Due to popular demand and data we have collected after few weeks of publishing Africa’s Sankofa Innovation, we will be releasing both Kindle and paperback versions in Jan 2018. We have heard loud and clear from many Tekedia readers that you would need a hardcopy. Also, many have also noted they would like an electronic version via Kindle over reading on the site. Yet, some like the web version as they can comment and ask questions to me for explanations. We will make all options available.
While we continue to welcome subscribers who pay to have access to the subscription-only articles, besides the books, we will unveil paperback and Kindle. It will be in January to have 2018 (as the publication date) since it does not make sense to have a book published in November. It becomes an old book after a mere two months.
We are making this decision based on data. More than 85% of the subscriber engagements are coming from EU, Canada and U.S. We think that the cost of broadband (with metered Internet) is affecting those in Africa to engage, even after subscriptions. Since we do not want to have a PDF document, we will offer a paperback.
Amazon will handle the printing and all logistics. They currently sell my other books. This will be priced very affordably. We will let you know when the book goes on sale.
Gloo.ng and Supermart.ng are the two leading food-focused ecommerce companies in Nigeria. They are doing businesses in one of the most difficult sectors to execute any type of ecommerce operation. It is very hard to standardize grocery, and also the quality element is not a pure science. Yet, these two companies are accumulating capabilities to serve customers, find growth, and flourish.
Supermart is a grocery delivery service that enables shoppers to buy grocery from different supermarkets and stores, and then deliver the purchased items to the customers. This company essentially does not carry any inventory. It is an aggregator. The implication is that it can enjoy high scalable advantage digitally. However, since it runs a delivery company, in a nation with no postal service, it has a huge marginal cost in the physical part of the business. No wonder, it has a geographical boundary where its services are available. By this location restriction, Supermart cannot be considered a truly digital company since its marginal cost is largely in the meatspace: web business typically serves all locations, unconstrained by geography.
Gloo is largely similar. From its Crunchbase entry:
Gloo.ng is an electronic procurement engine dedicated to delivering direct to the doorsteps of her clients, on a same-day basis and at very affordable prices, a wide variety of high quality brands of supermarket goods. Gloo.ng provides her clients very convenient, very efficient and very affordable means of shopping for supermarket goods, saving them irreplaceable time, needless stress and valuable money, thereby enriching their lives with the happiness these savings facilitate.
These two companies are running a really brilliant business model: aggregation which could have made them asset-light companies. However, since Nigeria does not have a postal system, they are quickly flipped to become asset-heavy since investments in bikes, vehicles, and associated equipments, are necessary to run logistics in places with no postal services. The logistical arm is the weakest link of the business vision. As they grow, they have to increase capacity to serve more cities. As that happens, the inherent reduction in marginal cost which could have benefited them for scalability will not flatten rapidly. It means that both Gloo and Supermart cannot simply scale as digital companies because the marginal costs are dominated by the meatspace operations. I do expect them to remain in locations like Lagos, Port Harcourt and Abuja for years. The challenge to cover all major Nigerian cities will be daunting.
Distrust: Rich Africans have yet to embrace online shopping, due to online fraud. In Nigeria, for example, where phishing is common, people are skeptical about putting their credentials online.
Cost of broadband: Africa enjoys tremendous growth in mobile internet which is the popular means for people to access the web.
Logistics: Amazon.com and eBay are great companies that depend on the U.S. postal system to serve their customers. I sell my own books online in U.S.; once a buyer makes payment, I drop the book off at the post office to close the transaction. In Africa, it’s more complicated with nonfunctioning postal systems. Online businesses operate delivery motorbikes, which increase the cost of doing business there.
African open market: In Africa, there are “markets” everywhere, starting with the security guards who run stores in front of their masters’ mansions. There are open markets, supermarkets, and even unemployed youth selling things at traffic stops in major cities.
Literacy rates: Even if all the infrastructure and integration issues are fixed, illiterate citizens may be unable to participate directly on e-commerce sites that require reading and writing skills. .
Every ecommerce firm in Africa (except South Africa) will deal with some of these challenges. Gloo and Supermart are experiencing some already. That is the main reason why they have bounded their geographical locations. And they are smart to do so. Providing grocery delivery services to someone in Opobo will not make good business sense.
