“I don’t build boats, I build aircraft carriers,” Rocket Internet chief Oliver Samwer once told a potential investor. In Nigeria, the Berlin-headquartered group is doing more than that. For better or worse, and most of those we spoke to said better, it’s helping build a whole new online retail ecosystem.
The group’s work in Africa takes place through Africa Internet Holding (AIH), a joint venture between Rocket Internet and emerging markets telco Millicom. It holds a handful of companies – the most recent addition is Jovago, a hotel-booking website based in Lagos, Nigeria, and unveiled this week. The others include Jumia (think Amazon plus Zappos), Kaymu (eBay), food-ordering website HelloFood, real-estate portal Vamido, vehicles marketplace Carmido and Zando (fashion in South Africa).
In all, AIH’s ventures employ about 1,500 staff in at least eight countries, including about 500 at Jumia’s new 90,000 sq ft warehouse, also in Lagos.
Nigeria – the key to Rocket’s operations in Africa
It’s easy to understand why Nigeria is the centrepiece of Rocket Internet’s online retail operations in Africa. It’s Africa’s largest country by population, home to about 170m people. The number of people using the internet has increased from just over five per cent of the population in 2006 to about 33 per cent in 2012.
While 60 per cent of the population were still living in “absolute poverty” in 2010, the country’s economy is rising and a growing online-savvy middle class helped nearly double online sales from 1.7bn naira ($10.5m) in 2011 to 3bn naira in 2012.
“There is a very nice opportunity to leapfrog traditional retail in Africa,” AIH co-CEO Jeremy Hodara said in an interview this week. In other words, it’s not yet common in Nigeria for major international brands to have their own physical retail outlets – so when they do enter the market in a big way, they’re more likely to do so online first.
There’s a less obvious reason to start up in Nigeria first: “It’s also the most complex. When you understand how to operate a business in Nigeria, it’s easier to go into other countries,” Hodara said. “Rather than starting a business in Rwanda where it’s easy to do business, all the infrastructure is in place – and then trying to go to Nigeria.”
As well as building up the usual online retail infrastructure – suppliers, depots, delivery networks – Jumia has had to adapt to local market conditions in Nigeria, including customers’ preference for payment-on-delivery. To help fund its operations, on top of funding provided as part of Millicom’s deal with Rocket Internet, the company raised $26m from regular Rocket Internet partner Summit Partners in early 2013. It claims to have served over 500,000 customers and receive about 100,000 unique visits per day.
Few local entrepreneurs have the access to international capital to compete with AIH. One exception is Konga, a leading online retail platform founded by serial entrepreneur Sim Shagaya and backed by Swedish firm Kinnevik (also a major investor in Rocket Internet) and South African media giant Naspers. The company, which employs about 200, recently announced plans for a marketplace for third-party retailers – Konga Mall.
A new era for online retail in Nigeria
Jumia and Konga were both set up about a year ago. According to TechLoy founder Loy Okezie, it marked a new era for eCommerce in Nigeria. While online services were already around, they were relatively sluggish. “For me, it’s really great for the market,” he said. “The arrival of these guys is making people building for the local market step up and think international.”
Mark Essien founded hotel booking website Hotels.ng, a rival to Rocket Internet’s Jovago, in 2012. On the whole, he said, Rocket Internet’s arrival via AIH is good for the local ecosystem. “In a country like Nigeria, 40 million people have access to the internet, but five million people use Facebook. This gap shows that a lot of people who have access to the internet do not use it,” he said. “The adverts that Jumia pays for tells these people that the internet exists and things like online shopping can be done on it.”
He suggested Jumia’s rise helped boost the development of Konga, leading to a healthy competition between the two big players. There’s a dark side: “However, the combination of the two startups throwing millions of dollars has led to the collapse of a lot of smaller eCommerce sites.”
Okezie agreed: “It will also crush some companies that don’t have that financial muscle but that’s the way it is,” he said. “Right now it’s the boom time but in the next years there’ll be a lot of deaths for startups.” He was hopeful there would eventually be some acquisitions of local companies by AIH in Africa – possibly in niche online retail.
That decision may not be up to Rocket Internet. Millicom is more than a partner in AIH – it’s a potential future owner of both AIH and its counterpart Latin American Internet Holding (LIH). In mid-2012, it agreed to buy a 50 per cent stake of both for €340m with the option to acquire 100 per cent by 2016.
If that happens, Rocket Internet will be out – hopefully, leaving a positive legacy behind.
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