Category Archives: eCommerce

E-commerce insights from Jumia and Chap Chap Go

Yesterday Jumia released their Africa e-commerce index 2021 with some interesting trends, a  year after Covid-19 impacted lives across the continent.

Sam Chappate CEO Jumia Kenya said that in Africa, e-commerce still has room for growth as currently, it still accounts for just 1% of  transactions, and another 300 million people will be accessing the internet in two years. 75% of traffic to Jumia is on mobile, while it is 85% for Kenya.

  • Gross merchandise value has shifted – from 40% of pre-pandemic sales coming from everyday stuff (FMCG, beauty products) to now 60%. Now, a 2kg sugar bag is the top-selling product on Jumia in Kenya. 
  • NYSE-listed Jumia is in ten countries and Kenya number 2 in searches, behind Nigeria. Top cities in Africa are Lagos, Cairo, Nairobi, Casablanca, Abidjan, Gaza, Abuja and Accra.
  •  With 11,000 sellers and 1,600 pickup stations, Jumia has the biggest logistics infrastructure in Kenya. Coca-Cola is probably bigger but it’s a closed system whereas Jumia has opened their system and logistics infrastructure to third parties/partners (e.g. Premier Foods and Unilever). Small companies can use pickup stations for   FMCG.
  • Sales of Jumia are 51% primary cities, 27% secondary cities, and 22% rural – so 50% outside Tier-I cities. Most deliveries in Kenya are to Nairobi Mombasa and Kiambu.
  • Now big in fintech .. 35% of Jumia orders are paid through Jumia pay which has 4 million downloads – they have now opened Jumia pay to third-party partners, starting in Egypt.

Also, Chap Chap GO, an -e-commerce startup that’s winding down, uncovered some gems from its year of operations in Mukuru and Langata areas trading a limited basket of products. Its founder Soud Hyder, a digital commerce specialist, shared some urban e-commerce insights on Twitter.

  • Fastest moving items were wheat flour (Ajab), cooking oil (Salit), cooking fat (Samli), and then sugar – all needed on a daily basis by Mama Chapos (informal roadside cafes).
  • Ajab Flour was super interesting; it’s very popular with Mama Chapos despite being a relatively newer brand, they cited quality and texture for it being the preferred choice, something to do with the elasticity of the chapos and preferred kneading consistency by the cooks.
  • Samli was a product requested by customers, trialled with a small cohort in Jul-Aug 2020, mostly “Mama Chapo” type of customers.
  • GIL (manufacturer of AjabFlour) has a lower quality fighter brand called Umi, intent was to help them garner market share but turns out the premium brand is more popular even in the lower tier of the market, customers are willing to pay a bit more for quality.
  • The market has already validated the “measure and pour model” (weka ya kupima), unhygienic & inconvenient but the market has found equilibrium, works for both retailers and customers, an additional 3% margin is not bad at all for folks in informal retail
  • .. Mama Chapos ended up becoming our core customers because of on-demand service, fair pricing and convenience. We were not always the cheapest but the convenience aspect really helped them focus on their business.
  • We used a hub and spoke model, had small depots in the neighbourhoods we operated in .. the eventual goal was to partner with existing businesses/retailers that had storage space to spare and delivery capacity.
  • We mostly did two, Fresh Fri (B2C – middle class) and Salit (informal retail/kibandas), our B2C footprint was relatively small, so ended up doing quite a bit on Salit including repacking it in 1L reusable jars, see the cost of packaging easily adds 3-5% to the price.
  • Differences in margin is all about supply and buy planning (basis of commodity trading) and following market prices being set by the bigger suppliers/manufacturers, if they drop you have to drop otherwise you won’t move stock.
  • Flour and oil move every day so it’s a volume game and moving bulky items from depot to customer/market in the most efficient way possible, for those who are able to do it really well e.g. the Eastleigh wholesalers and some of the bigger distributors.
  • So FMCG margins are razor-thin in sub-Saharan Africa, pricing makes or kills a business, so wholesalers and bigger retailers make money from rebates in subsequent months, invest capital to build seed customers and retention, build volume for rebates, qualify for credit .. and build credit lines with manufacturers, that net 15 or 30 or 45-day credit line could easily get sub 10% margin, so not a bad hustle if one has all their ducks lined up, but it’s hard, not the easiest of businesses to run, so many things could go wrong
  • .. which is why you are seeing an influx of new oil and fats brands, if you crack distribution, you can carve out a niche. They call vegetable oil these days “Salad* after the brand Salit.
  • Primarily it’s a quality, price point and availability problem. So more on the distribution side, like milk ATMs, if you can plug a brand on top that and execute, even better
  • Unfortunately, we shut down our FMCG business in Q4-2021 and are formally shutting down @ChapChapGO .. we’ve become another statistic of a fledgling startup but hope the insights and lessons learnt will benefit and inspire others.

