South Africa has had a very stringent lockdown from a commerce perspective – during the first 5 weeks of the lockdown, the only essential goods available for purchase are those for sale at grocery stores and pharmacies. Any non-essential items sold in grocery stores and pharmacies are not allowed to be sold. Even food delivery via Uber Eats or restaurant takeaway has not been allowed.
The decision by South Africa Minister of Trade and Industry, Ebrahim Patel, seems to have been made with trade competition considerations in mind –
If we open up any one category, let’s say e-commerce, unavoidably there’s enormous pressure to do the same for physical stores, for spaza shops, for informal traders, so there is fair competition.
Meanwhile, the ecommerce industry reacted with incredulity, with Takealot’s CEO Kim Reid calling it “incomprehensible” and “daft”, and Tech Central’s Duncan McLeod calling the ban “irrational” and a decision that “will backfire” on Patel.
While on a personal level I wish unfettered ecommerce was permissible 1 – I’ve been waiting 5 weeks to buy workout bands, a computer monitor, a 1000 piece puzzle and a new pair of sweatpants – I find myself frustrated with Kim and Duncan’s arguments.
So let’s talk about ecommerce in Africa.
The Amazon of Africa
While Jumia was supposed to be the Amazon of Africa, I would argue that this title – if we have to award it to somebody – belongs to Takealot. While Takealot, by any objective measure has found more success than has Jumia – they reportedly earn 4x revenue – I think the title is appropriate more so because of business model.
Jumia famously tried to bring a western ecommerce model to Africa, with little success. However, if there’s one market on the continent where western ecommerce can work, it’s South Africa – what with its two distinct economies.
To be sure, ecommerce in South Africa is not a mass-market play. It represents less than 2% of total retail purchases in the country. Takealot boasts “1.8 million happy shoppers”, which certainly makes for a nice business, but equates to only around 3% of the population.
Now, undoubtedly, ecommerce will continue to grow and, personally, I am bullish despite the aforementioned arguments. But it needs to be done right in order for it to grow to its full potential, and truly serve the mass-market consumers.
Last week, I was having a conversation with Victor Asemota on Twitter about mobile data and Africa’s market size. I inquired about market size, citing the (relatively) small number of smartphone users in Nigeria, when I was corrected –
All too often – and in an absence of data – it’s easy to default to market shortcomings as the cause of developmental lag. But as I continue to learn about the African economy, it’s a constant reminder that we should always try to dig a level deeper, and in particular, ask whether the supply side of the market is servicing its prospective customers appropriately.
In his response to Minister Patel’s statement, Tech Central Duncan McLeod wrote,
Getting the economy back to full steam, while protecting public health, must be the top priority of this government. Yet Patel seems more worried about ensuring there isn’t unfair competition between e-commerce companies — which are ideally positioned to serve the country in this difficult time — and those that haven’t developed their online strategies. [emphasis mine]
Is this the case? Or is it that physical retail shops are servicing customers in the way in which they shop? Do spaza shops need a digital strategy? Or do they serve a specific purpose and fill in an important gap in the South African retail market?
To some extent, I think this is a moot point because Takealot and informal retailers are not competitors.
My frustration with Kim Reid and Duncan McLeod’s response to a prohibition on unfettered retail – though their response, of course, is warranted, as it’d be irrational for them to not advocate on behalf of their business and industry – is that it creates an adversarial relationship between tech and existing analog structures.
This is where tech ought to be friend – not foe – with existing retailers.
Online and offline are not the only two options
What should the future of digital commerce look like in Africa? Initial success stories from around the continent (and indeed elsewhere in the developing world) tell us that commerce is not binary. We must, first as foremost, accept the role that physical retail plays in African markets, and any form of digital commerce must work in partnership with – and not in competition against – existing retail.
Last week, I interviewed Angela Nzioki, the CEO of Sokowatch Kenya, for an upcoming episode of The Flip. And the way in which she described Sokowatch really resonated with me –
Sokowatch is a tech and data company – that’s how we identify ourselves, and being able to do distribution is an enabler to what we are already doing… Sokowatch is trying to become the number one partner for local retail shops – so what that means is we’re trying to ensure that every retail shop, regardless of size, placement, regardless of who runs the shop – are able to get access to essential goods & services. That means FMCG, access to financial services, health services & engraining ourselves in the lives of retail shops across the continent.
The success of Sokowatch’s retailers means the success of Sokowatch. They are bringing with them technology and data to ensure greater access to goods and services for their retailers, and through their retailers, for customers at the last mile. And importantly, the existing physical infrastructure they’ve built – optimized by technology – allows them to expand vertically to offer diversified product offerings, such as financial services.
Copia Global is another company in Kenya taking a similar approach. Their model relies on their agent network – mainly comprised of retailers in low-income areas outside of the urban cities – who place online orders on behalf of their customers. These physical locations act as the centralized aggregation and distribution points which can help overcome trust, payment and last-mile delivery challenges that may otherwise plague more traditional (i.e., western) ecommerce companies.
We can see clearly that it’s at the intersection of the analog and digital world where the magic happens for mass-market ecommerce in Africa.
And to be sure, ecommerce retailers and brands in the developed world are increasingly (re-)embracing the role physical plays in consumer behavior, as well.
It’s the case with Amazon buying Whole Foods and D2C brands like Warby Parker or Casper building a network of retail stores throughout the US. It’s also behind the trend of branded pop-up shops, made-for-social experiences and brands adopting omnichannel retail strategies.
On unfettered ecommerce
Reflecting back on South Africa’s current prohibition on unfettered ecommerce – it probably is unwise for a prohibition of ecommerce of any kind. At the same time, ecommerce in South Africa, as it stands currently, probably doesn’t materially have an impact on social distancing requirements either.
That being said, neither do models like Sokowatch or Copia which, at present, still rely on physical retail stores to consolidate demand. But these companies are building the rails for additional innovation to be built on top, to continue to better serve these customers. And with partnerships like that which we are seeing between Twiga Foods and Jumia, there exists continually increasing opportunities to reach the last mile consumer in their homes quicker and more cheaply than ever before.
But the conversation can’t just be about digital or analog. And if, as innovators and early adopters, our imagined future involves unfettered ecommerce, we have a role to play in working with – not against – existing infrastructure to build continually better products and services for the mass-market consumer.
Notes from around the ecosystem
In our latest episode of The Flip we hear stories from entrepreneurs who have built through past crises, and whose experience may be insightful the entrepreneurs of today – have a listen!
Visa and M-Pesa, made an exciting announcement this week – “M-Pesa will serve as a virtual card, allowing users to make payments abroad when they travel and also letting them transfer cash from their Visa-linked debit cards to their M-Pesa wallet even when they are abroad”. Anything for increased utility and interoperability is a win for mobile money and digital financial services.
The list of companies still hiring includes Grant Brooke’s new venture (Co-founder and former CEO of Twiga Foods): Shara – final mile software that delivers.