Is B2B the key to unlocking the potential of e-commerce in Africa – Quartz Africa
While Africa has vast potential for e-commerce, experts consider this opportunity largely untapped. A report released last year by the International Trade Center (ITC), a development agency that supports small and medium-sized enterprises, found that 10 countries were responsible for 94% of all online business in Africa in 2019.
The continent’s e-commerce companies mainly engage in business-to-business (B2B) and business-to-consumer (B2C) models. B2B involves business-to-business transactions, for example between a manufacturer and a wholesaler, or a wholesaler and a retailer. In B2C, on the other hand, a company sells a service or product directly to a consumer.
If you look at what it takes to effectively operate a B2C model, the infrastructure and indeed the purchasing power of consumers is not there.
Overall, B2B e-commerce is up to five times more important than B2C e-commerce, according to ITC. In African e-commerce, recent developments have shown that B2B is the key to unlocking the potential of Africa’s e-commerce. Companies using this model are increasingly emerging and successful, and some B2C companies are change their approach to B2B.
B2C models are limited by the purchasing power of consumers and the lack of formal addresses
“If you look at what it takes to effectively operate a B2C model, the infrastructure and indeed the purchasing power of consumers is not there,” says Daniel Yu, founder and global CEO of Sokowatch, a B2B based company. in Nairobi which allows informal retailers with small retail stores in Kenya, Tanzania, Rwanda and Uganda to order products from manufacturers.
Yu explains that because the average consumer in Africa spends small amounts of money and there is mostly no formal addressing scheme, it makes it difficult for delivery services to find it worth providing to consumers. . The solution, he adds, is to aggregate the demand of the average citizen’s mass consumer and “seek a higher level” where consumers spend the smallest amounts: local retail stores.
“If you look at that layer, what you find is that you maybe have a store for a hundred people and so in fact you have a percent of the complex right now instead of having to figure out how to deliver for. say 5 million people in Nairobi you can just focus on delivering to 50,000 stores, ”he says.
“By aggregating, you increase order volumes very significantly,” he adds.
Yu says that thanks to this model, Sokowatch achieved annualized sales of $ 120 million in the past year.
At least 90% of sales in many parts of sub-Saharan Africa are made through informal channels such as markets, kiosks, table vendors and street vendors, according to PWC. This means that the “most immediate problem” is figuring out how to get the goods to the stores, which will then serve the last mile consumer, says Tesh Mbaabu, co-founder and CEO of MarketForce, a Nairobi-based B2B startup that supplies sales and distribution solutions to a range of businesses, including manufacturers, distributors and retailers. Earlier this month, the company announced that it had lifted $ 2 million in a pre-Series A to focus on its retail distribution market.
Some e-commerce companies that started out as B2C operations are now embracing B2B. Vimosure, a Gaborone-based company, was launched as a B2C insurance company in 2018 targeting low-income people to help them get insurance policies. But, finding it costly to reach the end consumer in the supply chain, in 2019 he added new products integrating B2B to the target companies. “If you look at the value chain needed to reach the individual consumer, it costs a lot more than reaching the business or cooperation as a primary customer,” says Refiloe Matlapeng, founder and CEO of Vimosure.
Matpaleng says the B2B part of her business has given Vimosure much higher sales revenue than B2B, and she believes B2B “can reach a sustainable level much faster and easier.”
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