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How Jumia wants to become a key player for the African consumer

In Europe or in the US, people often wonder how they could even live before Amazon or Uber, etc. I want our customers to think the same about Jumia, says Sacha Poignonnec, founder of the first African unicorn.

5
May 2017
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If you are not familiar with Africa, you may never have heard of Jumia. And yet, the first African unicorn is leader of online business in the continent, serving 23 countries in 54. Founded by a French team, Jumia emerged from a German start-up incubator, Rocket Internet. Among its shareholders, the South African multinational MTN Group, the Swedish mobile phone company Millicom, the American investment bank Goldman Sachs, the French telecommunications company Orange and even the French insurer AXA. Last year, the MIT ranked it among the fifty smartest companies in the world and the group took its next strategic step by uniting its different components under a single brand name, Jumia, aiming to create a fully integrated ecosystem.

Initially, Jumia only wanted to do online business in Africa. “When we started in 2012, our goal was to prove that e-commerce was possible in Africa, that people would surf on the Internet in large enough numbers, find attractive offers, buy products and we would do everything in our power to deliver them,” remembers Sacha Poignonnec, joint-managing director of Jumia alongside Jeremy Hodara. This was the first chapter in the history of the group, made of discoveries, keys learning and major challenges in a continent with very few banking facilities and many logistical deficiencies.

“We started in four countries and tested several things. At one point, we even had separate platforms for fashion and other goods. It was the launching phase and it helped us understand how we were going to succeed in this market,” as explained the French entrepreneur. Jumia, which was then called Africa Internet Group (AIG), leveraged its “backwardness advantage” in terms of distribution in a continent with very few shopping centers and a mobile phone penetration rate that progresses exponentially. The African middle class is growing in a favorable demographic context — the African population is expected to reach 2.5 billion by 2050, against 1.2 billion right now. “The first key to Jumia’s success is that it responds to an underlying demand to which it offers a credible, formal and interesting offer,” according to Julien Garcier, Director of Sagaci Research.

“When we saw that it worked, we thought that we should start growing,” adds Sacha Poignonnec. This is the second major chapter of Jumia: growth. Not only does AIG develop geographically by establishing itself in new countries, but the group is also diversifying its offer, by developing new services (classifieds, meal deliveries, hotel reservations, etc.). Nearly five years later, Jumia is physically present in 23 African countries, accounting for approximately 80% of the African population and 90% of the continent’s GDP. A phenomenal and expensive growth. “They are losing a lot of money, which raises the question of the sustainability of their model. Is it an Amazon-type model, which creates the market, becomes the undisputed leader and then monetizes it? Or is the market’s creditworthiness limited and will Jumia disappear, overwhelmed by its losses? What a daring wager!” as reflected by an analyst.

Jumia obviously targets the first scenario. “We believe that the market has great potential and we are ready to invest in capturing it: this is our philosophy,” explains Sacha Poignonnec. “We are not afraid of losing money to reach our full potential. We never lose sight of profitability but we want to get there with growth. All of our businesses generate money, all our customers generate profits. We only need to get bigger, find more customers, more orders... and we will achieve profitability without difficulty.” Some observers believe that Jumia has spread itself too thin over many small countries. In fact, having now reached a critical size on the continent, the group intends to concentrate on markets where it already exists, even if it “doesn’t completely rule out” conquering new countries.

With this strategy of growth at all costs, Jumia hasn’t left much space to competition. “Thanks to their voluntarist and ambitious approach, they have launched their services in several countries with a strong organization, know-how and capital, crushing their other competitors,” as noted by Julien Garcier. Their goal is to gain market shares as fast as possible and avoid the emergence of potential competitors.” In some markets, however, Jumia is not alone. In Nigeria, for instance, it faces Konga and in Côte d’Ivoire, Africashop. Other companies, such as the French e-commerce website Cdiscount, were even forced to withdraw from Cameroon and Senegal in summer 2016.

