration,anevengreaterrestrictiontoonlineretailis the issueof illiteracy. Forexample in countries likeChad,NigerandBurkinaFaso,were literacyrates lieat less than30%17, illiteratecitizensmaybeunabletoparticipatedirectlyone-commercesites that require reading and writing skills.18 In conjunction with illiteracy among potentialconsumerliesthelimitationofcomputerliteracywhichislikelytohinderuseraccess.19

16http://www.newyorker.com/business/currency/e-commerces-african-challenge-selling-to-people-who-arent-online17http://theafricaneconomist.com/ranking-of-african-countries-by-literacy-rate-zimbabwe-no-1/#.VPeY0fnF_0w18https://hbr.org/2015/03/the-challenges-facing-e-commerce-start-ups-in-africa19 In April 2016, the online classifieds platformOLX rolled out a new service calledDo It ForMe (D.I.F.M), a paid usersupportservicethatwillallowuserstomanagethepostingandsellingofitemsonthesite.OLXbelievesthemovewouldallowittoincreaseitsuserbaseinthatOLXuserswouldentrustthesaleoftheirgoodstotheOLXChampswhoaresalesexperts.Theserviceisdescribedasmakingtheplatformeasierandsaferforusers,especiallyuserswhoarenotcomputerliteratebuthaveitemstosell.

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Mobile e-commerce

Thesevariousrestraintsoninternetaccess,alongwithdecliningpricesofmobilehandsetsanddata,haveledtoincreasedmobileinternetaccessacrosstheregion.20

MobileinternetpenetrationinSSAhasbeenboostedbytheriseofcheapsmartphoneswhichallowaccesstomobilebroadbandfromthemiddleclasscustomersinthecitiestosmallbusinessesinruralareas. 21 According to a 2014 report by Swiss technology company Ericsson, 70% of users in SSAbrowsedthewebonmobiledevices,comparedwithjust6%ofthosewhousedesktopcomputers.Thereportalsopredictedthatby2019voicecall traffic inSSAwilldouble,withmobiledatausagegrowing20timesbetween2013and2019,twicethatofanticipatedglobalexpansion.22,23

Giventhescaleofgrowing internetpenetrationthroughsmartphones, it isconceivablethatonlineretailcould, toanextent, leapfrogtraditionalbrickandmortartrade ifconsumersweretoturntothismore reachable channel of accessing the internet and in turn change their spending pattern.However,mindsetsneedtobechangedandtechnologicalissuesaddressedinordertoopenuptheinternetfullyfortheAfricanconsumer.

20OwingtomobilephonenetworksbeingthatmuchmoredevelopedthanthefixednetworkgivingaccesstotheInternet;m-commerceoronlineretailthroughtheuseofmobiledevicescanbedifferentiatedfrome-commerce.21Nielsen,February2016,Africa’sProspects:MacroEnvironment,Business,ConsumerandRetailOutlookIndicators.CitingNielsenEmergingMarketsInsightsreport2014/201522Thereportpredictedthatbytheendof2014,itisforecastthattherewillbemorethan635millionmobilesubscriptionsinSSAwhichwaspredictedtorise, toabout930millionby late2019,where itwasestimatedthat three in fourmobilesubscriptionswillbeinternetinclusive23http://www.theguardian.com/world/2014/jun/05/internet-use-mobile-phones-africa-predicted-increase-20-fold

Figure2:MediapenetrationinSSA.

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TheproliferationofmobileinternetaccesshasalsomeantthatanumberofAfricanonlineretailersare developing mobile applications as distribution platforms, and making use of mobile moneysystemssuchasthephone-basedmoneytransfer,financingandmicro-financingserviceM-PESA24.

ThishasbeenmostevidentinKenyawherethegrowingyoungworkingpopulationhaveembracedsimplifiedandsecurepaymentsplatforms throughM-PESA25anddebitcards, thereforepromotingtheriseofinternetpurchasesinKenya.M-PESAonlinepaymentshavebeensuccessfulforthelargeamountofKenyanswhocannotaffordthecostofacquiringacreditcard,whichpreviously lockedthemoutoftheonlinemarket.

Recently, the leading mobile telecoms provider Safaricom partnered with the South African firmPayGate, a global payment solutions provider and credit card processor, to provide e-paymentsolutionstotheretailindustrythroughM-PESA.26ThismovewasregardedasopeningupM-PESAtothelucrativeretailpaymentmarket.Thewebsitesofvariousserviceproviderssuchasairlines,hotelsandsupermarketswouldhavetheirwebsitesenabledtoacceptreal-timeonlineM-PESApaymentsforgoods,servicesandinvoices.27

Thepotentialofmobile-drivene-commercepresents investmentopportunities. In July2016, JumiaGroupreceivedaUS$56mequity investmentfromtheUK-baseddevelopmentfinancegroupCDC.28This investment was described as one in a company “playing a leading role in Africa’s growingecommerce market … smartphone-driven ecommerce will be one of the most importanttechnological andeconomic trends inAfrica in thenextdecade.MoreandmoreAfricans cannowaccesstheinternet,withhalfthepopulationexpectedtobeonlineby2025”.

