African B2B Startups Solving Last Mile Distribution While E-commerce Companies Still Struggle

By  |  October 8, 2019

The promise of e-commerce in Africa is manifesting, but just not in the way we all expected. Jumia became and unbecame the basis of definition for African tech startups, but its detour opened eyes as to which niche is genuinely profitable in the continent.

The banter between B2B and B2C companies on the continent – regarding where there’s really market – has been on ever since e-commerce became nascent. The B2C niche is as good as written off, while B2B remains challenged. But a recent string of developments in Africa proves that the latter is becoming the grapevine of success.

Recently, Egyptian B2B e-commerce startup MaxAB made the headlines for raising an impressive USD 6.2 Mn in seed investment. The company, which was founded in 2018, has built a digital platform to manage the procurement and delivery of grocery products to shops in the North African country.

Similarly, Kenya’s Sokowatch, a USD 4.5 Mn seed-funded startup operating in Rwanda, Uganda, and Tanzania, is taking logistics head-on. The firm has developed B2B e-commerce supply chains for retailers in Africa’s informal markets to work (more) efficiently with large FMCG suppliers – Unilever, Procter & Gamble.

The B2C sector in Africa can be unnerving, that’s according to D.O Olusanya, who called it quits on the B2C sector (Gloo) and remodelled his business to become a B2B e-procurement platform, Gloopro. With what seems to be the right pivot, the doctor-turned-entrepreneur is looking to take his company to new markets outside Nigeria – the unofficial bellwether for e-commerce development in Africa.

A Struggling E-Commerce Landscape

Belal El-Megharbel, Co-founder and CEO of MaxAB told WeeTracker that the B2B sector has been previously ignored “in this part” of the world.

“B2B, in general, is not considered to be as sexy or charming as B2C – that’s why a lot of entrepreneurs don’t dig deeper into it. Also, there has always been this misconception that it’s hard to get tech adoption from the small business in this region as they prefer human interaction, which is not true,” he said.

The Egyptian market currently has the largest population of internet users in the MENA region. The most populous Arab nation, its internet penetration is projected to hit 53 million in 2019, 8 per cent of which will make regular online transactions. It has been found that a significant chunk of online purchases is in the categories of electronics, entertainment, fashion, and airline tickets. As such, e-commerce is hamstrung with a handful in the market.

First, there’s a low number of credit/debit cardholders – around 10 million. This means, 80 per cent of the e-commerce in the “cradle of civilization” would rather have it the cash-on-delivery way. Regardless, credit card issuance grows annually by about 40 per cent, foretelling the possible decrease of cash dependency. But until the perfect moment comes, e-commerce in Egypt, both in the B2B and B2C sense is challenged – and to a substantial extent, ignored.

In Egypt, half of the e-commerce users find it hard to return products or get a refund. Also, more than half of the nearly 100 million people in the country simply lack the know-how to do so. The main reason why e-commerce is challenged is that most Egyptians prefer face-to-face transactions. This is asides from the fact that Egyptian B2B buyers are affected by a product’s country of origin

B2B Over B2C

While working as the General Manager at Careem, solving the logistic conundrum in the e-commerce sector consumed Belal, initiating the idea behind MaxAB.

“There was a lot of room for optimization using technology, and there was no bigger opportunity than the B2B grocery sector. We set up MaxAB to address this problem,” he underlined.

“Besides being my home country, Egypt has a massive young population that is growing. The traditional grocery sector here gets USD 45 Bn annually, which is quite massive. Also, after speaking to several food suppliers and local grocery stores, we realized how unconnected they are and that they both needed a solution,” Belal emphasized.

The startup will use the money to further enhance the technology and data science capabilities of its platform. Expanding geographically to cover Egypt’s underserved markets is also a part of the masterplan – which will be fuelled by another investment next year.

Belal, alongside his co-founder, Mohammed Ben Alim, looked to reduce the cost and complication in Egypt’s B2B food and grocery markets. Its business model is simple. It is called the just-in-case inventory, where the company keeps 3 to 4 days of additional inventory to accommodate for the unreliability of suppliers. The retail supply chain in Egypt is segmented.

“Small shops in Cairo have to go through six or seven layers in between — the shipping, unboxing, determining product quality and setting base prices — and that’s what we’re fixing for them,” said Belal in a statement.

With its fleet of 60 trucks and a larger warehouse that serves Cairo, MaxAB is bringing life back into the e-commerce sector through its B2B operations. The investment, according to Belal, is quite significant as it reflects the trust regional and international investors have in our team.

More Funding for B2B

MaxAB seed funding was co-led by 4DX Ventures and Beco Capital, alongside 500 Startups, Endure Capital, and Outlierz Ventures. Outlierz Ventures, in context, mainly invests in tech-enabled B2B companies in Africa.

Kenza Lalhou, the e-commerce managing Partner at Outlierz Ventures, told WeeTracker that B2C in Africa isn’t ready due to payment, logistics, and purchasing power drawbacks. According to him, the VC firm sees enormous opportunities for founders to leverage technology to solve fundamental problems across key industries where infrastructure is missing.

“All our portfolio companies fall in this category: WaystoCap (Morocco), Sokowatch (Kenya), Asoko Insight (pan-Africa), and TousFacteurs (France/diaspora). We backed MaxAB early, starting from their pre-seed round. We believed in the team, and the model applied to a big market like Egypt, and we are delighted with their execution, growth numbers, and what they have accomplished in less than a year,” Kenza concluded.

Featured Image Courtesy: Nairobi Business Monthly

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