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Jumia IPO Highlights Africa’s Shifting Online Travel Ecosystem

Sean O'Neill
Jumia IPO Highlights Africa’s Shifting Online Travel Ecosystem

Jumia, an e-commerce superapp based in Nigeria, debuted last Friday on the public markets and raised $196 million. The company mainly helps 80,000 active merchants sell goods in 14 countries on the continent. Some investors called it an “Amazon for Africa.”

Unlike Amazon, however, Jumia has made travel sales an essential part of its offering. Jumia, founded in Nigeria and backed initially by Germany’s Rocket Internet, aims to become a superapp. It wants consumers to use it often to buy items like diapers. The idea is to cross-sell these shoppers into buying more expensive products, namely travel. The company’s JumiaPay and Jumia One payment and loan services may appeal to a continent that broadly relies on cash to avoid hefty bank fees.

Yet the more interesting part of Jumia Travel’s story is how it and its regional competitors have had to adapt to the distinctive local and regional nuances of Africa’s various travel markets and economies.

Fans Versus Skeptics

On its first day of trading, Jumia’s shares closed up 75 percent.

However, not everyone shared investor enthusiasm. Jumia last year generated revenue of $149.6 million, but it lost $195 million. It had only four million customers for all of its services.

“You can’t scale as quickly as Alibaba did in China or Amazon did in the States,” said Ndubuisi Ekekwe, founder and chairman of Fasmicro, a Nigerian investment group that focuses on technology companies but avoids consumer travel businesses.

“In Nigeria, companies like Jumia only have about 30 million potential customers, we estimate, with the necessary disposable incomes for travel, out of about 200 million residents,” said Ekekwe. “Social mobility is too static. Africa’s strongest economies typically don’t have the broad and growing middle classes you need to repeat the success of a Ctrip.”

On the supply side, Africa also typically presents challenges.

“Companies have barely scratched the surface when it comes to bringing offline travel purchases online,” said Marek Zmysłowski, a founder of Jovango who helped Jumia Travel in its early days and is now a consultant. “Every online travel agency struggles to onboard supply and every hotel struggles with online distribution.”

Jumia’s Hotel Business Grows

In 2013, Jumia acquired Jovago, a hotel booking site also founded by Rocket Internet, and created its Jumia Travel division. It focused on lodging first.

“In countries like Nigeria, Expedia and Booking only list big hotels in large cities,” said Estelle Verdier-Watine, chief operations officer of Jumia Travel. “But we’ve focused on properties anywhere in Africa, and we’ve sent out an army of acquisition agents to go to cities and villages and meet with hotel managers and bring offline inventory online. That’s the big value add of Jumia.”

Jumia Travel’s team of 200 workers has signed up hotels, serviced apartments, and guesthouses in 44 countries in Africa, Verdier-Watine said from her Nairobi office.

Some business travelers like Jumia’s results. “I see it when I travel across Nigeria that Jumia has aggregated a much broader geographic coverage of hotels than Booking.com and the other global brands, especially in remote areas,” said Kelechi Nwokocha, a private equity investor for GreenHouse Capital in Lagos, Nigeria, that has not invested in Jumia. “But it faces competition from other regional players like Hotels.ng and Wakanow.”

Jumia’s ground game extends to an ongoing relationship with hoteliers. The company built a mobile-based extranet for hotels to upload their rates and inventory.

“But many hotels outside of major cities are not tech-savvy,” said Verdier-Watine. “They need guiding help by phone for updating rates and inventory, and we provide that, which also makes us stand out from global players without real local presences.”

The hands-on relationships ensure that Jumia Travel gets the best inventory and can deliver best-rate guarantees for its shoppers, she said.

While Jumia has a desktop-browser-based website, consumers booked three out of four of travel products via its mobile app in countries like Kenya. It argues it has more market penetration for its mobile apps in many African markets than global companies such as Expedia, Booking.com, and Ctrip.

However, it’s not all smooth sailing. Some hotels accuse Jumia Travel of being slow to reimburse the money, and they tell their customers to book online but pay in person at the front desk. A majority of Jumia Travel’s customers choose to pay at the hotel, with only about a quarter making mobile payments, in key markets.

South Africa is a specific exception for Jumia Travel. It relies on Expedia Affiliate Network to provide hotel offerings for resale in the country rather than attempt to fight global giants, which have significant presences there.

Jumia Changes Its Flights Sourcing

In 2017, Jumia Travel debuted flights by presenting offerings from Travelstart, an online travel agency based in South Africa.

However, in September, Jumia Travel switched to a new process for sourcing flights.

