Why B2B is key to unlocking Africa’s e-commerce potential
While Africa has a vast e-commerce potential, experts consider this opportunity largely untapped. A report released last year by the International Trade Centre (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.
E-commerce businesses in the continent mainly engage in the business-to-business (B2B) and business-to-consumer (B2C) models. B2B involves transactions between businesses, for example between a manufacturer and wholesaler, or a wholesaler and a retailer. In B2C, on the other hand, a business sells a service or product directly to a consumer.
If you actually look at what it takes to operate a B2C model effectively, the infrastructure and actually the consumer spending power is not there.
Globally, B2B e-commerce is up to five times the size of B2C e-commerce, according to the ITC. In African e-commerce, recent developments have been making the case for B2B being the key to unlocking Africa’s e-commerce potential. Businesses using this model are increasingly emerging and thriving, and some B2C businesses are changing their approach to B2B.
B2C models are constrained by consumer spending power and lack of formal addresses
“If you actually look at what it takes to operate a B2C model effectively, the infrastructure and actually the consumer spending power is not there,” says Daniel Yu, founder and global CEO of Sokowatch, a Nairobi-based B2B company that enables 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 and there are predominantly no formal addressing systems, this makes it difficult for delivery services to find it worthwhile to supply to the consumers. The solution, he adds, is to aggregate the demand of the mass market consumer of the average citizen and “look one level up” to where the consumers are spending the small amounts: the local retail stores.
“If you look at that layer, what you find is you have maybe one shop for every hundred people and so actually you have one percent of the complex right now instead of having to figure out how to deliver to say 5 million people in Nairobi you can just focus to delivering to 50,000 shops,” he says.
“By aggregating, you’re increasing the order volumes very significantly,” he adds.
Yu says that through this model, Sokowatch has made annualized sales of $120 million in the past year.
At least 90% of sales in many parts of sub-Saharan Africa happens through informal channels such as markets, kiosks, table top-sellers and street hawkers, according to PWC. This means the “more immediate problem” is solving how to get 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 provides sales and distribution solutions to a range of businesses including manufacturers, distributors, and retailers. Earlier this month, the company announced it had raised $2 million in a pre-series A round to focus on its retail distribution marketplace.
Some e-commerce companies that started as B2C operations are now embracing B2B. Vimosure, a Gaborone-based company, was launched as a B2C insurtech company in 2018 targeting low income earners to help them get insurance policies. But, finding it costly to reach the end consumer in the supply chain, in 2019, it added new products incorporating B2B to target businesses. “If you look at the value chain that it takes to get to the individual consumer, it’s much more expensive than it is to get to the business or the cooperation as our main client,” says Refiloe Matlapeng, Vimosure’s founder and CEO.
Matpaleng says the B2B part of its business has given Vimosure much higher sales revenue compared to B2B, and she believes B2B “can reach a sustainable level much quicker and easier.”
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