The challenges of ecommerce in Africa [Tech4Africa]

Building an ecommerce business in Africa is a markedly different process from other, more developed parts of the world as well as other emerging markets. The business models, operations and marketing solutions that work for Amazon, for example, probably won’t work in Africa which is evolving very differently in terms of infrastructure and economic growth.

Sim Shagaya, founder and chief executive of DealDey and Konga in Nigeria, has first hand experience building a successful ecommerce business model in a country with limited infrastructure and no real history of structured and formal retail.

DealDey has grown into a successful ecommerce, group-buying hybrid site that delivers merchandise to consumers throughout Nigeria, featuring 350 000 subscriptions, and 20% month on month growth.

Shagaya is now taking on a full ecommerce spin-off site Konga.com, which he hopes will be the “Amazon of Africa”, selling Lagos’s consumer class everything from mobile and electronics, through to beauty, office and baby products and groceries.

A uniquely African ecommerce business model

Shagaya offers some key insights into his business model, challenges faced, and lessons learned in setting up these businesses.

Firstly, in Africa the method of distribution of the product catalogue and the merchandise itself cannot be the same. Through mobile web and increased desktop web access the Konga catalogue is much more easily available to consumers, but there was no existing delivery infrastructure to support it, so Shagaya had to create one to facilitate his business.

Nigeria, like many African countries, has no well-functioning postal system, so effective logistical systems had to be built in addition to the ecommerce sites for delivering merchandise, and these are two vastly different types of development. Amazon, by way of comparison, can rely on existing delivery systems like courier companies, and an innate trust in online shopping among consumers. This trust and infrastructure does not yet exist in Nigeria, and in many other parts of Africa.

Secondly, Shagaya has focused his business model on four key pillars of ecommerce tailored to work in Africa:

1. Logistics and fulfilment

To overcome the challenges of a non-existent delivery infrastructure, Shagaya invested in motorbikes, with reliable drivers who deliver products within Lagos. Konga customers also have the choice of paying for their products in cash on delivery, or via card using a wireless terminal on a mobile network – critical in a country where consumers do not have innate trust in secure online payments.

There is potential in the African emerging retail market to leapfrog bricks and mortar stores. With poor transport infrastructure, and high levels of crime in many African cities, it may be easier and safer for consumers to buy products from their homes and bypass stores.

2. Technology

While ecommerce innovation and collaborative filtering has already been invented by the likes of Amazon and Groupon, and this knowledge can be used and applied to development in Africa, it doesn’t always work so well in an emerging economy. With a user base predominantly accessing the site via the mobile web, and a large technological development skills gap on the continent, this technology has to be changed and tweaked for it to really work well for consumers.

3. Supply chain

Ecommerce retailers in a more structured manufacturing economy mitigate the risk of dead inventory by keeping less merchandise in warehouses than made available in the catalogue, and bringing in more stock quickly from local manufacturers when demand requires it.

This doesn’t work in a country like Nigeria where almost everything an ecommerce site sells is imported. Kongo has a full inventory sitting and waiting for delivery in warehouses, which presents a much higher risk profile for dead inventory and financial loss, and this balance must be managed carefully.

4. Skilled human resources

Governments have not done Africa any great services, by not investing in education, says Shagaya, and it’s not a problem that’s going to be quickly rectified any time soon. Nigeria, like many African countries, has no history of structured retail, few skilled digital and web developers and poor technological infrastructure. Konga, for example, has needed to build technological skills as well as retail skills at the same time. Kongo and DealDey rely on working with skilled people from outside of Nigeria, and need collaboration and investment from outside the country to work.

Building awareness and trust

In Africa, says Shagaya, we need a different way of doing things for the consumer, for the following reasons:

• The population knows nothing but informal retail
• There is a purely mobile environment
• Social networks like Facebook and Twitter have high penetration
• There are rising income and consumption levels
• Physical and virtual spaces need to be combined to create safe retail environments

Shagaya relies on word of mouth and social media to market his ecommerce sites. “Ecommerce has a significant word of mouth component in Nigeria, and social media is a great catalyst for word of mouth,” he says.

Trust in the retail services Konga and DealDey offer, in an economy that doesn’t know formal retail, also relies on word of mouth recommendations, but also a reliable and excellent delivery and customer service experience which “blows consumers minds,” because they are not used to it.

Lastly Shagaya also stresses the importance of good design and usability for the ecommerce desktop and mobile sites. In a country where this is not the norm, and good design and development skills are hard to find, a great looking site that works will immediate win your customers over.