Dalberg on Kenya’s Digital Economy

Dalberg has released a report titled Kenya’s Digital Economy: A People’s perspective. It finds that, in terms of digital transformation, Kenya is a lower-middle/income country that shows some characteristics of a higher middle-income economy.

The survey is based on in-depth responses from 2,456 people in Kenya’s 47 counties. It was done in 2020 to assess their perceptions on the state of the supporting ecosystems, digital infrastructure, enabling resources, applications and services.

The report differentiates between the uptake of “basic” digital services (sending money, buying airtime/data) and “advanced” digital services (e-commerce, paying for goods and services – health, education, agriculture, supporting livelihoods). It notes that some challenges to the next step of Kenya digital economy including exclusion and digital safety (fraud/harassment, cybercrime when using devices).

A stunning finding is that there is a low demand for advanced digital services, beyond mobile money, digital communication and social media. This is because non-users and 30% of current basic digital users do not find digital products or applications that are relevant.

Some of the sectors it touches on:

  • Agriculture: Kenya is one of the most advanced agri-tech markets with approximately 30% of agri-tech startups in Sub-Saharan Africa operating here and with 18% having their headquarters in the country But the awareness of landowners of digital services is low. 45% of those surveyed are not aware, while just 13% use digital services for their livelihoods – mainly to communicate with customers, suppliers and vendors while 10% use it for inputs and 15% for knowledge sharing. Half of those who do, use it as a result of assistance from field agents who are strong support factors for rural digital economies. Also half of adult female farmers face challenges in affording devices and accessing the internet which makes them hard to reach with interventions.
  • Health: There is low use of digital health services with only 15% of respondents aware, and of those, 35% use it mainly to consult health workers and pay for medicine with mobile money. The challenges cited are high costs and mistrust of doctors they can’t see while a quarter are concerned about sharing health information online.
  • Ecommerce is urban: 23% use e-commerce in urban areas compared to 9% in rural ones, and in Nairobi and the central region, uptake (24%) is twice as popular as in other counties in the rest of the country where it ranges between 1-12%.

On Financial Access:

  • Mobile Money has (+) and (-) aspects. The usage of mobile money is near-universal with 95% of lower-income and 93% of rural people using it as Kenyans have good user experiences with it, unlike some other countries. And while there have been concerns about fraud, 80% have trust in mobile money, but also 53% cite high costs as a reason not to use mobile money, more so with lower-income Kenyans.
  • Easy Credit: The report cautions that government should watch for debt traps from increase ease of digital credit in the country. Half of the respondents have had to sell assets, borrow more or reduce food & education expenditure to repay a loan – and this increases the chance of financial exclusion. Also, basic digital users lost an average of Kshs 1,470 to fraud while advanced users lost twice as much (Kshs 2,996) over the past three years. This is a risk that can grow as more unexposed people turn to advanced services and may face devastating losses that they cannot absorb.
  • Social safety nets: People with government stipends or pensions are more likely to use e-government services (such as eCitizen, iTax NHIF) than other Kenyans in general.
  • Entrepreneurs use it little: Among self-employed and business owners half use digital services and mainly for basic reasons like communicating with customers and vendors. Only 15-18% use it for advanced reasons like keeping business records, tracking stock, paying taxes, selling services and buying supplies through e-commerce platforms.

The report by Dalberg, done with support from the Omidyar Network, along with its data sets, can be downloaded here.

Roblox IPO – Prospectus Peek

Roblox Corporation will list on the New York Stock Exchange as RBLX.

