Investments flood into Africa’s B2B e-commerce startups

Victor Onuwa runs a small grocery store in central Lagos, as one of thousands of informal retailers who sell food and staple goods to local residents in the city. The size of his store, and the cash he has available, means that he has to constantly restock.

In the past, that involved waiting until his distributors stopped by the market, or fighting his way through busy traffic to buy goods at a warehouse. Now, he uses a smartphone app. “Whenever I need goods, I go on one of these apps, pick the items I want, and it would be delivered to my store the next day,” Onuwa told Rest of World.

Retail spending in Africa is estimated at more than $1.4 trillion by the Economist Intelligence Unit. Most of it happens in stores like Onuwa’s — informal street vendor setups, open market stalls, and mom-and-pop stores. That fragmented ecosystem makes it complex for suppliers, such as consumer goods companies like Unilever and Procter & Gamble, to get their products to market. A new crop of business-to-business e-commerce startups across the continent are trying to solve the problem, developing logistics and distribution services to help connect informal retailers to manufacturers and large wholesalers. 

They’re being backed by big money. This week, Nairobi-based Sokowatch (which has rebranded to Wasoko) raised a $125 million series B round led by Tiger Global, a giant New York–based private equity and venture capital firm. In the past few months alone, companies, including Wasoko, MarketForce, Twiga, Maxab, Sabi, and Omnibiz, have raised over $400 million in venture capital and debt financing. 

Most of these startups are trying to replace middlemen, whose role in the supply chain is to link bigger suppliers and wholesalers to small traders. These intermediaries add cost because they extract a margin on the goods that they buy. The new digital platforms typically purchase goods directly from manufacturers and then link their inventory to stores, which means they can charge less than middlemen. “They’re essentially a digitized distributor,” Aubrey Hruby, startup adviser and senior fellow at the Atlantic Council think tank, told Rest of World. “They’re focused on making each part of the supply chain more productive and digitizing African trade, which is humongous.”

B2B e-commerce that serves smaller stores has been a fast-growing segment of the digital economy worldwide, particularly in Southeast Asia and India. Sujeet Kumar, a co-founder of Bengaluru-based Udaan, one of South Asia’s biggest supply chain startups, participated in Wasoko’s series B. Kumar, who will join the startup’s board, was previously president of operations at the e-commerce giant Flipkart and was joined in the investment round by Binny Bansal, a co-founder of Flipkart.

Wasoko intends to expand into new markets — it currently operates in Côte d’Ivoire, Senegal, Kenya, Uganda, Tanzania, and Rwanda — and develop new products, including agency banking services, such as point-of-sale devices, utility and pay-TV bill payments, and social commerce, according to Daniel Yu, the company’s CEO. It plans to shift to an IPO in “three to five years,” Yu said. 

Yu told Rest of World that the six-year-old startup’s revenue grew 500% last year, to more than $300 million, and that the company has delivered over 2.5 million orders to over 50,000 retailers. Its platform lists products from major suppliers like Unilever and Procter & Gamble, in addition to local producers in East Africa. 

“My belief is that somebody has to create and operate the infrastructure in Africa. This is the fundamental bottleneck that we have,” Yu said.

The B2B e-commerce model is appealing to manufacturers, as it helps them to sell directly to small retailers without having to manage relationships with intermediaries or solve the last-mile distribution on their own, according to Ayodeji Ajilore, an analyst who covers consumer goods companies at ARM Securities, a Nigerian investment services firm.

Most African markets lack the basic infrastructure that enables delivery services found in a country like the U.S., where online retailers are able to use existing delivery services, such as UPS and FedEx, to fulfill orders. Most customers have access to payment cards and addresses that were listed and mapped. “We don’t have all the extensive ecosystem of companies that you can just plug and play,” Yu said. Wasoko uses its own fulfillment infrastructure, including drivers to deliver to traders.

As the B2B market grows and becomes more competitive, companies are trying to find different niches. Sabi, a 13-month-old B2B e-commerce startup operating in Nigeria and Kenya, has embraced the middlemen, allowing distributors to sell their products, from agriculture products to electronics, to informal retailers through its marketplace. “We’re akin to Shopify for the informal market,” said Ademola Adesina, co-founder at Sabi. "[Middlemen] operate at a lower cost base and will always be cheaper operators than we will be, so to try and cut them out and do everything, this isn’t economically viable."

Sabi, which counts a top Shopify executive — as yet unannounced — as one of its advisers, said the value of goods sold on its platform was around $300 million last year.

But many companies are relying on common startup tactics to grow, investing in discounts and incentives to bring users onto their platforms. In Lagos, store-owner Onuwa said he’s getting approached by salespeople for the platforms pretty much every day now. He’s still shopping around, switching between them, to take advantage of discounts and free delivery offers.