Using Amadeus ePower, an internet booking engine run by the global distribution system Amadeus, it offers inventory from both online and offline agents. The company also provides inventory from Kiwi.com, an online travel agency that has access to many low-cost carriers that don’t participate in Amadeus’ system.

Jumia Travel presents the offline and online travel agencies providing rates through Amadeus and Kiwi, said Verdier-Watine. That makes it different from price-comparison search engines like Skyscanner that connect directly to airlines. However, consumers still see multiple options for any given itinerary.

Earlier this year, Jumia Travel debuted cruise as a product for Nigerian customers only, which consumers can choose to pay for in installments.

Jumia Travel Has Competition

South Africa and Nigeria have the greatest number of travelers to sell to, so they have drawn the most attention from Jumia and other travel companies.

In Nigeria, Wakanow, an online travel agency that started by offering flights but now offers everything, has provided Jumia Travel with fierce competition, primarily in Nigeria. However, the company ran into financial distress, and private equity group Carlyle bought it in December at a reduced valuation for about $40 million, with a plan to restructure it, according to sources.

Hotels.ng, a Nigeria-based online travel agency that began with hotels but now also offers flights, has been careful to only take about $1.5 million in venture capital and to stick to growing organically and, it claims, profitably.

In South Africa, online travel agency Travelstart claims a market share of about 70 percent of online bookings and about 25 percent of all travel sold online and offline.

Travelstart’s revenue grew by about 25 percent last year, said Stephan Ekbergh, founder and CEO.

A non-traditional competitor is telecommunications company Vodaphone, which operates under the Vodacom brand in South Africa and Safaricom in Kenya. The company has been pushing travel offering to its users by subsidizing substantial discounts. The effort has pressured prices both from online travel companies and offline players like Flight Centre.

Egypt and Morocco are also important markets, dominated by Rehlat, Cleartrip, and Wego.

Outside of South Africa, Airbnb has struggled to gain traction. “There’s usually enough supply of traditional lodging across towns and villages that’s affordable, so there’s no advantage in price to staying in someone’s home,” said Nwokocha. “That reality has prevented Airbnb from making significant gains.”

Airbnb is doing quite well in South Africa, however, where a large number of properties are bed-and-breakfasts and small homes and apartments. The startup’s distribution and payment systems are proving attractive to many hosts and property managers.

TripAdvisor, Booking.com, and Expedia Group are major competitors when it comes to online reviews of hotels in many African markets. If those companies decided to put more boots on the ground to acquire more inventory to sell, they might become formidable players.

Tech Platforms to Watch

Even more than elsewhere, global tech platforms may find they are best able to develop a broad audience across the continent and then use that prevalence to funnel travel sales to suppliers and third parties. Of all the online travel agencies in competition, Jumia Travel, Travelstart, and Hotels.ng appear to be well placed to benefit — if they can manage their costs.

Several structural factors make it hard for locally grown online travel agencies to scale up quickly across the continent. Besides often lacking vibrant middle classes, Africa also is prone to foreign exchange volatility, which can complicate international travel sales. The dominance of foreign carriers like Emirates, Turkish, Etihad, and Qatar, also makes it difficult for local players, who struggle to compete in doing deals with airlines that are more accustomed to working with global players like Expedia, Booking.com, and Ctrip.

A few global platform giants are making inroads in many African countries. Google has wide adoption, and its travel metasearch offering may eventually become a significant player just because of its prevalence. Facebook-owned Whatsapp has broad adoption as a messaging app, and that audience brings a potential for travel sales similar to how airlines and hotels use Facebook’s Messenger service to sell and upsell customers.

Meanwhile, Alibaba, which has a successful ecommerce model in China, might seek to replicate its success in Africa, including with its QR-code based payments system, in Africa and then cross-sell customers into its Fliggy travel service.

Jumia has only 4 million customers for all of its services. That’s small on a continent with 1.2 billion people. But Jumia draws more customers than smaller general merchandise marketplaces like Naspers-backed Takealot, which primarily focuses on South Africa; Amazon-backed Souq, a Dubai-based marketplace that’s widely used in Egypt; and SMEMarketHub, run by Nigeria’s Guaranty Trust Bank.

So Jumia may gain a head start with its e-commerce bet.

But Africa won’t repeat the rise of a Ctrip.com or Booking.com overnight, experts said. The lack of fully automated processes may stymie global players trying to penetrate local hotel markets, too.

The obstacles that discourage rapid scale-ups of transaction-based companies may make global tech giants like Google, Facebook’s Whatsapp, and Alibaba potential kingmakers in African online travel over time.

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