A number of e-commerce companies are seeking to position themselves better, to capture themarketshare,bydevelopingmobileshoppingapplicationsthatareoptimisedtoloadfasterandofferaseamlessshoppingexperiencethroughtheintegrationofmobilemoneypaymentservicescourtesyofnetworkproviderssuchasSafaricom,AirtelandOrangeamongothers.

24 M-PESA was launched in 2007 by Vodafone for the two largest mobile network operators in Kenya and Tanzania;SafaricomandVodacom.M-PESAisregardedasmostacceptedandpervasivepaymentmethodinKenya.MorethanhalftheKenyanadultpopulationhasaccesstoM-PESA,whichhascontributedtoalargeincreaseinthepercentageofadultswith access to formal financial services since 2009. Kenyahas 21.1millionmobilemoneyuserswho transact across sixplatforms—M-PESA,MobiKash,AirtelMoney,yuCash,OrangeMoneyandTangaza.25http://www.cgap.org/blog/10-myths-about-M-PESA-2014-update26http://www.businessdailyafrica.com/Safaricom-targets-online-shoppers-with-SA-firm-deal/-/539552/1686914/-/2aetjfz/-/index.html27M-PESAisreportedtohavealsopartneredwithinternationalmoneytransfersthroughWesternUnionandHomeSendinabidtotapthemulti-billiondiasporaremittancesmarket.28http://www.cdcgroup.com/Media/News/CDC-makes-new-investment-in-Africa-Internet-Group/#sthash.JIh4bjNr.dpuf

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Major players

Although consumers in Africa have been able to purchase goods frommajor international onlineretailers such as the two US-based e-commerce giants Amazon and eBay, this process has itschallengesinthetimelinessandcostofdeliveryaswellaslimitationsindeliveryofcertainproductstocertaincountries.ThecustomerexperienceofAfricanonlineshoppersmakinguseofthesesitesisgenerallyassociatedwithlongleadtimes,delaysandgeneraldistrust.

This environment has resulted in a niche for African online retail, in which operators know theoperating environment, its challenges along with evident opportunities. Currently, most of thedominantplayersinvariousSSAmarketsarelocallyestablishedcompanieswhohaveattemptedtoapplyabusinessmodelfromcompaniessuchasAmazonoreBay.29

Despitethevariouslimitationsfacingonlineretailers,thoseoperatinginthebiggerAfricanmarkets,whereslightlymoredevelopedinfrastructureandconsumersectorshavecontributedtoonlineretailpenetration,havepresenteddynamicdevelopmentsintheirapproachtoe-commerce.Thishasbeenmost evident in the growth of companies such as Jumia Group, who continue to dwarf otherretailersoperatingintheregion,throughsheersizeandvalue.

There are other companieswhichhave shown substantial growthacross the region. This includesinternationalplayerssuchasJumiaGroup’slocalC2CequivalentKaymuaswellasthe“digitalmall”MallforAfricaorcompanieswhosegrowthhasbeenlocalisedsuchastheKenyanonlinemallKilimall,andtheNigerianonlineelectronicscompanyKonga.

29http://www.asos.com/

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Jumia Group

Jumia Group, previously known as African InternetHoldings30,31, isthe largeste-commercecompanyinAfrica with eleven digital ventures32, ranging fromfood delivery, classified advertising sites, hotelbookings and the e-retailer Jumia.com (“Jumia”).Since its establishment in 2012, through an initialinvestment by the Berlin-based start-up incubatorRocketInternet,33,34JumiaGrouphasshowndouble-digitgrowthmonth-on-monthsince.35InMarch2016Jumia Group received more than US$300m infundingfromnewandexistinginvestors,includingapreviously announced funding commitment fromAXA, the global insurance and asset managementcompany. This round of investment was led byexisting investors including MTN and RocketInternet as well as a later round of funding fromGoldman Sachs.36 These funds were said tosignificantly strengthen the balance sheet of JumiaGroup, enabling the company to leverage thesignificantgrowthof JumiaandtocapitaliseonthesignificantopportunitiesinAfrica.37

Jumia Group’s success in the various countrieswhereithasapresenceissaidtohavebeenbuiltontrustandapplyingthesameverticalintegrationandlevel of quality as companies like Amazon. The

company aims to do this by offering same or next day delivery in larger cities such as Lagos, anddeliverywithinsevendaysinallofNigeria;byhavingaliberalreturnpolicyandallowingcustomerstopaycashondeliverysopeoplehavetheassurancetheycanpaywhentheproductarrives.

InNigeria,thecompanyhas500vehiclesthatdelivertoitscustomersintheeightbiggestcities.Thecompany’s delivery fleet is larger than courier service companies UPS, Fedex and DHL inNigeria.JumiaGroupalsohasitsowncallcentre,ITteam,onlinemarketingteam.Allofwhichresultinthecompanycontrollingitsvaluechainfromstarttofinish.

