Jumia, DHL and Alibaba will face off in African e-commerce 2.0

The business of selling consumer goods and services online is a relatively young endeavor across Africa, but e-commerce is set to boom.

Over the last eight years, the sector has seen its first phase of big VC fundings, startup duels and attrition.

To date, scaling e-commerce in Africa has straddled the line of challenge and opportunity, perhaps more than any other market in the world. Across major African economies, many of the requisites for online retail — internet access, digital payment adoption, and 3PL delivery options — have been severely lacking.

Still, startups jumped into this market for the chance to digitize a share of Africa’s fast growing consumer spending, expected to top $2 billion by 2025.

African e-commerce 2.0 will include some old and new players, play out across more countries, place more priority on internet services, and see the entry of China.

But before highlighting several things to look out for in the future of digital-retail on the continent, a look back is beneficial.

Jumia vs. Konga

The early years for development of African online shopping largely played out in Nigeria (and to some extent South Africa). Anyone who visited Nigeria from 2012 to 2016 likely saw evidence of one of the continent’s early e-commerce showdowns. Nigeria had its own Coke vs. Pepsi-like duel — a race between ventures Konga and Jumia to out-advertise and out-discount each other in a quest to scale online shopping in Africa’s largest economy and most populous nation.

Traveling in Lagos traffic, large billboards for each startup faced off across the skyline, as their delivery motorcycles buzzed between stopped cars.

Covering each company early on, it appeared a battle of VC attrition. The challenge: who could continue to raise enough capital to absorb the losses of simultaneously capturing and creating an e-commerce market in notoriously difficult conditions.

In addition to the aforementioned challenges, Nigeria also had (and continues to have) shoddy electricity.

Both Konga — founded by Nigerian Sim Shagaya — and Jumia — originally founded by two Nigerians and two Frenchman — were forced to burn capital building fulfillment operations most e-commerce startups source to third parties.

That included their own delivery and payment services (KongaPay and JumiaPay). In addition to sales of goods from mobile-phones to diapers, both startups also began experimenting with verticals for internet based services, such as food-delivery and classifieds.

While Jumia and Konga were competing in Nigeria, there was another VC driven race for e-commerce playing out in South Africa — the continent’s second largest and most advanced economy.

E-tailers Takealot and Kalahari had been jockeying for market share since 2011 after raising capital in the hundreds of millions of dollars from investors Naspers and U.S. fund Tiger Global Management.

So how did things turn out in West and Southern Africa? In 2014, the lead investor of a flailing Kalahari — Naspers — facilitated a merger with Takealot (that was more of an acquisition). They nixed the Kalahari brand in 2016 and bought out Takelot’s largest investor, Tiger Global, in 2018. Takealot is now South Africa’s leading e-commerce site by market share, but only operates in one country.

In Nigeria, by 2016 Jumia had outpaced its rival Konga in Alexa ratings (6 vs 14), while out-raising Konga (with backing of Goldman Sachs) to become Africa’s first VC backed, startup unicorn. By early 2018, Konga was purchased in a distressed acquisition and faded away as a competitor to Jumia.

Jumia went on to expand online goods and services verticals into 14 Africa countries (though it recently exited a few) and in April 2019 raised over $200 million in an NYSE IPO — the first on a major exchange for a VC-backed startup operating in Africa.

Jumia’s had bumpy road since going public — losing significant share-value after a short-sell attack earlier in 2019 — but the continent’s leading e-commerce company still has heap of capital and generates $100 million in revenues (even with losses).

Future Trends in African e-commerce

As the next phase of e-commerce adoption moves forward in Africa, Jumia won’t be the only player, nor will its model remain static. There are several trends to watch out for in 2020 and beyond.

Jumia and DHL compete

The day before Jumia’s NYSE listing, global shipping giant DHL partnered up with MallforAfrica to launch DHL Africa eShop — an e-commerce app for global retailers to sell goods to Africa’s consumers markets.

