E-commerce: ‘Amazon or Jumia’s consumer model cannot succeed in Africa’

By Quentin Velluet
Posted on Thursday, 6 October 2022 11:11

© Daniel Yu ,CEO and Founder of Wasoko

Development in French-speaking African countries, competition with the American giant, inflation... Daniel Yu, the founder of Wasoko, a start-up valued at more than $600 million, answered Jeune Afrique's questions from Nigeria, where he is prospecting the market.

Daniel Yu is not one to hide his ambitions or his convictions. This thirty-something American founded Wasoko (formerly Sokowatch) in 2013 with the certainty he had the ideal model of online commerce made in Africa. Exhibiting his confidence to anyone who will pay attention to him, with his company he has swept away the Western concept of online commerce, which targets the final consumer directly (business to consumer or B2C) preferring instead to sell his products to professionals (B2B), thus connecting daily and directly with small traders and neighbourhood grocers.

Nine years after its inception, Wasoko has expanded to eight countries on the continent, employs more than 1,500 people, and supplies 75,000 merchants via a hundred or so manufacturers such as Unilever and Procter & Gamble, who enrich its portfolio with a thousand product references.

More than $300 million in revenue

Presented by the Financial Times as the fastest growing African company in 2021 (more than 300%), Wasoko hopes to appear in the next edition of this ranking, thanks in particular to its new establishments in Senegal and Côte d’Ivoire. And perhaps, in the longer term, in Nigeria and South Africa. Based in Nairobi, the start-up now boasts annual sales of more than $300 million.

Interviewed during a trip to Lagos, Daniel Yu, who was unaware – until we told him – that Amazon planned in 2023 to launch its marketplace in the continent’s most populous country, agreed to answer our questions, between two meetings with local players in an industry that this polyglot says he dominates, to the point of openly considering the acquisition of local competitors in order to expand his footprint in sub-Saharan Africa.

Jeune Afrique: Wasoko recently announced the establishment of an innovation department in Zanzibar. Why did you choose this destination?

Daniel Yu: The Zanzibar government’s initiative, of which Wasoko is a partner, aims to create the most welcoming environment for technology companies in all of Africa. The idea is to make Zanzibar the hub for pan-African technology companies to open offices, bring in talent from all over the world and benefit from a very favourable administration and environment. The aim is for companies to be able to test their solutions without fear of being suspended overnight or being the target of large fines or other threats, similar to those experienced by some technology companies recently.

We are increasingly offering fintech solutions and we want to make sure that we work closely with the government to test innovations. In Kenya, for example, it takes months to get a meeting with a minister and the processes for obtaining special permits are longer and more difficult. In Zanzibar, we have been able to build close relationships with the local authorities, and we meet often.

What is the status of your development in Senegal and Côte d’Ivoire?

We launched earlier this year with the funds we received in March [$125 million raised in series from eleven investors including Tiger Global Management and Avenir Growth Capital]. Abidjan is now the largest city we operate in, and we’ve just launched in Bouaké, our second city in Côte d’Ivoire. We certainly see very big opportunities for growth with the dense networks of shops and the fact that the informal economy is as big or bigger than the East African countries where we operate. So we want to continue to invest in these markets.

There are 54 countries in Africa. We are only present in six of them, which allows us to focus on similar markets to those where we are already active. There are definitely good opportunities in North Africa, but the market structure is different. Incomes are higher on average, infrastructure is better, smartphone penetration and digital payments are higher, which changes things dramatically.

You are targeting South Africa and Nigeria, two markets where Amazon has announced an upcoming launch of its marketplace. Do you see the arrival of the American giant as a threat?

On the continent, it is very difficult to build a mass e-commerce model, because it is impossible to build a logistics operation and marketing or customer acquisition services that can profitably serve customers who buy your products for only a few dollars. Even today, the African consumer has very low purchasing power – on average $3 a day – and the reality is that the majority of families spend their money on basic goods.

This is why Jumia has never lived up to expectations. Even after many years of being listed on the stock market, they are struggling without showing any real growth. So I don’t see how Amazon could succeed with this same B2C model. But who knows? Maybe one day they will realise how challenging B2C is and rethink their model. In that case, I would be very open to discussions or willing to compete with them.

You mainly supply basic necessities to your retailers (rice, maize, flour, sugar, soap). How does the price increase affect your business?

We put suppliers and retailers in touch with each other, so we don’t have much control over these things. On the other hand, we have to manage the risk of stock-outs at our manufacturers who are directly faced with supply or cash flow problems. This is our biggest operational challenge at the moment.

Are you financially balanced?

We are continuing to invest to grow, but I would say we are doing so in a sustainable way, ensuring that we make a profit on the majority of the orders we deliver, which is the most important thing for an e-commerce company. We’re well over $300 million in revenue.

You are one of the few English-speaking entrepreneurs who believe that in your sector, West Africa and East Africa have a lot in common. How so?

Kenya, Tanzania, Rwanda and Uganda, where we started, have created the East African Community [EAC, which also includes Burundi, South Sudan and DR Congo], which has established the free movement of goods and people. When we partner with local manufacturers in both the East and West, it allows us to project ourselves easily and quickly into regional development by keeping the same teams and the same contacts. This is what we find in West Africa with the West African Economic and Monetary Union (WAEMU) zone, which is moreover more integrated thanks to the common currency.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options