TherecentrebrandingoftheJumiaGroupcompaniestooperateunderthesamebrandnameisseento reinforce the legitimacy of proposing other services to both customers and sellers. This brand30http://techcabal.com/2016/06/16/jumia-is-swallowing-all-the-startups-under-africa-internet-group/31InJune2016,AIHsetaboutrenamingitscompaniesintheAfricanmarkettobepartofoneJumiabrand,thisincludedtravel company Jovago becoming Jumia Travel, real estate site Lamudichanged to Jumia House, food deliverycompanyHelloFood changing to Jumia Food, car company Carmudi becoming Jumia Cars, Vendito, the online classifiedadvertisementsitechangingtoJumiaDealsandthejobsearchsiteEverjobsbecomingJumiaJobs.32ThisincludesAfricanversionsofHotels.com(Jovago),Uber(EasyTaxi),Gilt(Zando),andZillow(Lamudi),amongothers.33https://www.rocket-internet.com/34RocketInternetbuildsandinvestsinInternetcompaniesthattakeprovenonlinebusinessmodelstonewfast-growingmarkets.Thecompanyfocusesonfiveindustrysectorsofonline,mobileretailservicesthatmakeupasignificantshareofconsumerspendingFood&Groceries,Fashion,GeneralMerchandise,Home&LivingandTravel.35http://www.forbes.com/sites/marcbabej/2014/06/16/how-jumia-is-adapting-e-retail-to-africa/#27cc3bbd153736http://www.newyorker.com/business/currency/e-commerces-african-challenge-selling-to-people-who-arent-online37http://rocketinternet.pr.co/123518-africa-internet-group-parent-of-jumia-the-leading-ecommerce-platform-in-africa-secures-over-300m-of-funding-from-mtn-rocket-internet-a

CompanyProfile

BusinessModel:Onlineservices

Founded:2012

Founders:SachaPoignonnec,JeremyHodara(French)

Companies:Jumia,JumiaMarket,JumiaTravel,JumiaFood,JumiaDeals,JumiaHouse,JumiaJobs,JumiaCar,JumiaServices

Countriesofoperation:Nigeria,Egypt,Morocco,Algeria,Kenya,Ethiopia,Uganda,Rwanda,Ghana,Senegal,Gambia,Tanzania,Madagascar,Mauritius,Coted'Ivoire,DemocraticRepublicofCongo,RepublicofCongo,Cameroon,Namibia,Angola,Zimbabwe,Zambia

Investors:MTN,RocketInternet,Millicom,Orange,Axa,GoldmanSachsandCDCGroup

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recognition is also aimed at building one strong brand that is trusted by customers across thecontinent.38

Jumia

JumiaGroup’s flagshiponline retailer is theNigerianonline retailer Jumia,originallyestablished in2012withaninitialUS$1minvestmentfromRocketInternet,thecompanyiscurrentlyoperatinginKenya,Cameroon,Côted’Ivoire,Ghana,MoroccoandEgypt.JumiahasgoneontobecomeAfrica’sleadingonlineshoppingstorewithmorethan100millionvisitstothesitein2015inNigeriaalone39

Jumiahastakenadvantageofsomeofthemoreenablingconditionsfore-commercecompaniesinNigeria,especiallyitslargeandgrowingyoungpopulation,coupledwithgovernmentinvestmentinpower-generationand transportationsystemsaswellaspublic-privatepartnerships to improve itstechnologyinfrastructure.Thissuccesshasbeenevidentinthecompany’sfigureswiththecompanygenerating US$149m in revenue in 2015.40 Based on an Amazon business model, in that thecompany sells goodsdirectly to customers through its onlineplatform, Jumiahasbeen viewedasaimingtomimicAmazon’ssuccessbydeliveringawiderangeof itemsacrossanumberofAfricancountries.

Jumia faces thewell-known institutional and infrastructural challenges for anyAfricane-tailer buthasrecognisedthestructuralgapbetweensupplyanddemandwhichcouldbefilledbye-commerce.In Kenya, Jumia has entered into various partnerships to streamline delivery of products.PartnershipsbetweenJumiaandlogisticscompanieshavemadeitpossibleforconsumerstocollectproductsorderedonlineataPostaKenya,AramexorG4Sofficesandpayuponcollection.Throughthisinitiative,Jumiareporteda15%increaseinproductdeliveryinremotepartsofKenya.41

InNigeria,thenuancesofthelocalmarkethaveledtothecompanyhavingtoadaptitsofferinginordertoappealtothisspecificaudience.Thishasresultedineverystepofthesalesprocessentailingsome formof tailored solution.Once theorders are sentout, first-time shoppersmight get a callfrom a specialist who confirms the order, payment, and delivery details. Because manyneighbourhoodsinNigeriancitiesdon’thavenumberedaddressgrids,driversmightaskcustomerstodirectthemtotheirresidencesbymobilephone.42

MostJumiacustomersalsopaycashondelivery,whichmeansdriversareresponsibleforhandlingand keeping safe much of the company’s cash. Jumia also accommodates orders from unstableareas, includingBokoHaram-controlledpartsof thenortheast,buildingapremium into thepricesandrequiringpayment inadvance,thenstrikingdealswithoutsidedeliveryservices.43 Despitethechallenges,thecompanymanagedtoshiptenthousandpackagesadayin2015throughoutNigeria.

