The case for investing in the digitalisation of Africa’s informal retail supply chains
Platforms like Wasoko (previously Sokowatch), TradeDepot, MarketForce and Twiga all offer versions of linking small shopkeepers with merchandise suppliers through apps and other digital channels. Many of these players also provide retailers with credit lines to enable them to access inventory and pay back in instalments as they sell on to their own customers.
Omnibiz, founded in 2019, is another entrant in the B2B e-commerce space. It’s a network of networks for retail supply chains in Nigeria and Ghana. Omnibiz acts as an infrastructure layer that connects supply chain players (from manufacturers to distributors to logistics providers) to the retailer at the last mile. The start-up is differentiated from some other players in that it digitalises and coordinates the existing supply chain instead of building its own logistics operations.
Omnibiz recently closed a US$15 million pre-Series A fundraising round – structured as $5 million equity and $10 million debt – led by Timon Capital. Other investors that participated include Ventures Platform, Lofty Inc, Chapel Hill Denham, Chandaria and Musha Ventures. In the below article, Nikos Katsaounis and Chris Muscarella, partners at Timon Capital, make the case for the digitalisation of African informal retail supply chains and explain why they chose to invest in Omnibiz.
Why African informal retail?
A decade ago, pundits spoke of a new dawn in African retail. In 2010, Walmart entered sub-Saharan Africa by acquiring South Africa’s Massmart. Three years later, Carrefour announced its expansion into the continent.
Despite representing a mere 4% of retailing value in sub-Saharan Africa, it appeared as though modern retailing was starting to take hold on the continent. Large retail is a combination of logistics, pricing power, brand, and returns to scale – if the model works well.
Fast forward to 2021. Shoprite, the South African retail chain, announced it was pulling out of some of its African markets to double down on its domestic operations. A local consortium of investors bought its Nigerian subsidiary, which included 24 stores. Reporting 2-3% cash flow margins, Shoprite didn’t have much room for error in Nigeria, a difficult operating environment with challenging logistics.
Shopping malls will undoubtedly exist in African markets. But they will cater to the affluent. Or, remain an aspirational destination where people socialise and take selfies. The real market is informal retail. While we expect some formalisation to happen over time, for the vast majority of Africans for quite a while, retail will continue to look like this:
These mom and pop shops – which go by different names depending on the country, like duka (Kenya), spaza (South Africa), oja (among the Yoruba of southwestern Nigeria) or diallos or mauritians (Côte d’Ivoire) – are the face of retail.
Though there is variability in size, the average retailer is small. In Nigeria, a typical retailer sells 60-100 SKUs from a 20-50 m2 store. On average, their turnover is 250,000 to 500,000 naira per month and makes about 15% profit (that would be about $375-$800 per month in topline given current USD/NGN rates).
Courtesy of How we made it in Africa – full article here