Nigeria’s Fuel Crisis Hits On-demand Services Platforms Hard

Nigeria’s on-demand services companies, including ride-hailing, last-mile delivery, and food delivery services, are straining under the weight of a crippling fuel price hike. The rise in fuel costs, triggered by the Nigerian National Petroleum Company’s (NNPC) decision to increase the price of Premium Motor Spirit (PMS) by 40%, has sent shockwaves across the economy.

The pump price has surged to between NGN 855.00 and NGN 897.00 per litre at NNPC stations (and well over NGN 1 K in most other outlets), significantly driving up operational costs for businesses dependent on road transport. Broadly, the retail price of petrol has surged more than five-fold in Nigeria since May 2023 when President Bola Tinubu took office and pronounced controversial reforms that have spiked energy costs in general and triggered biting hardship.

The fallout is now apparent across the economy, not least in the on-demand service industry, where maintaining competitive pricing while managing escalating fuel costs has become a delicate balancing act.

Ride-hailing Apps Struggle to Cope

Among the hardest hit are drivers for ride-hailing apps like Uber, Bolt, and InDrive, battling shrinking margins due to rising fuel costs. For many, the algorithms determining ride fares are simply no longer viable.

“It got to a stage when any ride that comes in for 1,500 naira or 2,000 naira, I don’t attend to them because I know what I go through to get fuel,” a driver told TechCabal. Drivers are increasingly opting for longer trips and requesting that customers pay more than the app-suggested fares, or face ride cancellations. One driver mentioned that customers must now pay up to NGN 5 K for trips that previously cost NGN 3 K.

While Bolt and Uber have responded with 13-15% increases in base fares, many drivers argue that these adjustments are insufficient, lamenting that the fare increment does not match the extra they now have to pay for fuel.

Despite the fare adjustments, drivers continue to ask for more, demanding that ride-hailing companies reduce their 25% commission on earnings to help mitigate their losses. The tension between drivers and platforms has led to friction, with some drivers going as far as imposing their own prices on customers, threatening to cancel trips if their demands aren’t met.

This rising cost is also impacting customer behaviour. Many are now switching to public transport or using ride-hailing services sparingly.

Food Delivery Startups Caught in a Bind

The fuel price hike has also put significant pressure on food delivery platforms such as Mano, Glovo, and Chowdeck, which are finding it difficult to maintain the affordability of delivery fees while motivating riders. Delivery companies are scrambling to devise new ways to offset the rising costs without passing the full burden onto customers.

Mano has responded by offering riders a NGN 2 K weekly bonus on top of their delivery fees and a monthly salary of NGN 4 K. To ensure sustainability, the platform is moving towards a dynamic pricing model.

Similarly, Glovo has introduced performance-based incentives, offering riders a NGN 23.4 K bonus if they complete 550 orders in two months, and NGN 39 K for completing 800 orders. Yet, despite these efforts, riders report that delivery fees have remained unchanged, leaving them dissatisfied. One rider noted that NGN 4 K used to be enough to fill their fuel tank, but now it takes NGN 6 K.

Startups like Chowdeck have been slower to respond, making only small adjustments, such as increasing long-distance delivery fees from NGN 1.5 K to NGN 1.8 K. However, riders are asking for at least NGN 2 K to keep up with rising fuel costs. Chowdeck has hesitated to implement broader changes, wary of pushing additional costs onto customers.

HeyFood, an Ibadan-based delivery startup, is exploring a more sustainable long-term solution by considering a switch to electric bikes. According to HeyFood CEO Akinropo Taiwo, riders are spending more time securing fuel in endless queues amid scarcity, which has affected their availability for deliveries. However, transitioning to electric bikes is challenging, as many riders are still paying off their petrol-powered bikes, which cost between USD 1.2 K and USD 1.7 K.

Last-Mile Delivery Faces the Toughest Dilemma

For last-mile delivery companies, raising prices has become inevitable. Fez Delivery, for instance, increased its base price for small packages from NGN 2.5 K to NGN 3.075 K, a 23% hike. CEO Seun Alley acknowledged the difficulty, saying, “Our prices definitely have to change. But what we want to do is to ease our clients into that phase. So, at the moment, we are taking serious blows to keep operations running.”

Unlike ride-hailing and food delivery services, last-mile delivery companies do not operate two-sided platforms where drivers and customers are matched. This gives them more control over their pricing but also leaves them vulnerable to losing customers in a price-sensitive market. As Seun Omotosho, COO of Gokada, observed, “Depending on the urgency required, some customers don’t mind going for the least priced service when items to be sent are not needed urgently.”

Some consumers are even switching to public transport to send goods, resorting to relying on mass transit buses for deliveries because of the rising cost of courier services. DHL, for example, increased its prices from NGN 12 K to NGN 14 K for phones, and NGN 21 K for laptops, up from NGN 13 K.

The Nigerian fuel hike is squeezing on-demand services at both ends, with startups facing the twin tasks of raising prices to cover costs while retaining customers. E-hailing apps, last-mile delivery operators, and food delivery platforms are each testing different methods, from performance-based incentives to potential shifts to electric vehicles.

Despite the creative strategies, these sectors are caught in a tough spot. If they raise prices too sharply, they risk alienating customers. If they don’t, they face severe financial strain. As Glovo riders continue to push for delivery fee increases and ride-hailing drivers demand lower commissions, the industry is in a period of high tension.