Thesuccessof Jumiahasbeenregardedasaresultof thecompany’sextensiveadvertisingbudget,whichmakesuseofprint,mediaandradioadvertising,aswellasitstailoredcustomerservicewhichisinnovateandresponsive.Thesehavesolidifiedthecompanyasamajorplayerinthee-commerce

38http://allafrica.com/stories/201606270310.html39http://www.ft.com/cms/s/0/c99c6d98-c370-11e5-b3b1-7b2481276e45.html#axzz4GGLYE8Kp40ThisisincomparisontotheUS$400-billionthatMcKinsey’sGlobalInstituteestimatesthatNigeria’sconsumersspentin2014onconsumerproducts.41https://www.jumia.co.ke/blog/5-trends-that-shaped-kenyas-e-commerce-market-in-2015/42http://www.newyorker.com/business/currency/e-commerces-african-challenge-selling-to-people-who-arent-online43http://www.newyorker.com/business/currency/e-commerces-african-challenge-selling-to-people-who-arent-online

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space. In October 2013, Jumia was awarded the "Best new retailer launch of the year" at theinternationalWorldRetailAwards44,makingitthefirstAfricancompanytoeverbeawarded.45

In 2015, Jumia introduced an affiliate programme as a type of performance based marketinginitiative,whichallows“middlemen”topromoteacompany’sproductsondifferentonlineplatformsincludingtheirownsocialmediaaccounts.Thesemiddlemenarethenallowedtogetcommissiononitemspurchasedviathepromoter’slink.TheprogramwaspioneeredbyJumiainKenyaandhasseenthe listingof thousandsof individualsandhundredsofbloggerswithin the first threemonths. Theinitiative has also given rise to the now popular social commerce which allows customers to buyproductspromotedonsocialmediasitesandcompletethetransactionwithinthesameplatform.46

Kaymu

Recently rebranded as Jumia Market, Kaymu,operates as the online marketplace subsidiary ofJumia Group. After receiving seed funding fromRocket Internet in 2013, the company launched inNigeria toprovide localisedC2CandB2Cproducts,andsincehasseenextensivetractionsinnumerousAfricancountries.

The platform, modelled on eBay’s C2C and B2Cmodelallowsforbuyersandsellertomeettomakedeals on new and used fashion items, mobilephones, jewellery and home appliances. Thecompany has expanded to a number of countriesincluding Algeria, Angola, Cameroon, Ethiopia,Gabon, Ghana, Ivory Coast, Kenya, Morocco,Mozambique, Nigeria, Rwanda, Senegal, Tanzania,Tunisia,UgandaandZambia.

Theportaloperatesonasimplemodel.Foronetosell, they list an item on the site and choosewhethertoacceptbidsortoaskforaspecificpricefor their article.Customersarealsoable to searchvia brand type, function, model or product nameand then continue to either bid or buy the item.The site operates as a marketplace and does notsell any of its own merchandise. Merchants andprivatedealersareabletopost theirgoodsonthesitewiththeirownpicturesanddescriptions.Variouspricingmodelsarealsoofferedinthatgoodswith “fixedprices” and “auctions” have fixedpriceswhilst those under “classified” listings canbediscountedasagreedonbetweenthebuyerandsellerastheycontacteachother.47

In 2014 Kaymu launched a Seller Referral Scheme and Seller Pathway programmewhich enablesuserstoearnmoneybyrecommendingtheservice,forsellerstoincreasetheiroverallperformance

44https://www.worldretailawards.com/45http://www.businesswire.com/news/home/20131215005064/en/Millicom-International-Cellular-MTN-joins-Millicom-Rocket46https://www.jumia.co.ke/blog/5-trends-that-shaped-kenyas-e-commerce-market-in-2015/47http://techmoran.com/rocket-internet-at-it-again-launches-ebay-clones-in-nigeria-pakistan

eBaybusinessmodel

eBayisregardedasoneoftheoriginalB2CandC2Ce-commercesuccessstoriesofthedot-combubble.TheeBaysiteoperatesasanonlineauctionandshoppingwebsite inwhichindividualconsumersandbusinessesbuyandsellgoodsandservices.

Users are able to list up to 20 items forfree, with eBay charging a final value feewhen the item is sold. The company’s e-commerce payment facilitation company,PayPal, contributes to half theorganization’s revenue. PayPal partlyaccepted Nigeria into its system in 2013,aftercitingvarioussecurityrisksassociatedwiththecountry.

