Will B2B E-Commerce Capture Africa’s Informal Markets?

As online retail markets fail in Africa, business hopes for e-commerce are turning to selling to online businesses. Business-to-business (B2B) e-commerce may be a promising route to digitize Africa’s huge informal and offline trade, but it is not without its challenges.

According to data from research consultancy Briter, B2B e-commerce companies in Africa raised more than $256 million in disclosed funding last year. Olumide Olusanya, CEO of PayMente Limited and an experienced eCommerce developer, it says B2B e-commerce is now a “vector of choice” that startups in Africa take advantage of “for the primary purpose of financial inclusion of their largely informal sectors.”

As B2B companies such as TradeDepot, Wasoko (formerly Sokowatch) and even Jabu prove, B2B e-commerce has become a darling of digital trade finance venture capitalists in Africa. Entrepreneurs see B2B commerce as the path to Africa’s informal markets, and venture capitalists are betting more on those hopes. Yet the road, literally and figuratively, to harnessing the potential of e-commerce when doing business with the African street retailer is almost as bumpy as the road to the consumer’s door.

A path of least resistance

Investors and entrepreneurs are increasingly interested in B2B e-commerce as they realize that the assemblage of colorful hawkers with bustling street businesses make for more trustworthy customers than the casual online shopper.

The harsh economic realities that continue to influence earnings and spending also ensure that the purchase of consumer goods will remain largely offline for the foreseeable future. As a result, the centralized e-commerce version of Jumia is losing out to a model that emphasizes selling to vendors who retail to end consumers.

It’s easier to persuade retailers to use digital channels to manage inventory than it is to convince consumers to buy every quart of milk from a website. Retailers are also likely to be familiar with simple digital platforms like WhatsApp. Since they are already exposed to digitization at the communication level, ordering and receiving bulk retail products by tapping the Wasoko app on your Transsion phone is easy. It does not require learning new skills.

Furthermore, the International Trade Center (ITC) states that the global size of B2B e-commerce is 5 times bigger than that of B2C e-commerce. Simply put, small businesses buy more things online compared to consumer purchases. In Africa, where offline retail and household consumption reign can reach 2.5 billion dollars By 2030, it’s easy to see why entrepreneurs believe B2B marketplaces are a better option for e-commerce.

But even this market opportunity at hand is not easy.

A bumpy ride to the high street store

Distribution or “route to market” is the core business of B2B marketplaces. They are, in essence, little more than an easy-to-order interface welded around distribution and storage.

As it is an aggregation and distribution service that stops just one level above the direct consumer, it creates better delivery value density (DVD) and helps markets and manufacturers collect important data on informal retail flows. .

But the advantage of a higher DVD (the way startups measure the cost and efficiency of a delivery route) is slim when casual retailers are scattered all over the high street. Catering to these informal retailers means that B2B e-commerce platforms are still exposed to so many infrastructure gaps that make direct-to-consumer sales difficult.

One way to solve this challenge is to build more distribution points. The downside of that is that it’s expensive and adds to the fragmentation at the wholesale layer of FMCG distribution. In other words, each additional distribution point a MaxAB creates, for example, will reduce the density of orders they have to deliver, and therefore their margins.

23 of Africa’s $1.4 trillion in retail spending in 2016 was on FMCG. Photo/Maria on unsplash

As Olusanya (cited above) pointed out, B2B marketplaces want to digitize informal retailing. But more than simply digitizing the inventory and storage process for street retailers, B2B e-commerce, in many cases, competes directly with wholesale distribution networks with a long history of serving informal retailers.

