According to a report by media outlet Business Insider, Amazon will enter five countries in 2023: Belgium, Chile, Colombia, Nigeria, and South Africa. Amazon already operates in Egypt and has a large back office base in South Africa. The South African and Nigerian launches have apparently been given the codename “Project Fela”.
The timing of the South Africa launch is little surprise. Pre-COVID-19, South African consumers were largely resistant to shopping online, although that had started to change in 2019 and major retailers Shoprite and Pick n Pay both rolled out flagship ecommerce services that year. The South African government introduced several lockdowns (i.e. restrictions of movement) during 2020 to curb the transmission of COVID-19 and catalysed a major shift in demand for online retail. In August 2020, leading pharmacy chain Dis-Chem noted that “COVID-19 has matured the e-commerce environment and consumer adaption by 3 to 5 years.”
It is against this backdrop that all the leading grocery retailers in South Africa ramped up investment in the online channel. SPAR launched its integrated e-commerce platform in August 2021 and rolled out a new ecommerce platform, SPAR2U, in March 2022. It was relatively late to the game: the (Shoprite) Checkers Sixty60 app was launched in November 2019. By mid-2020 it had been downloaded 1.4m times. Pick n Pay had been accelerating its ecommerce offer since 2019 and acquired the Bottles app in October 2020, rebranding it to asap! in 2021. Woolworths launched its same-day service Woolies Dash in December 2020. Massmart announced a new ecommerce strategy in August 2021 and rolled out its new service last month (May 2022).
So Amazon isn’t entering a wholly open market and Naspers/Takealot has known for some time that as the most developed retail market in Africa it would be Amazon’s obvious choice for market entry. The non-food side of ecommerce is quite undeveloped in South Africa compared to Amazon’s other markets: Amazon’s main competition apart from the supermarket chains will be Naspers-backed Takealot, which launched in 2011. Takealot has over 6,000 employees and 13,428 drivers.
This week Takealot revealed that revenue (GMV) increased 34% to R13.2bn ($827m) for the year to end March 2022. Despite strong sales growth, Takealot recorded a R111 ($7m) trading loss, the same as the year before. It will use the 8 months between now and Amazon’s planned launch date to invest in new services, including grocery products and developing its marketplace-style fulfillment services for independent and small businesses.
Shoprite too has accelerated its ecommerce strategy ahead of Amazon’s market entry: in December 2021, it entered into a joint venture in which it will own 50% of RTT Group. RTT Group handles the last-mile logistics of its Checkers Sixty60 ecommerce service. At the time, Shoprite revealed that its Sixty60 employed more than 4,000 people.
So who is most at risk? We know that in the short to mid term, Amazon will do two things: revolutionise the sale of non-food mass market merchandise, and when Amazon introduces its Prime service, it effectively starts to commoditises fulfillment and final mile logistics.
This places a few companies most at risk: Massmart, Jumia, Takealot, Mr Price and Woolworths.
In our opinion, Takealot is best equipped to compete with Amazon and could potentially become an acquisition target for the American ecommerce giant. It has significant brand loyalty and presence in the market. Amazon is not unassailable: it never captured more than 1% market share in China. In April 2019, Amazon announced its withdrawal from the Chinese market after 15 years of trying. It built a large proprietary logistics infrastructure and found itself outmanoeuvred by Alibaba’s asset light strategy of using local logistics companies. There are potentially very important lessons from China for ecommerce operators in African markets.
In South Africa, Jumia has partnered with Zando and effectively pivoted to becoming a fashion retailer. It is an awkward play, out of step with Jumia’s strategy elsewhere in Africa but does limit its exposure to competition from Amazon.
Massmart faces serious competition unless it can enforce its discounter credentials effectively. It has a weaker ecommerce offer than Shoprite and Pick n Pay and much more exposure to non-food and electricals. Walmart is already weighing its options for exiting South Africa after years of currency depreciation and poor performance have dogged Massmart and it would not surprise us if Amazon’s growth ended up settling the issue.
Mr Price and Woolworths and are both at long term risk because of their exposure to homewares and mass market non-food. In the US and UK, for example, Amazon has inflicted long term damage to the department store/general merchandise retail sector. It has taken two decades, but one can trace the decline of Sears (US) and the way in which Marks and Spencer and John Lewis in the UK have had to work hard, pivot and innovate directly to move away from the ground Amazon has swallowed up in the general merchandise retail sector.
In Nigeria it is a different picture. The only real competitor, online or bricks and mortar, is Jumia. Commentators tend to include Nigerian ecommerce firm Konga as a serious Jumia or Amazon competitor but we don’t. We’re not clear it is profitable and it is prone to exaggerating its scale and sophistication in what we interpret is a bid to attract investors. It will not survive long term against Amazon in its current form.
For certain, Jumia will come under significant pressure in Nigeria. Jumia launched in Nigeria in 2012 and it is the company’s largest market by far in Africa. It operates its main Jumia ecommerce site, a fulfilment service, JumiaPay (payment gateway) and JumiaFood, its Q commerce service. The stock market hasn’t really reacted to the Amazon announcement by downgrading Jumia shares but then exactly one year ago, Jumia shares traded at $31.46 and today they trade at $6.92 so there is arguably only so far they can fall.
For years, Jumia badged itself as the Amazon of Africa and tried single handedly to revolutionise ecommerce in a series of markets with complex, immature logistics infrastructure and severe issues with unaffordabiility of goods. Put simply: it underestimated costs/complexity and overestimated demand. In its failures it has had to learn lessons, and has significant local knowledge that Amazon lacks, for now. But we note that Lagos is full of ex-Jumia senior execs who can be tapped into, many of whom have gone on to found their own startups. Jumia’s major problem is that it has pushed the rock up the hill for so long that it may simply lack the management energy, financial war chest and investor backing to take on Amazon head to head.
Unlike in South Africa, we don’t see Amazon’s market entry in Nigeria as straightforward. Its preferred model of owning the best in class logistics and using Amazon Prime to commoditise fulfilment is not guaranteed to work. The strong lesson from China is that penetrating peri urban areas, smaller towns and rural areas may need a different approach. To that extent, we expect Amazon to take an interest in B2B procurement apps, and especially TradeDepot in Nigeria (which would also give Amazon a footprint in Ghana). It is likely it will also look to build a relationship with a major distributor experienced in local delivery. Obvious candidates would be Imperial Logistics (Fareast Mercantile) or Multipro (Tolaram). At present, Fareast Mercantile partners with Jumia in both Ghana and Nigeria.
In summary, Amazon’s success is not assured in either South Africa or Nigeria. Both represent different kinds of markets for the company. In South Africa, the challenge will be the strength of Takealot. In Nigeria, the complexities of a highly fragmented market with a large, low income mass market and major issues such as shortages of forex and high distribution costs.