The Chinese e-commerce giant Alibaba’scorebusinessmodelalsoresemblesthatofeBay, in that thesiteactsasamiddlemanbetweenbuyers and sellers and facilitatesthe sale of goods between two partiesthroughitsextensivenetworkofwebsites.

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andfortheplatformtoimproveitsoveralltrafficandquality.TheReferralSchemeallowssellerstogeneraterevenuebyrecommendingtheservicedrivinghighqualitytraffictotheplatform.ExistingsellerscantakepartbyaskingapotentialsellertosuccessfullylistproductsonKaymu.48

ThePathwayProgrammeencouragesvendorstoimprovetheirperformancebyhelpingtoincreasethe number of orders, improve delivery times and ensuring all transactions are completedefficiently.TheprogrammefunctionsasarewardsystemsimilartothatofeBay49andisdesignedtopromote better overall customer service. Sellers are awardedbronze, silver, gold, and ultimatelyplatinum by going through a performance rating system. Participants go through a step-by-stepprocess in using the Pathway Programme where sellers have the opportunity to gain additionalbenefits. These include increased visibility on the website, competitor analysis, visibility onFacebookadvertisementsandnewsletters.50

InAbidjan,Côted’Ivoire’seconomiccapital,Kaymuisreportedtohavebeguntorecruitits“sellers”fromexistingmarketsandhasmorethan200marketsellerswithapresenceonthee-commercemarketplace.AccordingtoIvoriancountrymanagerMehdiBenAbroug:

"Theseguysinthismarkethaveverylowmarginsbecausetheyarewholesalers…TheygotoDubai,toChinaandbringbackcontainersandtheysellaswholesalerssothemarginontheproductisreallylow.ButonKaymu,hesays,theycanselldirectlytothecustomerandgetahighermargin.”51

Owingto issuesofcybercrime,mostmerchantsstilloperateonacash-in-handbasiswhichmeansdeliveries are arranged in advance by delivery drivers, to arrange delivery and collect paymentwhenthegoodsaredelivered.Thisposestherisksonnon-paymentorcancellationoforders.Thecompanyhopestoaddressthisthroughtheuseofmobilepayments.52

In2015,inamovetosharpenlogistics,operationmanagementandinfrastructuredevelopmentforboth companies, Kaymupartneredwith Jumia to launch a joint initiative logistics network calledAIG-Express.Thisinitiativeplannedtoincorporateexistinglogisticsprovidersintoasinglenetworkaimed atmeeting the growing demand in the onlinemarketplace. The initiative also planned topartner with local logistics entrepreneurs, where it would carry out training sessions ontechnologies tohandlee-commerce logistics.53 The initiative is forecasted to create thousandsofjobs.54

48http://ventureburn.com/2014/03/kaymu-nigeria-launches-new-schemes-to-improve-quality-and-performance/49EBayusersareabletoprovideratingsforindividualandbusinesssellersasameansofprovidingfeedbackontheirservicewhichinturnallowsfortransparentcustomerratingofsellersmakinguseoftheplatform.50http://ventureburn.com/2014/03/kaymu-nigeria-launches-new-schemes-to-improve-quality-and-performance/51http://www.bbc.com/news/business-2824279752http://www.bbc.com/news/business-2824279753http://techcabal.com/2015/05/18/kaymu-and-jumia-launches-aig-express-across-africa/54https://www.jumia.co.ke/blog/jumia-and-kaymu-partner-to-launch-aig-express-in-kenya/

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MallforAfrica

MallforAfrica55isaNigerianonlineretailportalthatallowsshoppers toorderproductsonlinefromforeignretailers,topayinlocalcurrencyandtohavetheitemsdeliveredtotheirhomesorlocaldistributionpoints.

The business was founded in 2011 by the Nigeriannationals Chris Folayan and Tope Folayan, the formerbasedintheUSAandthelatterinNigeria.Afterstudyingand working in the US, the idea of MallforAfrica wasinspiredfromacommonrequesttoAfricanslivingabroadto bring goods home. This highlighted a gap betweensupply and demand for the continent’s consumermarkets.56Unlike itsNigerian counterparts,MallforAfricaoffers the option for its users to shop on the likes ofAmazonthroughitsinterface.57

The company is reported to have generated millions ofdollarsinrevenue,havinggrowntheiruserbasesixtimes

in2014andexpandedtoKenya58withplanstomoveintoBotswana,Tanzania,Ethiopia,GhanaandCongo.59MallforAfrica receivedbacking fromUKprivateequity firmHelios InvestmentPartners in2013.60Helios is reported tohaveagreed toprovidegrowthcapital tobuildMallforAfrica,backingthecompany’sentrepreneurialmanagementteam.Heliosisakeystrategicinvestor,helpingtodrivevalue through the team’s experience in starting, scaling and institutionalising growing businesses,andthroughHelios’operationalcapabilities.

