Jumia’s Rise Exposes Challenges of Online Shopping in Africa
WHY YOU SHOULD CARE
Sub-Saharan Africa has among the world’s fastest-growing markets. But frequent scams have also left the region wary of e-commerce.
Nanda Aye’s customer calls him three times in the half-hour it takes him to creep a few blocks through a notorious Lagos go-slow toward the Lekki Bridge tollway. “I’ll be there this morning, Madame,” he says, his three-wheel truck idling. “This morning. Yes, this morning.” Asked for a specific arrival time, or at least a window of a few hours, Aye demurs.
The courier he works for, Metro Africa Xpress, has trained him to be vague, in case customers are disappointed with its client, Jumia, the Pan-African e-commerce site that listed on the New York Stock Exchange last month at a valuation of $1.1 billion.
Aye’s delivery run shows some of the biggest challenges facing Jumia, and the investors who have sent its shares up by more than 200 percent, as it tries to expand an African e-commerce business: traffic, logistics, and perhaps most important, customers wary of shopping online.
Like its rivals in many developing countries, Jumia offers payment on delivery “as a marketing tactic” since customers are worried about being scammed and are uncomfortable sharing their information online, says Juliet Anammah, CEO of Jumia Nigeria, which accounts for about a quarter of the business by sales, sellers and customers.
It’s still the trust issue.
Akinlowo Olawoye, lawyer and Jumia customer
“If you have those kinds of mental barriers, one way to break them is to say you’re not sure, fine, use cash on delivery — and when the things come to you, you decide if you want it,” she says.
But cash on delivery has a much higher return rate and carries risk. Jumia revamped its system to make sure drivers never carry too much money after a third-party deliveryman in Nigeria was killed two years ago.
Aye delivers to five addresses scattered around Banana Island — probably the most affluent neighborhood in Nigeria. But Jumia insists it is not limited to a small market of wealthy buyers.
Sub-Saharan Africa is projected to have 690 million smartphone users by 2025, up from 250 million at the end of 2017, according to GSMA, the trade body for mobile carriers. Sacha Poignonnec, Jumia co-founder, says this scale is a key advantage. Roughly 700 million people live in the 14 countries Jumia operates in, many with among the fastest population growth rates in the world.
“We have dozens of millions of consumers to go after,” he says. “Today we’re very far from hitting any type of ceiling.”
But to become Jumia buyers, those smartphone users will also need data connections, disposable income and either bank accounts or mobile payment wallets. Nigeria alone is home to most people living in extreme poverty in the world, 87 million.
So e-commerce is unlikely to grow in step with rising mobile data penetration, according to Uzoma Dozie, who prioritized expanding mobile banking as CEO of Nigeria’s Diamond Bank.
“As you put those conditions in, your market size drops and when you add the issue of trust and payments, you now have a very, very small market,” says Dozie. “It’s very difficult to achieve scale.”
To attract as many customers as possible, Jumia also has a travel website, an events and movie ticket business, a food delivery service and a payments system that gives users access to microloans.
Jumia has spent a lot of money in its aggressive drive to gain market share, logging roughly $1 billion in losses, including $195.2 million on revenue of $149.6 million last year.
Poignonnec says Jumia is focused on driving down costs while gaining users, but that the hundreds of millions of dollars it has invested over the past seven years has given it the scale to be the only Pan-African e-commerce player — even as rivals have withered.
Last year, Jumia’s Nigerian rival Konga, which is backed by Naspers, was sold to Zinox, a data center and computer firm, after cutting roughly 60 percent of its staff. A number of other e-commerce sites have downsized, shut down or pivoted into other businesses.
“Given what it takes to actually build and deliver a proper e-commerce offering in any market, it makes better sense that investment is amortized over multiple countries instead of one country — all of the ones that have flamed out have been mono-country,” says Anammah.
Being Pan-African has also helped Jumia sign partnerships with companies like Pernod Ricard, Mastercard and Xiaomi, the Chinese mobile phone maker, which would prefer to sign one big deal rather than individual country-level deals, the executives say.
Anammah says the diversity of its markets allowed Jumia to use smaller countries such as Ghana or Ivory Coast as labs for projects they might roll out in bigger markets like Nigeria and Egypt — or, in the case of JumiaPay, which debuted in those two large markets in 2017, vice versa.
Still, there are hiccups. Customers complain about slow or missed deliveries, getting the wrong item or multiple items listed at wildly different prices.
In Lagos, Aye delivers four packs of detox tea to Akinlowo Olawoye, a lawyer, who was collecting it for his sister. He hadn’t ordered from Jumia for about two years, when delays and payment issues were common, he says.
Since then, he has mostly ordered Nigerian products from classified sites such as jiji.ng, where he can speak directly to the seller, arrange a meeting, view the goods and decide whether or not to purchase. For foreign products, he goes to Amazon’s U.S. site — the peace of mind is worth the extra cost, he says.
Olawoye asks if he can open the box before paying. Aye explains Jumia’s new rule — pay first, open and then return within seven days if it is not satisfactory.
“It’s still the trust issue,” Olawoye says, about wanting to see the goods before paying. “I wouldn’t expect to be able to do that with Amazon — and it’s sad, but we’ll get there eventually.”
Is Jumia an African tech company?
Jumia has faced questions over whether it is actually an African startup or whether it is using the continent as a marketing gimmick. It is incorporated in Germany (where its second-biggest investor, Rocket Internet, is based), its top tech team is in Portugal and its co-chief executives are French and based in Dubai.
On social media, people from across the African tech scene have accused the company of being a neocolonialist operation exploiting Africa. Poignonnec avoids calling Jumia “African,” but points out that the company only operates in the continent. “When we founded the business, we were many people around a table founding Jumia. We had people in Nigeria, in Egypt, in Morocco, in South Africa and later in Kenya,” he says. “The last concern we had was where are you from — we were just passionate about building the business.”
OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2020.