Why They Need to Merge
It is always hard to ask Nigerian companies to merge. We are not good in that. But when you look at the operations of both Gloo and Supermart, you will quickly see where the bulk of the money is going: logistics. Since they do not really carry inventory, their main cost model goes to logistical operations to deliver very fast once clients buy the items. To do that, it means they have to keep expanding logistics as they expand. Scale will bring higher efficiency in asset utilization. And that is why I think both should merge. That will give them the opportunity to combine their resources, and reduce distribution cost which is the main driver of the marginal cost in the business.
In ecommerce, there are three components of marginal cost: cost of goods sold, distribution cost and transaction cost. Only the distribution is relevant for these two companies. And it is the cost that clearly shows that to win, these companies have to combine resources.
There are three major marginal costs which are consequential in the broad ecommerce business: cost of goods sold (COGS), distribution cost and transaction cost.The distribution cost is the most challenging in Africa because that is the cost that turns an ecommerce operation into a traditional physical business. The first, COGS, is incurred irrespective of the nature of the business. It is the cost of production, i.e. the cost of producing the product which is being sold. The last, transaction cost, is mainly the fees incurred as part of the commercial transaction activity. This can include a merchant fee for accepting credit/debit card from the payment processor. Here, I explain how the distribution cost can be handled.
Shoprite Acquisition
The future of commerce is digital. That means even if companies like Shoprite are not interested in digital businesses now, they will in near future. Hybrid commerce requires the elemental composition of atoms and bytes to win. Shoprite may like to acquire a strong Gloo/Supermart post-merger to run its delivery business. Executing this model will help Shoprite enjoy benefits associated with invertibility construct.
All Together
The business of grocery will remain challenging because of the fragmented nature of the sector. There are also open markets everywhere. But as the days pass, digital grocery business will find its space. Unlocking the opportunities will require more investments. If Gloo and Supermart combine, they will have higher scale to redesign a sector they have pioneered.
Recently, I gave a major speech in the Nigerian Defence Academy Kaduna. Speaking behind the emblem of the NDA with photos of military generals and the President behind was a moment.
The President of the Nigerian Senate, Senator Bukola Saraki, presented a paper during the National Conference on ICT and Cybersecurity which was held early this week in Abuja. He spoke eloquently on the challenges of cybersecurity in our nation, and the need for government to engineer effective policies to curtail their impacts.
As the nation’s third citizen and the leader of the Senate, Senator Saraki’s statements certainly have influence. I note the following from his presentation:
Internet Crime on the Rise
The Senator noted that “Internet-facilitated crime seems to be growing” in Nigeria. He explained further as follows:
Our cyber borders are very porous indeed. Some $450 million was lost to 3,500 successful cyber-attacks over a one-year period.- roughly 70 percent of the overall hacking attempts in the country. Estimates suggest that the hole created in the economy by cyber-crime amounts to 0.08 percent of the GDP – a loss of about N127 billion. This, needless to say, is unsustainable.
Regulation of Bitcoin
The Senate President noted on the case of Bitcoin as follows:
Still on the mutability of cyber threats, some of you may recall that the last major Ponzi fever in Nigeria fizzled out in a hail of bitcoin – a cryptocurrency exchanged anonymously on the Internet. The operators stopped paying investors in Naira, offering them bitcoin instead. However, cryptocurrencies, being relatively new, are not subject to any local laws regulating their use. This is an internet grey area that impacts on real people in real-time. I note that the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Commission (NDIC) have set up a committee to look at the use of bitcoin in this country …as there is clearly a need to establish a framework for the regulation of bitcoin and other cryptocurrencies.
Commentary
Certainly, the Senate President will like to see Bitcoin regulated in Nigeria. That means that Bitcoin could be legalized in the nation for it to be regulated. He could have said that Nigeria would ban Bitcoin, but that was not where he was going. It seems obvious that most nations will arrive at the conclusion that cryptocurrencies would need to be regulated, over outright ban, since it would be hard to enforce a ban. Nevertheless, regulating Bitcoin may be extremely hard since the Central Bank of Nigeria will not have the absolute supernatural power over Bitcoin. My recommendation will be to create a digital currency that will be tied to the Naira which CBN could easily regulate. I expect the CBN and NDIC committee noted by the Senator to provide directions in coming months.