MallforAfrica is viewedas the solution toaproblem facingmanyAfrican shopperswhen trying toorderitemsfromvariousinternationalonlinestores,whicheitherwouldn’tdelivertheirproductstoAfricancountriesordenyNigerianpaymentsources.61

MallforAfrica has positioned itself as a middleman between African consumers and US and UKcompanies62andhasestablishedpartnershipswithcompaniessuchasthemenswearbrandHawesandCurtisanddepartmentstoreMacy’s.Thecompanyclaimstobeazero-riskoptionforUSandUKretailers to gain access and sell product in Africa without concerns of fraud, theft or additionalcustomschargeclaims.TheoperationalmodelworksbyretailersshippinggoodstoMallforAfrica’sUSwarehousefromwhereMallforAfricashipsgoodstoAfrica.

Thecompanyclaimsthat,inusingMallforAfrica’sservicesconsumersshould“feelconfidentknowingthey will receive their order because of all of the local resources, knowledge, channels andinfrastructureMallforAfricahas inplace”.63 ThroughMallforAfrica’smobileapplicationandonline

55https://www.mallforafrica.com/56http://www.itnewsafrica.com/2016/06/nigeria-ebay-partners-with-mall-for-africa/57http://www.figleaves.com/us/58http://www.blackenterprise.com/money/consumer-affairs/mall-for-africa/2/59http://www.howwemadeitinafrica.com/mall-africa-thriving-business-linking-shoppers-western-retailers/60http://www.heliosinvestment.com/our-investments/private-equity/portfolio-companies/mall-for-africa61http://punchng.com/e-commerce-experience-mall-africa-advantage/62http://www.blackenterprise.com/money/consumer-affairs/mall-for-africa/2/63http://www.blackenterprise.com/money/consumer-affairs/mall-for-africa/2

CompanyProfile

Businessmodel:Onlineserviceprovidingdistributionofforeignproducts.

Founded:2011

Founders:ChrisFolayanandTopeFolayan(Nigerian)

Countriesofoperation:Nigeria,Kenya

Investors:HeliosInvestmentPartners

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platform,buyerscanshopfromover180storesintheUKandtheUS,includingAmazonandE-bay,andhavetheiritemsdeliveredanywhereinNigeriaorKenya.64

Thecompanygeneratesrevenuethroughservicefeeschargedtotheshopper.Theseareaddedontothe customer’s order as a separate and transparent line item. MallforAfrica has implemented asystem by which shoppers don't even have to use their credit card. When customers joinMallforAfrica,theyreceiveaMFAcard,aprepaid“webcard”thattheyareabletousetomaketheirpurchasesonline.65

In 2016 MallforAfrica entered into a partnership with eBay to launch a new “eBay Powered byMallforAfrica”dedicatedplatform.TheplatformissaidtoenableinventoryfromeBayUSindividualandbusinesssellerswitha300+starrating66tobepurchasedbybuyersinitiallyinNigeriaandKenya,withGhanaandthenmoreAfricancountriestofollow.Thispartnershipincludesfinancial,marketingandlogisticsarrangements,witheBaynothavingtakenanyequitystakeinMallforAfrica.67

Konga

Nigerian businessman and entrepreneur Sim ShagayaestablishedKonga in201268.Thecompany initially focusedon electronic goods but now offers various goods fromfashion, home appliances, books and personal careproducts. Shortly after its establishment the companysecured US$3.5m of seed funding from the Swedishinvestment company AB Kinnevik through which thecompanysecureda34%stakeinKonga69.

ThiswascloselyfollowedbyaUS$10minvestmentfromABKinnevikandNaspers.Inlate2013KongafurtherreceivedanewroundofventurefundingtothevalueofUS$25mfromABKinnevikandNaspers70withthelatteracquiringa40.22%

holdinginthecompany.71ThisinvestmentwasfollowedbyanotherroundoffundinginOctober2014which reportedly raised betweenUS$40m andUS$60m, thereby putting themarket value of KongabetweenUS$160mandUS$200m.72

Konga iswidely regarded as themajor competitor to Jumia and as “the Amazon ofNigeria”. Thecompany operates two business units; Konga Online Services, which manages the e-commerceplatform and operates some proprietary trading, and Konga Logistics Services K-Express73, a fullylicensed courier companywhich coordinates third party logistics providers to enable e-commercelogistics. In2013 the company struckadealwith logistics companyUPSasa technical integration

64http://punchng.com/e-commerce-experience-mall-africa-advantage/65http://nigeriaonlineshopping.com/mall-for-africa.htm66BasedoneBay’ssellerratingsystem.67http://www.itnewsafrica.com/2016/06/nigeria-ebay-partners-with-mall-for-africa/68ShagayasteppeddownfromhisroleasCEOtotakeonthepositionofChairmanoftheBoardofDirectorsofKonga.69http://www.kinnevik.se/en/Investments/e-commerce-marketplaces/Konga/ 70http://techcabal.com/2014/01/03/exclusive-konga-raises-25-million-dollar-series-b-kinnevik-naspers/71https://www.naspers.com/pdf/financials/interim-results/2015/interim-results-english.pdf72http://innovation-village.com/with-about-60million-new-funds-konga-com-market-value-stands-around-200-million/73https://track.konga.com/

CompanyProfile

Businessmodel:Thirdpartyonlinemarketplace.

