What African B2C eCommerce Startups Should Learn from Copia
When discussing Africa, people often say, “Africa is not a country” and “Silicon Valley models don’t work here”. However, very few startups actually consider these statements.
As e-commerce gained popularity around the world, African markets struggled to keep up due to a lack of proper postal addresses and other infrastructural deficits. While startups in other parts of the world became unicorns by aggregating products and enabling e-commerce on their platforms, the African market had to overcome the additional hurdle of online payments.
Jumia was a pioneer in the African consumer-facing e-commerce market when it entered in 2012, specifically in Nigeria, which is the most populous country in Africa. It is worth noting that Jumia entered the African e-commerce space with deep pockets. Even after a decade of operation in Africa, achieving profitability remains a challenge for the platform. However, this is not surprising as most e-commerce companies face a similar challenge. It takes time for any e-commerce startup to become profitable; this process may take longer in Africa due to the still-developing supporting systems.
A startup was launched in Kenya in 2013 with the goal of serving the lower-income group in the East African market. It was evident to them from the beginning that the ‘Silicon Valley’ model of e-commerce was not part of their strategy.
Copia was founded by Tracey Turner and Jonathan Lewis, who had exposure to all the key factors needed to build a mass business-to-consumer (B2C) e-commerce platform for Africa. They understood the market considerably since Tracey had worked in Kenya in the 90s. On the other hand, Jonathan had the idea of household product cataloguing for emerging markets. This gave birth to what we know today as Copia (meaning abundance in Latin).
Copia’s agent model has always intrigued me since their Series B round. I have been following Copia’s story regularly as this, in my opinion, is closest to being an African B2C e-commerce model. So, I met Tim Steel, who has been the CEO of Copia since 2017, to understand what Copia is doing differently.
The B2C e-commerce sector in Africa is experiencing a remarkable surge, pushing the region towards the forefront of digital innovation and economic growth. With the middle class in the continent expanding, mobile penetration increasing, and internet infrastructure improving, African consumers are enthusiastically embracing online shopping.
E-commerce has become a driving force for inclusive economic development in Africa, providing entrepreneurs with opportunities to tap into this untapped market’s vast potential. Digital platforms have bridged the geographical divide between bustling urban centres and remote rural areas, connecting buyers and sellers and creating new avenues for trade and entrepreneurship.
The evolving African commerce industry is fraught with challenges such as logistical hurdles, payment gateways, and establishing consumer trust in online transactions. However, amidst these challenges, the B2C e-commerce sector shows great potential in creating job opportunities, promoting financial inclusion, and unlocking the vast economic potential of the continent.
Challenges often present solutions, and Copia appears to embody that line of thought. The company acknowledged the challenges of its consumers and crafted a solution that would help them avail e-commerce. When Jumia came in, investor confidence in B2C e-commerce increased, and so did the push for online payments.
Copia over the last decade
Early on, the ‘Western style of e-commerce’, the Amazon blueprint, mainly depended on an urbanized, high-income, financially included market with internet access and documented physical addresses.
This model of e-commerce has probably stayed pretty much the same, with the middle class joining the consumer base, Tim Steel asserts.
Copia pretty much reimagined this popular B2C e-commerce model for the African market with a twist by accessing the most difficult market, the middle to low-income consumers in non-affluent urban areas of the East African market. For this consumer base, B2C e-commerce has evolved a great deal over the last 10 years.
And since its inception, Copia has built its business and operation model around its target market. These models have deployed the technology accessible to this consumer base.
“So our intention was always that we would target that middle low-income consumer who previously was very difficult to sell”, adds Tim.
Initially, Copia based its operations around the very basic SMS message and the early stages of MPESA. This allowed Copia to take orders digitally at an end-consumer level, and the consumer could pay online without needing to pay cash.
To reach its customers physically, Copia built an agent network that would serve as the collection point for its end consumers and serve as a branded point of trust in the community.
In the last few years, Copia has built a network of over 50,000 agents and around 3 million unique customers since the start of this year.
Over the past 18 months, there has been a significant change in the digitization trend. Initially, it was confined to higher-income urban consumers, but now it has become more widespread, penetrating even middle to low-income consumers.
Tim expresses his enthusiasm saying, “We’ve just completed a study of our consumer base that shows that now 73% of middle-low-income consumers own smartphones, and 50% of Copia’s consumers are using the internet weekly. And that’s a massive change for us”.
Digitisation has also tremendously increased the opportunity for the agent network, where Copia witnessed more than 80% of orders coming in on the Copia app.
Tim feels that now the situation is ripe for Copia to take advantage of the reach that they’ve created over the years. He believes that the trusted relationship with the consumers built offline can seamlessly migrate to the digital platform and provide everything that a consumer has previously struggled to access.
Copia has recently also introduced a layaway option for securing products in the future for obtaining insurance, especially pharmaceuticals.
Funding and Profitability
Whether bootstrapped or funded, for any company to be sustainable, it has to be profitable. Also, the focus of the companies should be to build around consumers and not investors. E-commerce companies globally have had challenges becoming profitable, especially in short durations.
Tim agrees and adds, “Profitability for us has always been important and scale has been a key driver of profitability”.
The Copia CEO highlights that the e-commerce operating model is a balance of both quantity and quality. While quality is important, quantity becomes equally important as the business scales up, since having a larger number of each product in stock helps to achieve cost optimization per unit.