Replacing the wholesale operators that form the backbone of the distribution of consumer goods in Africa is not an easy challenge. It is even conceivable that some of these non-tech wholesalers have exclusive business relationships with manufacturers. Ignatius Akpabio, Director of Growth and Strategy at TradeDepot, agrees. “Because of how big they are, you can’t fight the system,” he says. Rather than compete with wholesalers, TradeDepot says it works with established wholesalers for supplies and as distribution partners. “We are in a supplier market in Nigeria and because of this, demand always exceeds supply. There is not enough supply for any distributor, especially for an aggregator like us looking to be more pan-Nigerian and have a broader reach. If he does not have these people as partners, he will have problems from a supply point of view”, adds Akpabio.

However, he disagrees with TradeDepot replacing wholesalers. According to him, wholesalers are how TradeDepot obtains supplies in very few cases.

It makes sense. The market is huge and capturing a fraction of it, especially in key urban locations, seems like a winning strategy. Although good numbers are hard to come by, a 2013 survey of micro, small and medium-sized enterprises (MSMEs) in Nigeria, conducted by the Nigerian Bureau of Statistics and the Nigerian Small and Medium Enterprises Development Agency, put the number of MSMEs in the country. To over 37 million. Small consumer goods stores make up a good percentage of that figure.

So while B2B eCommerce may not be a threat to offline wholesale networks today, managing the complex relationships that underpin a B2B business is a conversation new businesses in this space will need to have sooner than later. afternoon. Any business dealing simultaneously with wholesalers and African street shops has to.

tame the streets

In 2020, Joseph Aito, a former Pernod Ricard sales manager, shared the story of Chinedu Okoroafor, a Nigerian who he claimed earned ₦1 million a month selling groceries in Lagos traffic.

After 4 years of living in Lagos and selling snacks in Lagos traffic, Okoroafor went from earning ₦40,000 a month to earning around ₦1 million a month selling and operating a flexible network of street vendors whom he supplied with both credit as with products.

Aito’s story highlights the lucrative and eccentric relationship between manufacturers, wholesalers and retailers of consumer goods.

As Olusanya told TechCabal on a call, one feature of the retail landscape is how retailers, and even some large supermarket chains, prefer revenue over efficient inventory management. One can dismiss this as meaningless irony because being more efficient can translate into better revenue. But then again, as Aito’s story shows, the distribution of consumer goods in Africa can being irrational Aito wrote: “Managers of multinational companies started looking for him [Okoroafor] outside. He provided them with a unique service. When they need a quick sales spree to finish the month on a high, they visit you and offer you a bigger discount than usual. Similarly, when consumables are about to expire, these companies offer you ridiculous discounts, sometimes as much as 60%, to sell the stock.”

What is more? Most of Okoroafor’s sales came from reselling these products to other retailers in its network.

Inventory management meets a blank expression for “retailers” like this, and they’re not just roadside peddlers. In this type of environment, where turnover is the primary concern, a B2B marketplace selling “efficiency” to retailers may be talking to the wrong or, at best, limited market.

Ordering new inventory from a smartphone is easier and cheaper for retailers, but the real party that benefits from the efficiency is FMCG manufacturers. Instead of sending a sales rep to blindly deal with supplies, they simply pass the headache on to B2B brokers like TradeDepot.

Because B2B e-commerce startups are primarily regional and operate in relatively new territory, the competitive bloodbath is not apparent. However, as the space becomes more defined and more local competition emerges, retailers will have many options in a low-margin business. On the positive side, this can lead to interesting mergers and acquisitions (M&A). We already see some of that. Last year, TradeDepot, Nigeria’s leading B2B e-commerce startup, only raised $110 million. By February 2022, it acquired GreenLion, a Ghanaian B2B e-commerce startup, and launched buy-now-pay-later schemes for its retail partners while mapping out an ambitious expansion program.

This competition and mergers and acquisitions may even affect startups like Kippa and Oze, which are working on digitizing informal retail registers.

The jury is still out on how much digitization can drive B2B e-commerce. What is clear is that the digitization of African trade will not take the “mainly digital” form found in China because the B2B infrastructure relies on and even allows Africa’s dukas, spazas and supply kiosks to handle the last mile of trade.

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