Founded:2012

Founder:SimShagaya(Nigerian)

Countryofoperation:Nigeria

Investors:ABKinnevik;Naspers

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whichwould allow Konga to leverage the courier’s extensive logistics footprint acrossNigeria, byfacilitatingnotonlynationwidedeliverybutalsoaddingtrackingcapabilitiestotheirorders.74

ThecompanylaunchedKongaMallin2013asaplatforminwhichentrepreneurswouldbeenabledto establish their own online store. Thewas achieved by Konga leveraging its unique store front,robustdelivery infrastructure,warehousing logisticsandnationwidecoverageandsecurepaymentsystems,forentrepreneursandsmallbusinessestousefortheirownindividualonlinestores,freeofcharge.75,76Bytheendof2014ithadover8000merchantsoperatingontheplatform.

By transforming itself intoanonlineplatformandmarketplace thatenablesmerchants toconnectwithconsumers,KongahasbeensuccessfulinconnectingavastanddispersedNigerianpopulation,solvingthelogisticschallengesandenablingcommercebetweensellersandbuyerswhodonothaveanydigitalmeansofexchangingmoney.

Likemanyofitse-tailercounterpartsoperatinginNigeria,Kongahasembracedpay-on-deliveryasamethod of payment. The company boasts a vertically integrated operationwhich ties in lastmilelogisticsand retailoperations.Konga increasinglyactsasapaymentgatewayviaK-Express,whosedelivery personnel either collect cash from customers or carry point-of-sale equipment on theirmobiledevicestocompletetransactions.77

Kongahasdevelopednuancedservicestoenablethetransactionprocess.Thisincludesaproprietarymessagingtool“K-Talk”built intoitsecommerceplatformthatallowsforreal-timecommunicationbetweenbuyersand sellers, andKongaPay78 abuyerprotection servicewhichencouragesupfrontdirectcashlesspaymentsfororderedgoods.Kay-TalkhasprovedincrediblypopularamongstKongabuyersandsellers,as itallowsfor tradeandcommercetohappen inamannerthatspeakstotheAfrican’sculturalneedtocommunicatebeforeconcludingatransaction.

Kil imall

OperatinginasimilarmannertotheNigerianMallforAfrica,Kilimall,aKenyanonlineshoppingmall,establishedin2014by Chinese national Yang Tao, hosts hundreds of differentgoodsfrommorethan50localandinternationalmerchants.Tao was reportedly motivated to start the platform toaddressthehighcostofimportedproductsinKenya.

“In the traditional ways of trading there are manymiddlemen in the supply chain, and the margin increaseseachtimetheproductswitcheshands.Thismakesthepricein Kenya almost three times more expensive than indeveloped economies. I think that technology and internetcanchangethisandreducethecosts”79

74http://techcabal.com/2014/01/03/exclusive-konga-raises-25-million-dollar-series-b-kinnevik-naspers/75http://techloy.com/2013/04/09/konga-mall/76http://www.techcityng.com/konga-mall-the-best-place-to-sell/77http://www.forbes.com/sites/faraigundan/2015/01/14/sim-shagaya-on-building-the-next-big-thing-konga-africas-version-of-alibaba-part-two/2/#65eeab07411678http://www.konga.com/kongapay/ 79http://www.howwemadeitinafrica.com/kilimall-kenyan-ecommerce-company-sees-opportunity-in-secondary-cities/

CompanyProfile

Businessmodel:Consolidatedshoppingmalloflocalandforeigngoods

Founded:2014

Founder:YangTao(Chinese)

Countryofoperation:Kenya

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Kilimall’snetworkofmerchantsoperatebyeithersellingtheirproductsviatheplatformorthroughphysical outlets, with some small traders operating from their home. The company offers itsmerchantsfreewarehousinginNairobi,fromwheresoldgoodsaretransportedbythefirm’sfleetofmotorcycles and vehicles. The value proposition offered tomerchants is cost saving, in that theydon’t have to pay goodwill, rent, electricity orwarehousing and in turn receive access to awidermarket.80

Customers are either able to choose their purchases, ranging from kitchen appliances andelectronics to fashion items from Kilimall’s series of offline locations or from the Kilimallwebsiteitself. For items ordered off the website, the company boasts a standard delivery time from 15minutestoamaximumof48hoursanywhereinKenya.81Thecompanyalsoboastsastrongqualityassurance team to make sure each product delivered to customers is authentic and in goodcondition.