At the same time, Jumia wrote its third and last chapter by uniting all of the Group’s websites and activities (MarketTravelFoodJobsDealsetc.) under a single brand. “We noticed two things: on the one hand, our customers had developped a genuine trust in Jumia and on the other hand, they saw our platform as a versatile tool that could perform lots of different tasks... while in France, we often use one website for e-commerce, another for booking hotels, etc. This is why we decided to bring together all of our services under the name of Jumia,” says Sacha Poignonnec. A strategic decision that also reduces costs. “After investing heavily in marketing and communication to increase their visibility, their investments became more focused. That’s why they moved to a single brand,” says Julien Garcier of Sagaci Research.

JUMIA

Often compared to Amazon, Jumia is actually closer to the Chinese e-commerce giant Alibaba. “We consider both of them as models of success stories but we see ourselves closer to Alibaba,” confirms Sacha Poignonnec. First of all, because Jumia – like Alibaba – has ventured into emerging countries. Next, because Jumia is moving towards a marketplace economic model, where the platform acts as an intermediary between sellers and final consumers. This trend is partly responsible for a fall in Jumia’s revenues of 49% in the first nine months of 2016 to €54 million (against €107 million over the same period in 2015) although it is true that the group is also affected by the economic crisis in Nigeria, its first market. “Amazon has always assumed buying products to resell them, being a retailer. Alibaba always took the opposite side by claiming “we neither buy nor sell anything.” It’s a major philosophical difference. For our part, we do a lot of marketplace but when we don’t have any choice left, we also do retail, explains Sacha Poignonnec. In this sense, we adapt to the reality we face in Africa, where the situation in terms of supply is imperfect. ”

Having succeeded in adapting to the African reality is one of the keys of Jumia’s success. “The starting point was to think that what everyone sees as problems or obstacles would be “normal” for us. People want to pay when they see the product? The logistics doesn’t exist? There isn’t enough trust? This will be our business model! ” says Jérémy Hodara, the co-CEO of Jumia to La Tribune. This is why the group has developed two of its main characteristics: a real logistics branch, Jumia Services, and payment in cash on delivery. “The number 1 challenge is to have the right address of the customer, in regions without any addressing system. We have taken up this challenge thanks to a number of measures which form part of our little secrets, says Sacha Poignonnec. We have put in place an advanced order verification system and a network of deliverers and highly specialized logistics partners by region.” When Orange acquired a 75 million euros stake in AIG’s capital in April 2016, Pierre Louette, Managing Director of Orange, welcomed the group’s “mastery of logistics”. It is an undeniable strength of Jumia but also one of its main costs. “Unlike Amazon, Jumia is a logistics company than operates in the last mile, which is extremely expensive,” says an analyst.

It is no coincidence that Jumia has several telecommunications companies among its shareholders. In Africa, the growth potential of smartphones and mobile payment solutions is considerable. According to a study published in 2013 by McKinsey, half of the African population will have access to the Internet in 2025 and the continent accounts for over 360 million smartphones. Over the next few years, Jumia has the ambition of diversifying the payment methods of its sites. Cash on delivery, which accounts for 95% of transactions, has helped build consumer confidence towards the platform in countries where counterfeiting and Internet scams are common. “There are many other methods of payment but they are neither practical nor widespread and consumers aren’t really enticed to use them,” says Sacha Poignonnec. When asked why they use cash, an African consumer will most certainly reply: “Why should I use something else?” Hence, we launched our Jumia Pay e-wallet, to offer the possibility of paying online in a simpler, more accessible and attractive way.”

The development of financial services is therefore one of the Group’s three priorities for the next five years. A second priority is to bring Jumia implementation in some countries to the level of its historic markets such as Nigeria and Morocco. “In countries like Uganda and Tanzania, for instance, Jumia has a strong potential. Its relative delay is only due to the fact that it was launched later,” says Sacha Poignonnec. Last and main priority: becoming a key player for the African consumer. Once again, this ambition makes Jumia similar to Alibaba: the Chinese giant gradually moved away from its initial goal by doing business online to become a true ecosystem. “I often take the following example when talking to my teams or partners: in Europe or in the US, people often wonder how they could even live before Amazon or Uber, etc. I want our customers to think the same about Jumia,” says Sacha Poignonnec. Only time will tell whether this ambition will be successful.