Jumia, Konga, Takealot… for a long time the African tech space has been almost defined by the success, or lack of it, experienced by its big e-commerce players.
Indeed, the e-commerce sector is one of the continent’s most populated, with startups employing a variety of models to sell all kinds of products, in spite of the fact they usually require significant amounts of investment and all the evidence suggests the hunt for profitability is set to be a long one.
Just as Jumia, which in spite of its huge reputation and recent initial public offering (IPO), still loses money hand over fist.
Could there be an alternative for all those entrepreneurs rushing to build solutions for the retail space? Well, there already is, and though less sexy than building Africa’s Amazon, all the signs are it could be a very lucrative opportunity indeed.
Tech solutions for brick and mortar retailers
Gilbert Blankson-Afful is co-founder of Ghana’s Sumundi, which has developed a web-based store management platform for retailers and has recorded over US$85,000 worth of sales on its platform so far.
He says while most retail-focused African tech startups have somewhat rushed into the world of e-commerce, there are potentially even bigger opportunities when it comes to developing solutions for the physical shop.
“E-commerce is just a portion of the entire retail supply chain. It’s focused on technological and more efficient ways of presenting the final product to the end consumer,” he said.
“Presenting a product is relatively easy. Anyone can easily get started with it. But sourcing the product, tracking its history and getting it to the doorstep of the consumer is where the greatest challenge lies, and also where the greatest opportunities lie.”
This is a view shared by Geoffrey Mulei, CEO of Kenyan startup Tanda, which allows shop owners to access inventory on credit, and also become access points for essential services such as airtime, utility payments, banking and insurance services for their customers. He says while e-commerce receives all the hype, traditional value chains bear a lot more promise.
“Today brick and mortar shops still represent the majority of purchases, and still remain the fastest growing channel. I don’t think we should expect any radical change in the next decade. Dukas are already strategically-placed close to consumers and have an indispensable relationship with them. Which means with the right tech and support, they could maintain, and potentially grow, their share of the consumer basket,” Mulei said.
Encouraging tech adoption in African stores
To do this, however, African store owners will need to properly use the various technologies that are available to them. This is only happening to a certain extent thus far. Mulei says while mobile and financial technologies are advancing rapidly, the way traditional brick and mortar retail shops are run is still largely unchanged.
“Many shop owners today mainly do business with pen and paper,” he said. “Converting them is difficult because most of them are accustomed to how they’ve done things in the past.”
Tauhir Jardine is chief executive officer (CEO) of South African startup Marc1, which has developed a point of sale (PoS) platform that helps brick and mortar retailers get more customers into their stores and increase basket sizes. He agrees with Mulei, saying adoption of technology is not even close to being an agenda item for store owners, even though many are experiencing continuous declines in revenue.
“In most cases, we find that technology investment has mostly been a grudge purchase. There are the innovators who see technology as key to delivering a great retail shopping experience, and they are always experimenting with new techniques, but the majority are only adopting technology when it is forced on them by disgruntled consumers rather than them taking initiative to become creative in this space. This makes the conversion more challenging until momentum in the industry is established,” said Jardine.
Other entrepreneurs in the sector have different experiences, however. Stephen Goldberg is chief executive officer (CEO) of Selpal, a South African startup that has built a “virtual distribution platform” that essentially integrates the whole FMCG supply chain – from manufacturer all the way down to the end customer. Selpal is active within informal markets, and Goldberg says things are different at township level.
“These retailers understand that tech is both an opportunity and a threat to their businesses. They are eager to embrace tech that meets their business needs,” he said.
“I don’t think that they are behind the times as much as the tech market has not addressed many of their key problems. When a credible solution to a business problem is presented, they embrace it, learn very quickly and are innovative in the use of the technology.”
Blankson-Afful has a similar view.
“It’s simple – give a retailer enough growth capital, some education as to the importance of technology for his business, and let him understand that technology isn’t only for large enterprises and isn’t difficult, and you have got yourself a new digital convert,” he said.
“Digital converts” reap the rewards, and so do startups
When traditional retailers across Africa do adopt technology to help them do things like order products, track inventory, make and receive payments, offer loyalty schemes, and access credit, they reap the rewards. Jardine said Marc1 had found that companies that are innovative in their use of technology to aid the shopping experience are experiencing growth, while their competitors remain stagnant or show year-on-year decline.
“In essence, what we do is use technology to track the right metrics and prompt them to make better decisions – which helps them make more money. And who doesn’t love making more money,” he said.
If startups in this sector can help merchants do better, they too will do very well indeed.
“This is a massive opportunity for companies that have the risk appetite and know how to operate in this space,” Goldberg said.
Jardine said incumbent technology providers have not shown any inclination towards developing innovative solutions to the digital dilemma their clients are experiencing.
“This is great news for us startups looking to disrupt the brick and mortar retail space because by the time they start taking these concepts seriously it will already be too late for them,” he said.
Not only is the gap that needs filling here very significant, it is one that exists across Africa, and business models in this space can be replicated at serious scale. Mulei said the brick and mortar store fabric is quite indistinguishable across the continent.
“What we’ve found is that which works in a duka in Nairobi could also work in a shop in Kampala and similarly at a spaza shop in Soweto. These gaps exist across the continent and so does the opportunity to address them,” he said.
This scalability means retail tech startups are becoming more and more attractive to investors. Each of the startups featured in this article have raised – or are currently in the process of raising – funding.
“Platforms in this space are becoming increasingly attractive to investors because of their ability to scale across a country and beyond, and impact millions of consumers,” said Mulei.
Goldberg agreed retail tech startups providing solutions in this “unseen” economy were of interest to investors given their exponential scale.
“The scale and cash flows available are attractive to investors with an appetite for this type of thing,” he said.
Bolt-on products and services
The opportunity does not stop there, moreover. A startup that succeeds in reaching scale with, say, an inventory management and ordering solution then has the chance to begin offering additional services to an existing customer base, for example access to loans and credit.
“Once scale is established, bolting on services is easy,” Goldberg said. Blankson-Afful shares this view.
“The market for bolt-on additional services is as big as the main offerings themselves. Especially when upselling business owners in the retail industry is extremely easy,” he said.
Jardine believes there is an opportunity for startups in the space to collaborate here to grow together and provide customers with the services they need.
“No one will be able to deliver a complete end-to-end solution and be an expert in all fields. We found partnering with startups operating in similar spaces, and building APIs to play nicely together, is key to delivering seamless solutions for retailers who often lack a functioning IT team,” he said.
However such scale is reached, it is clear the spread of these products and services across Africa is great news for the retail space – and brick and mortar store owners in particular.
“The African retail market is a US$1 trillion industry up for and grabs. Retailers on this continent are some of the most resilient entrepreneurs in the world, with a unique ability to operate in non-conducive business environments. Imagine their potential if they were given a more stable, supportive environments and tools in which to grow their enterprises,” Blankson-Afful said.
There are also great spoils to be shared amongst tech startups that are developing solutions to help the continent’s retailers overcome various challenges and fulfil their potential.
This is a new and unseen space. The opportunities are big, but so are the obstacles. There is a pot of gold waiting for whoever cracks this market properly,” Goldberg said.