Global Courant
Building a tech startup is the “new cool.” Well, it’s been like this for over a decade, but in recent years it’s gained tremendous acceptance. Raising millions of dollars only became popular in 2021, and the fintech wave is the latest trend. Before fintech, e-commerce was the darling of investors. And since 2021, investors became more interested in B2B (business-to-business) e-commerce, pouring hundreds of millions into startups in this space.
The story behind the growth of this sector is that the African retail market is large and consumer spending is growing. The Economist Intelligence Unit estimated that retail spending on the continent exceeds $1.4 trillion. So there is a lot of opportunity for those who can connect the fragmented parts of the market.
According to Briter Bridges, a market intelligence platform, 28 African B2B commerce startups collectively raised more than $470 million since 2008, and at least 90% of this capital was raised between 2021 and 2022. In March 2022, Kenya’s Wasoko raised $125 million in a round led by Tiger Global.
In Africa, B2B e-commerce startups focus on connecting manufacturers with customers. They provide street vendors and small shop owners with a convenient way to replenish their stocks via mobile apps, WhatsApp and text messages. These startups offer products at discounted rates and help merchants with logistics, managing delivery with their own fleet of vehicles or outsourcing to outside companies.
However, this industry is going through a rough patch, just like its B2C counterpart. B2B e-commerce companies are now grappling with a funding crisis and a tough market.
Earlier this week, TechCabal reported that Twiga Foods, a B2B platform that connects farmers and food sellers, will lay off its entire sales force in 2022. In March 2023, Zumi, a Kenyan B2B e-commerce startup, to block due to the inability to raise capital. In January, Wabi, an e-commerce platform backed by Coca-Cola, launched announced it halted operations in five African markets, including Nigeria, Kenya and Egypt. Before the shutdown, the company had heavily discounted its products to drive customer growth. Late last year, MarketForce, a Kenyan B2B startup, had a round of layoffs six months after raising $40 million in funding, citing harsh market conditions. This pattern raises concerns about how difficult it is to be a distributor in Africa, tech startup or not.
Yesterday, Twiga let go about 60% of their sales force of 450 in Nairobi, citing a harsh business environment.
We always praise innovation as a watertight solution. But FCMG distribution has been showing players firing for a while now. It seems it doesn’t matter if you are traditional or not.
— Spry Voice (@SpryVoice) June 6, 2023
The popular story around B2B e-commerce often pits them against traditional distributors. It’s the same way fintech is being tipped as those overtaking traditional banking institutions. But this story is largely impractical. It fails to take into account the complex nature of the market and the difficulty of getting entire communities to change the mindset that is already in it.
When I saw what all the B2B startups were trying to do, I warned many of them that it will be hard to replace entrenched incumbents who take advantage of zero interest supply chain credit, but they didn’t listen. African distribution is more of a community game than an efficiency game.
— Osaretin Victor Asemota (@asemota) June 6, 2023
In recent years, B2B ecommerce startups have positioned themselves as replacements for traditional middlemen who charged high markups. Many tried to conquer the markets by storming them with discounts. It’s the same approach that fintechs and neobanks have used in their attempt to beat traditional banks: charging little to zero for transactions to win customers. It is a fast-growing strategy, which is difficult for many to sustain. It is now becoming clear that a price war is not enough to win the markets in the long run. Also, more people have seen the shortcomings in applying the Silicon Valley playbook to the African market.
Until we abandon the Silicon Valley mantra and try to build community-first models, we can never fully crack retail in Africa. What the Lebanese and Indians are doing is just the tip of the iceberg. The volumes below are HUGE!!! pic.twitter.com/ofc6ogzNlh
— Osaretin Victor Asemota (@asemota) June 6, 2023
Nevertheless, just because B2B ecommerce startups are struggling doesn’t mean they’re losing the race. It’s just a reality check that Africa’s seemingly “broken” markets are a feature, not a bug. And players who want to change the game have to climb such a high mountain that they will have to evolve or die.
Can B2B e-commerce startups work their way out of the predicament?
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