In the early 2010s, while Jumia and Konga where competing to offer hypermarket shopping online, MallforAfrica was honing a turn-key platform for brand-name retailers to sell into Africa. Africa eShop operates using MFA’s white label fulfillment service, Link Commerce, which handles payments and logistics.

Similar to MallforAfrica’s model, the arrangement allows Africa eShop users to purchase goods directly from the websites of any of the app’s global partners.

 

DHL AFRICA ESHOP MAP

DHL has brought more than 200 U.S. and U.K. sellers — from Neiman Marcus to Carters — online to African consumers. It also expanded Africa eShop to 34 countries in September 2019.

eShop offers overlapping products to Jumia across categories spanning autoparts to designer sneakers. And the site could offer distinct price advantages being owned by the continent’s dominant shipping operator.

This will likely put DHL and Jumia in competition in African e-commerce in 2020 and beyond.

Enter China

Chinese actors, including Alibaba, could enter Africa’s e-commerce arena in full in 2020. Prior to 2019, China’s engagement with the continent had been less digital and more bricks and mortar. That changed the last two-quarters of this year, when 15 Chinese investors put over $240 million into African startups. The largest chunk was $170 million to OPay, the Africa payment startup of internet company Opera.

Though Alibaba isn’t fully live in Africa, its founder Jack Ma has upped the e-commerce company’s engagement on the continent recently. On the fintech front, Alibaba teamed up with Nigerian fintech startup Flutterwave in July to offer digital payments between Africa and China on Alipay.

 

Alibaba CEO Jack Ma has made several trips to the continent and this March announced the $1 million Africa Netpreneur Prize for African startups and founders.

TechCrunch has inquired several times with Alibaba and the company has declined to confirm any plans to go live with e-commerce in Africa.

One Africa VC investor who’s been close to Alibaba’s Africa activities offered this take, speaking on background. “In the short-term,” this source told us, “they may be interested in supporting some startup markets… [W]hat I think they are really doing is building their network and setting up the foundation to learn more about the dynamics on the continent to start running their own operations on the ground.”

It’s possible that 2020 could be the year that happens for Alibaba in Africa. It appears inevitable the Chinese e-commerce site will enter Africa in full in the near future.

Larger % of internet services

A bane to online retail margins in Africa has been high fulfillment costs of processing orders and delivering goods. Earlier this year, Nigerian startup Gloo.ng dropped B2C e-commerce altogether to pivot to e-procurement, citing better unit economics.

In its 2019 financial reporting, Jumia has pegged a large part of its losses to high fulfillment costs, namely shipping and handling expenses. The infrastructure for doing B2C goods e-commerce across Africa has improved, and that trend will likely continue.

But in the meantime, Jumia CEO Sacha Poignonnec has affirmed the company’s commitment to generate more revenue from higher margin (straight through) products — such as JumiaPay and Jumia’s classified business — over cost-intensive (and logistically complicated) online goods sales.

Layering on internet based service verticals, to balance out sales of tangibles, could become a trend in African e-commerce. This could create competition between e-tailers such as Jumia and startups offering commercial internet services from digital payments to online classifieds. And that could yield new market events in African tech, including acquisitions, startup failures and unexpected partnerships.

Why it matters? 

However it all plays out, more global companies that overlooked the possibility of selling on the continent will reverse that position.

And while big U.S. players, such as Amazon and eBay aren’t yet fully live in Africa, the lure of a trillion dollar consumer market with over a billion consumers could bring them in.

Africa’s unique tech environment could also produce innovative firsts and business practices for doing online retail. The continent has already been out on innovation in mobile payments and drone development. DHL and UPS are dabbling in UAV distribution of medical products in Africa and the FAA has tapped California startup Zipline for its expertise in medical drone delivery on the continent.

Earlier this year, Zipline CEO Keller Renaudo told TechCrunch the company was open to other commercial applications for its UAV logistics services.

After a great deal of pioneering and capital by Jumia and Konga in the early days, Africa is now an unmistakable global market and incubator for e-commerce in the 21st century.