How much do we know about Roblox? Kids spend hours on it every day, but do they how Roblox works and the numbers behind it? Take a peek into the IPO prospectus for Roblox. 

About Roblox:

  • Founded in 2004 by David Baszucki and Erik Cassel. Today, Baszucki is the CEO and second-largest shareholder with 12% behind Altos Ventures that has 21%.
  • The company has eight classes of stock some preferred, some convertible and more restricted share units have been granted to employees in the IPO. 

Numbers:

  • The company had $489 million revenue in 2019 and $589 million in the first nine-months of 2020. $409 million (70%) of its revenue is from US/Canada, 17% from Europe, with Asia-Pacific adding 8% and the rest of the world is 5% (28.2 million).
  • The company has $1.49 billion assets, 801 million of which is in cash.
  • It lost $86 million in 2019 and $205 million in the first nine-months of 2020. It has carried forward accumulated tax loss credits with the US government of $162 million and $54 million in the state of California.

Users & Experiences:

  • Key attractions that draw users to Roblox are unique identities, interaction with their friends, low friction (easy to join) and the variety of 3D experiences easily accessible on most devices whether they run on iOS, Android, PC, Mac, Xbox, Oculus Rift etc.
  • Most experiences are free and users can then purchase others such as clothing and avatars.  Users do this using ‘Robux’ which they purchase with a credit card, subscriptions or one-time mobile payment (such as with M-Pesa), and use the Robux is to access digital items such as avatar and features.
  • The user base is currently 51% male and 44% female, with 72% of uses using mobile devices. Geographically, 33% of users are in the US /Canada, 29% in Europe 15% in Asia and 22% in the rest of the world. The Roblox business case going forward depends on growing internationally, particularly in Europe (Germany & France), and Asia (South Korea). Also, in February 2019 they entered a joint venture with Tencent to use the Roblox platform in China and Roblox owns 51% of the JV.
  • Users aged 9-12 years are 29%, under-9s are 25% and 13-16 are 13%, while 14% of Roblox users are over 25 years. They hope to grow the over-13 crowd as they have a higher propensity to spend on content.
  • During Covid-hit in 2020, active users have gone up from 18 million in 2019 to 31 million by September 2020 from 180 countries. On average, people spend 2.6 hours per day on Roblox.

Operations:

  • Roblox has 18,000 servers in the US, Europe and Asia that handle 10 million requests per second.
  • Users are able to draw from a library that has 18 million experiences and the company uses machines and 1,700 humans to moderate this content.

Developer Program:

  • It has 7 million developers and 960,000 of them earn on the platform. Developers can build in their native languages and machines translate the content into 11 languages including English, Japanese, Korean, Spanish, Chinese, German and French.
  • Creators receive 30 % of revenue from the creations while developers receive 70% of Robux spent on their experiences. In the nine months to September 2020, developers earned $209 million up from 72 million in the same period last year. 1,050 developers earned $10,000 or more and 250 earned more than $100,000 in Robux.
  • If they want to cash out of the developer exchange program, the rate is one Robux is equivalent to $0.0035.

Advisors:

  • Underwriters of the IPO are Goldman Sachs, Morgan Stanley, J.P. Morgan, Allen & Co, Bank of America, and RBC.
  • The auditor is Deloitte while the firm of Wilson Sonsini is the legal counsel.

Edit: In January 2021, Roblox issued 11,555,553 shares of Series H convertible preferred stock to certain institutional accredited investors in a private placement at a purchase price of $45.00 per share for aggregate gross proceeds of approximately $520 million. There was no underwriter or placement agent used in connection with this sale. The shares acquired by such investors will be registered for resale in connection with the registration statement of which this prospectus forms a part.

More via CNBC:

  • By raising some money before going public, Roblox was able to pad its balance sheet and preserve the ability to bring in more capital through a secondary sale later this year.
  • Roblox had been considering a more traditional IPO, but tabled its plans last month after DoorDash and Airbnb popped on consecutive days, leading to concern that the company risked leaving too much money on the table.
  • Because it’s not doing an IPO, Roblox no longer requires underwriters. Goldman Sachs and Morgan Stanley will stay on as financial advisers, but JPMorgan, Bank of America and RBC Capital Markets were removed from the filing.

To be continued.

