Africa’s troubled middleman

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Let’s dive into this week’s Tech Safari Take!

There’s a problem in African B2B retail.

Everyone who has tried to build an “Everything Store” for retailers has struggled.

But there’s a chance to try something else.

And these companies are doing it right.

The Story

Over the past decade, B2B retailers have been making moves across Africa.

They’re helping mom-and-pop businesses stock up on supplies faster and cheaper.

These businesses can then sell more, grow, and cut down on time spent restocking.

But over the past year, they’ve had a bumpy ride.

There have been layoffs, makeups, and blowups:

• MaxAB and Wasoko had to merge to share resources.

• Marketforce closed its B2B platform after raising $40 million in funding.

• Wabi, a B2B retail platform ceased operations in five African countries.

• Alerzo shut down 14 warehouses and fired 400 employees.

• Last week, Copia fired its entire staff of 1,500 people and will likely be shutting down.

African B2B retail startups have raised around $500 million to date, so why is there so much struggle to just… survive?

The Context

B2B retail startups have been trying to build the ultimate middleman in Africa.

And they’re doing it by building “everything stores”.

They sell products from manufacturers directly to stores in markets and on the streets - at a heavy discount.

But this model doesn’t work quite well:

• It needs tons of cash to pull off.

• It’s operations-heavy → warehouses, logistics, and many feet on the ground.

• And the margins are super thin.

No wonder these companies experience withdrawal symptoms once the funding tap runs dry.

In reality, these startups are simply providing a subsidy for their customers.

One shop owner who sells foodstuffs and beverages told Rest of World that she uses them because they offer up to 30% cheaper supplies.

For her, that’s a sweet deal.

But for the startups, they’ll remain unprofitable while growing fast - who wouldn’t like cheaper supplies?

While this happens, the companies bleed money, live on the edge of a cliff, and sometimes fall over.

But there’s an alternative.

Instead of building everything stores, some startups have started doing the opposite.

They’re building a one-thing store.

Focused on selling one kind of product to one kind of customer.

And they’re thriving:

• Vendease, a food procurement platform for hotels and restaurants, has raised $33 million to date.

• Jumba, a Kenyan startup helping construction companies order supplies, already serves 60% of Kenya’s counties in just a year of getting started.

• Matta Trade, a B2B marketplace for chemicals, is only two years old and has expanded across five African countries with little funding.

• OneOrder, an Egyptian startup that does the same thing, raised $16 million last week.

These businesses are focused and winning because sometimes, focus gives you better unit economics:

• You don’t have to deal with tens of suppliers like B2B retail startups

• You are lighter on physical assets like warehouses and logistics

• Your customers are super predictable, making them much cheaper to acquire

The One-Thing Store could be a better B2B retailer.

The Tech Safari Take

Africa needs more online marketplaces that focus on one thing.

But beyond the unit economics, there’s another reason why they’re better:

They mimic how African markets work in real life.

You’d hardly ever find a popular offline market that’s popular for selling every kind of product.

Instead, we have many small markets, each one being extremely popular for one thing:

• Gikomba market in Nairobi is popular for second-hand clothes.

• Ladipo market, also in Lagos, is well-known for auto spare parts and makes $1.9 billion annually.

• Computer Village in Lagos is roughly the size of Times Square but does over $2 billion in gadget sales yearly.

The One-Thing Store enjoys something the offline markets currently do - deep customer trust.

Being deeply trusted for one thing means all the high-value customers come to you - and it’s not about being 30% cheaper.

This shows in how much volume these markets do despite their small geographical size.

The same is true for these one-thing stores.

• Being small and focused on one thing means they have deeper trust with customers.

• They don’t have to compete on price.

• Their logistics operation is much simpler.

And what they sacrifice in variety, they more than make up for in volumes.

These one-thing stores have clear advantages, but will they turn out better and more sustainable?

We’ll see.

But it’s a growing trend, and a second door into the B2B retail space for startups.

Which other one-thing stores have you seen pop up?

Let us know here.

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