My position remains that we do not need Bitcoin but Nigeria needs a digital currency tied to the Naira that will enable the efficient functioning of the blockchain infrastructure which I expect to evolve in coming years in the nation. If the Central Bank blesses such a plan, we will experience a virtuoso innovation system in redesigning the architecture of some of our industrial sectors and make them more efficient even while being cost-efficient. As I noted in my entry on Blockchain Africa, blockchain has a promise for Africa. Nigeria just have to find a way to lead in that promise at least in West Africa where its impact is huge. As Goldman Sachs goes closer to Bitcoin and digital currency, we may be too slow that very soon, it becomes an entirely foreign imports to Nigeria.
I lead an Advisory Services Practice in my Group. We serve clients in U.S and across Africa. In this business, we do not do rocket science. Consulting, under most circumstances, is someone telling you to do what you could have figured out yourself. Sure, there are very complicated assignments where you have to crack your brain, develop and use frameworks, relying on data to help clients. Those projects task the power of brainpower and the capacity to manage complexity to bring order to a client’s business challenges.
But most times, it could be easy. This week, I helped a small hotelier. I went to a tier-3 Nigerian city for a project preparation phase. My flight was delayed so I landed very late. My client took me to a hotel very close to the airport since I did not want to drive deeper into the city in the night.
When we got to the hotel, I noticed that out of the five bulbs in the reception, only one was shining brightly. Others were dim. I asked the receptionist if I could speak with the Manager. She obliged and called the Manager. I told the Manager that he was not doing a great job. I explained that he could be losing more than 30% of potential customers in the night due to those bad bulbs. I asked him to go immediately and changed them. He was not saving any money for not replacing them.
Interestingly, they have MOPOL and excellent security in the hotel. The rooms were also above average. But they simply neglected one of the most important elements of the business: the reception. I estimate that the 4 bulbs may not cost more than N2,000.
In the morning as I was leaving the hotel, the Manager came and told me that he changed the bulbs in the night. I commended him and also told him to go and buy paints and paint the hotel gate. That may not cost him more than N20,000, He said he would do so. We exchanged business cards. I left for my client’s business location with his driver.
What I did is nothing but consulting. Sure, it is unpaid and unsolicited. The recommendations are possibly what a good consultant could have told that hotel if they have hired one to explore how to improve growth in the business. Little things matter. I will explain how great institutions do simple things to win:
The Rwandan Development Board (RDB): RDB is one of the finest investment ecosystems you can visit in Africa. It looks like a trading hall. Once you enter RDB, you may think you are in Goldman Sachs. They take care of everything, polishing the tiles and communicating excellence in their physical outlook. The impression is legendary. You will like to do business in RDB: I like going there. Nigeria has not done a good job in this area. We sincerely need to improve how we project the image of our key institutions to the world.
U.S. Universities: Most U.S. top universities make their schools excursion destinations to create real impressions to visiting potential students. They repaint seasonally so that those students, when they visit, see a spotless campus. That is part of a competitive system: you need to project an image of excellence. Nigerian universities hardly afford resources to keep great buildings in good conditions.
Little things matter in business. And when you work as an advisor to firms, it makes sense to even begin with those little things. Last year, on a project in East Africa with primary focus to boost organic growth, we worked with the client to take outside photos of all its stores. We ran a small comparison and noticed that revenue was nearly correlated to the outlook of the stores. The better stores attracted more customers and performed better. So, even before the real strategic work commenced, the client knew that upgrading/moving stores would be part of the recommendations. And indeed that was a key part of it and within 6 months, in addition to other minor changes, including changing the brand color to entice the market segment, revenue went up.
And when you talk of taking care of little things, it goes beyond being a founder to also when you are leading a unit in a company. One of my best projects was helping a client to model the profitability of all ATM machines and branches in its business. We developed a ranking on which ATM, branch, etc should be brought up first by the IT Group should many be down at the same time. When links go down, IT Group has a technology problem, but it was important that someone transitions that thinking to become a business problem. So, they have a ranking under bounded timeframes on what to do when links go down. It does not make sense to be working to fix an ATM in my village when the link to the one in the National Assembly is also down, when the former generates only less than 1% of the latter’s volume. You do not even need a consultant to tell you to do that. Yet, I am grateful you do!
As you run your startup, I challenge you to be mentally aware of your business. You must develop that spirit of awareness and do all necessary to understand the root cause of issues. Successful business leaders know how to take care of those basic elements. Google spends efforts before adopting a color or font for its products. Yours may be making sure that you have a decent illumination in your reception so that customers would be comfortable to wait, as they explore business opportunities with you. Having awareness should not need consultants, because most times, they simply tell you to do what you could have done yourself.
