South Africa’s Zulzi seeks funds to expand dark store network

By David Whitehouse
Posted on Wednesday, 19 May 2021 07:44

Zulzi is betting that Covid-19 will mean a lasting shift away from shopping malls towards dark stores. (AP Photo)

South African grocery delivery marketplace Zulzi is seeking to raise 100m rand ($7m) to extend its network of “dark stores” nationwide, CEO Vutlharhi Valoyi tells The Africa Report.

Dark stores are warehouses from which customers can order fresh food, alcohol and over-the-counter medication online.

Zulzi, which started in 2016, currently has three such stores in Johannesburg and Pretoria. Valoyi plans to open five new dark stores in Cape Town and four in Durban in the next two to three months, irrespective of the fundraising, he says from Johannesburg.

Raising the money, which could be done through a mixture of debt and equity financing, would allow the company to reach its target of 50 rented dark stores nationwide, including in smaller South African cities, by the end of the year. Valoyi aims to raise the money in the next three months.

Zulzi started as a grocery delivery marketplace that allows members to shop at stores such as Pick n Pay, Woolworths and Dis-chem through a mobile app. Customers compile their lists on the app, and trained shoppers then collect and deliver the items. The service is used by affluent customers including busy mothers, but fulfilling orders becomes harder as the business grows, Valoyi says.

  • Fulfilment is much easier from dark stores, which allow the company to increase its penetration among middle-class customers, he says.
  • Dark store customers only pay a delivery fee and not a service fee, as with the grocery shopping service.
  • Valoyi hopes that Zulzi will be able to expand across the countries of the Southern African Development Community (SADC). He hopes to raise more money in 2022 to finance international growth.
  • “We want to be the pioneer in the grocery space” in the region, he says. “Dark stores is our business of the future.”

Cash on Delivery

In theory, South African retailers could move into dark stores themselves by simply letting customers order directly from a warehouse. Valoyi argues that the tendency of retailers to plan for the long term means they are less able to adjust to changes in customer behaviour such as that caused by Covid-19. “Retailers find it hard to disrupt themselves,” he said. “We look at the now.”

About 99% of Zulzi deliveries are currently paid for in advance, Valoyi says. This is likely to fall as the company concentrates more on dark stores rather than the grocery shopping service, which is used mainly by affluent people with credit cards. Dark stores mean a broader market, and the company will have to accept that some customers will only pay once they receive the goods, he says.

  • The risk that customers will refuse the products when they arrive or simply won’t be able to pay has been highlighted by African e-commerce retailer Jumia, where attempts to reach profitability have been hampered by high rates of returned goods.
  • Zulzi plans to use artificial intelligence to predict the reliability of payments based on the area being served, Valoyi says.

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