When this operating model is layered on digitization, the consumer relationship strengthens and almost becomes more self-service for the agent network, thereby making the operating model more efficient. Copia’s last-mile delivery is also enabled by tech, making the entire operational chain highly digitised and efficient.
Steel quips, “I have no doubt that we will be, if not the first, then one of the first e-commerce organizations on the continent to achieve that sort of nirvana position that nobody’s managed to achieve so fast”.
But it is not just digitisation; the team at Copia is very conscious of finding the combination of the right operating model and having the right combination of scale and speed of growth. They are also quite particular about the quality of revenue and quality of cost optimization.
Hyperfast growth of companies is especially possible when the market offers all variables at optimum levels – like paying customers, talented teams, sufficient capital and the required infrastructure. Any missing factor can impede the speed of growth.
After 10 years of working on each factor, it is now all coming together for Copia. The company has raised over USD 85 M in investment, and Tim is quite confident that the e-commerce company will break even next year.
It has not been an easy road for Copia all along. Early this year, it had to dissolve operations in Uganda to prioritise home market profitability.
This rollback comes with great learnings and the right steps needed for expansion. Copia has always envisaged a fully digital model built on operational excellence and, over the years, has built skills to execute.
“Once we’ve achieved that point of profitability in Kenya, then we’re extremely well positioned to expand beyond this market”, Steel tells me.
GMV and IPO
Tim thinks that GMV is a concept for later stages while building an e-commerce company, the first being creating a brand. It (GMV) becomes a way of indicating a certain scale to be relevant to the consumer and suppliers. Healthy levels of GMV indeed provide an opportunity to have relevant conversations with suppliers.
After building spontaneous brand recognition, Copia is in a position where suppliers are seeing it as a unique way to reach the market and in a way that finally gives them visibility of their performance across a previously largely invisible sector of the market.
Due to its digitised supply chain, Copia has market share information on the suppliers and price elasticity, enabling them to make the right buying decision.
With these right buying decisions at stock levels, Copia passes on the price benefit to its end consumers through the Copia app. It helps create both a deep and broad relationship with customers such that they can have great knowledge that they’re getting the best products at the best prices across every category.
Not just to its customers, Copia is also creating value for its investors. As Tim shared, the team’s focus has always been on building a great company, and he believes that the company is on the cusp of having the right scale and the right level of profitability to be self-sustaining.
The Copia CEO also emphasises having in place all of the disciplines, the level of governance, and the right quality of people that would be required to take a company to the coveted milestone that is an Initial Public Offering (IPO).
“I think the way that we’ve built our company makes us an attractive partner strategically, potentially makes us an attractive acquisition strategically. It also makes us an organization that could IPO if we choose”.
Ultimately, it wants to expand to the 800 million market across the rest of the continent, with services it’s offering in East Africa.
“The philosophy of building a great company, I think, gives you many choices when looking at ways of raising the cash you need to fuel further expansion or quality improvements,” Tim adds.
Margins and Expansion
Copia says that its margins are fast approaching the standard benchmarks of the Kenya market’s top three or four retail players.
A great advantage that Copia has over legacy trade retailers is accessibility to huge amounts of data at individual customer levels at different geographic levels. This allows the e-commerce company to layer in additional revenue streams and the different ways that troves of data can be monetized in partnership with suppliers.
With access to the spending data on individual consumers, the company now has an understanding with financial services partners to present credit options to its consumers in a profitable way and in a way that allows the consumer to benefit from it.
By adding financial services to their retail products, Copia can create an additional source of income that has the potential to surpass the margins generated by modern trade supermarkets. This can result in a higher level of overall margin generation.
In the African e-commerce industry, suppliers operating under both business-to-business (B2B) and B2C models are vying for the same pool of customers. However, many B2B companies are currently struggling to stay afloat in the market due to a decline in external capital. One of the primary reasons behind their struggle is that they are selling a very limited range of products, often with less than a hundred SKUs, which have low profit margins. Since this product basket has inherently low margins, it becomes increasingly challenging for these companies to sustain themselves in the long run.
This is probably one advantage Copia has because it ultimately reaches the end consumer through its agent network and offers a vast selection of products that a consumer needs. It most effectively operates as an online modern trade supermarket.
Having 50,000+ agents across the country and an established tech-backed but local knowledge-fueled distribution network that allows 96% on-time delivery already gives an edge to Copia in the market.
Access to smartphones and access to data will be a game-changer to the e-commerce industry and allow the Copia app to be in front of every customer every day. It would allow the company to build a digital relationship with the existing 2.5 million plus consumers that are already trading with Copia.
It’s a massive opportunity as, at the moment, the majority of customers know that Copia sells everyday essentials, but don’t necessarily know that Copia also sells school products, beauty products, farming and construction products.
The interesting bit is that the customer can, browse the Copia app on their smartphone, either online or offline and then place orders. If there is no data, the app converts the order to an SMS and generates an order.
Copia has a constantly evolving market expansion plan that depends on mainly 3 factors – market readiness, the right team to go, and the right investors. Once this combination of factors is met for any country, the operating model and particularly the digital piece of the model in Kenya can be deployed.
Tim is exceptionally bullish about the digital wave that will further transform and uplift the market segment they are addressing through Copia. “I think digitisation is going to be the big change that will rapidly fuel our growth, not just growth but profitability,” he says. “The fact that customer can, in the comfort of their own home, browse the Copia app on their smartphone, either online or offline and then place orders, will make a huge difference.”