The site is positioning itself as offering Kenyans the benefits of e-commercewhich simplifies theproductsupplychain,keepingpricescompetitive,andallowforshoppingconvenience.AccordingtoKilimall'smarketingdirectorKariukiMaina:

“Other e-commerce players are basically retailers, that is, they source for products fromtraders thensellataprofit.We'reaplatformthatgivestradersprofessionalservicewheretheycanmanagetheirshops.Eachmerchanthashisownuniqueback-endwheretheycanbeabletotracktheirshops'activitiesinreal-time."82

Kilimall has been cited for its innovative strategies in attempting to attract shoppers to its onlinespace. In 2014, Kilimall initiated negotiations with the Kenyan government and the Kenyan CivilAviation Authority to allow it to use unmanned drones83 to deliver goods to its customers.84 InJanuary 2015 Kilimall launched a new businessmodel dubbed “Flash Sale”which aims at cuttingbuyingcosts toonlineshoppers forselectedproductsatspecific times.Thecompany’sOperationsDirectorQuiWenexplains that themodelof flash sales is intended to fulfil thee-commerce idealobjectiveofmakingonlineshoppingcosteffectivetoitscustomers.

“SinceKenyahasembracedtechnology,weintenttoopenmoretime-savingandconvenientideashenceencouragemorepeopletooptforonlineshopping”85

80http://www.howwemadeitinafrica.com/kilimall-kenyan-ecommerce-company-sees-opportunity-in-secondary-cities/81http://www.businesstimesafrica.net/index.php/component/tags/tag/97-kilimall.html82http://www.newstoday.com.bd/index.php?option=details&news_id=2401963&date=2015-02-0383TheUnmannedAerialVehiclesSystem(UAVs),flightiscontrolledeitherautonomouslybyonboardcomputersorbytheremotecontrolofapilotonthegroundorinanothervehicle.ThefirmintendstochargeKSH200fordeliveryofparcelsweighinglessthan3kilogramswithinNairobi.84http://www.businessdailyafrica.com/Corporate-News/E-commerce-firm-target-local-market-with-drones-delivery/539550-2496896-icf6anz/index.html85http://smartinvestor.co.ke/1028/kenyas-online-shops-adopt-flash-sale-grow-traffic

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Conclusion

ThevariousoperatingmodelsofSSA-basede-commercecompaniesprovideacleardepictionoffirmswhichhaveadaptedtothevariouslimitationsandidiosyncrasiesoftheAfricanmarketswheretheyare based. Jumia and Kilimall make use of motorcycles as delivery vehicles in order to beat thegridlocked traffic of Lagos and Nairobi, whilst Kaymu allows sellers to list online and have thecustomer collect the item offline from the retailer’s store without playing intermediary.86 Themethodsof payment acceptedby firms are also indicativeof adaption to theAfrican contextwithmoststillacceptingcashpaymentsormobilemoneyoptions.Thesestrategiesofadaptionhaveseenthe integrationofofflineandonline,as retailersareadoptinge-commerceasabridgebetween toreachawidermarket.

Owing to the substantial investments that Jumia Group has enjoyed and its numerous onlineofferings, the company is regarded as currently dominating the online retail sector across SSA.Takingintoaccountthegrowthanddynamismofthesector,thecompanycouldsoonfacegrowingcompetition on the continent as African e-commerce grows and the market becomes moreattractivetobothAfrican-basedcompaniesandthosebasedoutsidethecontinent.

This interest is evident as Uber, a potential competitor to Jumia Group’s EasyTaxi, is operating inseven countries, including Kenya, Nigeria, and South Africa. Facebook opened its first permanentAfricaofficein2015tobroadenitsadvertisingreach,whichcouldchallengeJumiaGroup’sclassified-advertisingplatformJumiaDeals.It’salsowidelybelievedthatAmazonanditsChinesecounterpart,Alibaba,areplanningtoenterAfrica inearnest,whichcouldposeaconcern,oranopportunity, forJumia.87

“For longevity and success in Africa, you simply cannot just parachute technology into anarea”88

IfandwhenAmazonarrivesonthecontinentinforce,itcouldtrytobuilditsowninfrastructure,oritcould buy an existing network such as Jumia Group. Until this takes place, the online retail spaceremains open for the innovative, adaptable, yet well-funded companies who are able to adjustestablishede-commercebusinessmodelstothedevelopingAfricanretailcontext.Althoughtherearerelativelyfewplayersgiventhepotentialsizeofthemarket,thesuccessfulwillneedtounderstandthat the e-commerce marketplace in Africa is complex; they need to know the nuances of theregion’sgeography,culture,andlanguage,thefabricandtextureofthelocallifestyle,aswellasthehistoryandaspirationsofthelocalcommunitiesinordertosucceedinthisspace.89

Researcher:GinaEdmonds

86https://www.jumia.co.ke/blog/5-trends-that-shaped-kenyas-e-commerce-market-in-2015/87http://www.newyorker.com/business/currency/e-commerces-african-challenge-selling-to-people-who-arent-online88SimShagaya,founderofKonga89http://www.forbes.com/sites/faraigundan/2015/01/14/sim-shagaya-on-building-the-next-big-thing-konga-africas-version-of-alibaba-part-two/2/#65eeab074116

0930. online retail in ssa · sites jumia and kaymu. the other platforms include konga,...

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