Every day, millions of Africans buy things from the vendor who owns a kiosk at the end of the street, the woman under the umbrella at the bus stop, or something cold from a hawker as traffic slows down. Informal retail makes up between 60-70% of all retail in sub-Saharan countries like Nigeria, Kenya, and South Africa and the FMCGs trade is a huge employment provider. With a population estimated to be above 50 million in South Africa alone and triple that in Nigeria, this means that daily, there are thousands of interactions taking place between manufacturers, wholesalers, distributors, and retailers to supply goods to these millions of consumers.
The FMCGs supply chains on the African continent are complex and disjointed. This supply chain depends on multiple layers of intermediaries from manufacturer to last mile consumer. When a bar of soap leaves Unilever’s factory it passes through layers of distributors who buy in bulk and resell down the chain to wholesalers. These wholesalers are found in clusters at big markets, siloed away from most retailers. These wholesalers then have to wait for retailers to come to them to purchase goods with a cash-and-carry method.
These complex distribution systems complicate the process, increase the cost of operating in the retail industry and create problems for retailers, distributors, and manufacturers alike. Shop owners run out of inventory at individual times and suffer from frequent stockouts of their best-moving goods. If they want to keep up with demand they have to make expensive market trips to wholesale markets. These trips cost them hours of business meaning they lose money and sometimes when they make it to the market all the products they want might not be available.
With the recent fuel subsidy removal in Nigeria, the scarcity problems during the Naira redesign, and the economic situation resulting from these, the woman with the small kiosk down the street making ₦100 on a ₦3,000 pack of soap isn’t going to spend ₦1,000 running back and forth to the wholesaler every time she runs out of soap but still has other items. Shop owners are spending a lot to restock their stores and customers are no longer purchasing products due to the constant increase in prices. The price of eggs has gone from ₦50 in 2021 to ₦100 in 2023 and according to Nigeria’s National Bureau of Statistics (NBS), inflation rates have tripled in Nigeria in the last three years. In May 2023 the inflation rate was recorded at 22.41%, a 4.76% increase from the previous year. Most of these retail shops are small businesses with limited capital and these problems lead them to often have limited stocks and be unable to scale up their small businesses.
There is also a disconnect between manufacturers and consumers due to these multiple layers. This hinders new product research, essential feedback from consumers, and creates production problems because manufacturers and distributors don’t have accurate records of sale numbers so they cannot tell what product is doing well and what is not. Also because there are so many players, this is an industry that operates on very thin margins and requires quick turnover.
B2B e-commerce in Africa
In Africa, there has been an uptick in tech innovations centred around commerce. Mobile phone usage and internet penetration on the continent are increasing and the pandemic led to an uptick in ecommerce solutions capturing this largely informal supply chain. With household consumption in Africa expected to reach $2.5 trillion by 2030 and the informal retail industry contributing about $2.6 trillion to Africa’s nominal GDP, it is safe to assume that improving retail services is going to triple these numbers for the continent and its investors. B2B e-commerce is transforming commerce in Africa and has the potential to greatly grow this $2 trillion industry. Currently, B2B e-commerce companies like Marketforce, Tradedepot (Shop TopUp), Wasoko and OmniRetail (OmniBiz) have rates that are five times higher than B2C e-commerce. What this means is that offline retail is still king for most African consumers but for retailers online purchases from makers/suppliers are taking off. It’s easier for individuals to buy small items down your street than to shop online for them but it is more profitable for retailers to shop online directly from distributors and manufacturers.
Investors in African markets have realised that there is greater potential in increasing the availability of goods to the woman selling sachet Kellogs cornflakes and Nestle milk swinging from the ropes on her store doors than there is on Shoprite’s shelves and Jumia’s catalogue. These investors and techpreneurs have poured $470 million into the industry since 2008 and 90% of this funding came in between the years 2021-2022. They recognise that if distribution moves smoothly and retailers never suffer stockouts there is an overall effect that stands to benefit not just retailers but distributors, and manufacturers too and this will affect the African economy positively.
Distribution tends to take two models in Africa; either you rely on already existing broken supply chains, or you build your own distribution system from scratch. Big suppliers like Coca-Cola build their networks from scratch meaning they own fleets and warehouses. Also, these big companies only sell 30% of their goods via their networks, and the remaining 70% is sold via sub-distributors which means they still have to deal with the same distribution problems. Asset-heavy businesses are businesses that own fixed assets like Coca-cola mentioned above. Asset-heavy manufacturers will not only own machinery and factories, they’ll also own fleets and warehouses, and bear logistics, storage, and maintenance costs. This business model is cumbersome and capital-intensive to operate; the overhead costs eat deeply into a business’s profit margin. Most manufacturers cannot thrive like this and asset-heavy B2B e-commerce companies are witnessing a decline in funding and customer loyalty.
The question now is, how will the African B2B e-commerce industry continue to survive despite these problems and achieve its potential for economic growth?
Asset-light wings
To answer the above question, some B2B e-commerce startups are operating an asset-light model. The benefits of the asset-light approach is immeasurable and hold the key to spurring further growth in the African B2B e-commerce market. With the asset light approach, retailers get better ROI and manufacturers grow volume and reach through a wider distribution network. One of the companies currently operating with this model in Africa is OmniRetail (OmniBiz) which is digitising the already existing distribution channels.
Asset-heavy models rely on building logistics systems from scratch. What asset-light models like OmniRetail do differently is that they take a lighter, more efficient, and more scalable approach. They have no fleets and operate a third-party logistics (3PL) model. With the asset-light approach, B2B ecommerce companies only own their ecommerce platform since they only act as aggregators to the existing players. This has so far proven to be a cost-effective model.
So, how do they achieve this efficiency?
Often, when tech solutions are launched, especially logistics and supply chain solutions they start from the top-down, in this case, the manufacturers and or distributors. These products are often only inventory-focused and launched with the hopes that if players at the top of the chain adopt them, then there will be a trickle-down effect on retailers. But as time has shown these solutions are often of very low interest to retailers and even distributors and wholesalers. What asset-light operators do is take a bottom-up collaborative approach starting with the retailer first. By focusing on retailers, B2B e-commerce companies get first-hand consumer data and can get to the root of all retailer and customer concerns and their distribution troubles. To tackle the funding problems retailers face, they provide buy-now-pay-later services and offer credit support to retailers so they never run out of products even when they don’t have cash readily available. They also provide insights into consumer data so retailers can see their real-time inventory stock so they can avoid stockouts and avoid purchasing goods they may struggle to sell. Manufacturers also like this product for the visibility they get into product movement and distribution—and the increased volume of sales due to not stocking out.
African informal retail markets are poised for evolution and have a great potential to improve economies. Remaining asset-light makes B2B ecommerce companies more flexible and scalable to meet this change and help these markets live up to their economic potential.