Antler Nairobi Demo Day

VC funder and startup accelerator Antler Global held a demonstration day yesterday in Nairobi where founders of four companies got to explain their practical solutions to existing challenges in the sectors of health, fintech, advertising and e-commerce.

The Singapore-founded Antler has offices in London, New York, Amsterdam and now Nairobi, among others. Antler aims to turn exceptional individuals into great company founders through networks of advisors and by providing funding to enable the building of strong teams to launch and scale ideas. They currently have a portfolio of 120 investee companies.

The four new ones in Nairobi are among fifteen companies that have received pre-seed funding of $100,000 from the Antler East Africa Fund. They are drawn from 1,250 individuals who applied to join the Nairobi program which started in August 2019. The Demo day talks were by:

  • AIfluence: an Artificial Intelligence-based platform that connects influencers with brands and measures the impact and ROI of their campaigns. The company has lined up additional funding and advertising deals with Tik Tok.
  • Anyi Health: Enable patients to apply for credit right at hospitals.
  • ChapChapGo: Aims to fix the broken supply chain of fast-moving consumer goods, in which 70% of trades are still informal – with these purchases happening in a 19thcentury system where people queue to buy, queue to pay and arrange their own delivery. The company aims to leverage on wholesalers through an app, and by using WhatsApp for customer service and sales, to deliver goods at prices that are up to 25% cheaper for consumers.
  • Digiduka: Enables kiosks and shops receiving cash from low-income buyers to also process digital payment on. Many kiosk merchants find mobile money payments too costly and make many trips a week to purchase goods and permits in cash. The company aims to have kiosks double their income by offering digital services that will see them earn 75% of the commission, with Digiduka keeping the 25%. The founders say that pilot has been viable, with a payback period for kiosk owners of one month.

Double 11 (Singles’ Day) Festival in China

November 11 marks a huge shopping festival by Alibaba in China. Known as “Singles’ Day” or “11.11”, it is now acknowledged as the largest e-commerce day in the world. It is mainly on Alibaba platforms like Tmall and Taobao. Rival commerce sites such as JD.com and Lazada also run their own festival days during China’s long shopping season.

Singles’ Day 2019 saw another record year of sales reaching $23 billion (158 billion yuan) in nine hours. Sales hit $1 billion in the first minute and 500 million shoppers were expected to participate. This was achieved despite a slowdown in China’s economy and the ongoing trade spat with the US. Singles’ Day is three times bigger than the largest US largest shopping day – Cyber Monday which had $8 billion of sales in 2018.

Some numbers about Singles’ Day from Jing Daily.

  • On 11.11, Alibaba sells more on one day than many countries do in a year.
  • Alibaba founder Jack Ma has a plan for the company to attain $1 trillion of gross merchandise volumes in 2020 and create 100 million jobs, and serve 2 billion customers. As such the company is expanding in other countries. In 2017, Russia, Hong Kong and the US were the main markets.
  • International brands are signing on with discounts and specials, and in 2018, 237 brands, including Apple, Estée Lauder, L’Oréal, Nestlé, Gap, Nike, and Adidas has sales of 100 million Yuan ($14 million) on Singles’ Day.
  • The holiday was originally aimed at young men (bachelors), but has now evolved such that key targets for brands include China’s 400 million millennials, the “aspirational class” and women, the “she economy.” 
  • Over 80% of the Singles’ Day sales are made on a mobile device .. so retailers need to enhance the whole shopping experience by employing unique mobile features like live streaming, interactive games, virtual reality, video marketing, and digital storytelling.
  • On Singles’ Day in 2017, 1.5 billion transactions were processed by Alibaba’s Alipay.

Other Notes:

Kenya’s Safaricom, which has a partnership with AliExpress, also had some Singles’ Day promotions. They signed a deal in March this year enabling Kenyans to shop on ALiExpress and pay with M-Pesa.

The Jack MA Foundation runs an annual Africa Netpreneur Prize Initiative (ANPI) that awards a total of $1 million in prize money to ten African entrepreneurs each year.

Read more about 11.11 from Jing Daily here.

EDIT: Alibaba reported that Singles’ Day 2019 generated US $38.4 billion of gross merchandise volumes. It featured 200,000 brands and resulted in 1.3 billion delivery orders.