B2B retail e-commerce is rapidly growing in Africa, with the potential to transform the continent’s retail landscape. According to a recent article by Rest of World, the industry has attracted a significant amount of investment in recent years, with funding pouring into B2B e-commerce startups across the continent. This article will explore the future of B2B retail e-commerce in Africa, focusing on the impact of funding, the challenges posed by retailers having multiple apps offering the same services, the potential for B2B e-commerce to replace traditional distributors, and the role of manufacturers and product promotions in driving growth.
According to a report by Rest of World, investors invested over $400 million into Africa’s B2B e-commerce startups since 2021, with Nigeria, South Africa, Egypt, and Kenya leading the way. These funds are expected to enable these startups to expand their operations, introduce new services, and enter new markets across the continent. With the increased funding, the marketplaces have given traditional distributors a run for their own money by aggressively acquiring their existing customers and incentivizing them with product promotions and discounts. Often, traditional distributors operate in a specified zone but the B2B retail platforms are expected to scale their operations across multiple zones, and often to multiple countries disrupting the entire value chain. Often, we need to ask ourselves why multinational FMCG manufacturers like Unilever, Proctor & Gamble, Nestle, Mondelez International, Suntory, and the rest, appoint distributors only for specific zones or countries, but rarely for multiple countries.
Multinational FMCG manufacturers understand that disrupting existing market relations the distributors have with stakeholders like banks and last-mile logistic companies is difficult. As well, they recognize that the distributors have local market expertise, a rapid distribution network, and an existing customer base built over many years. By spending more funds, the marketplaces can disrupt this but not sustainably as these factors can prove to be hard to break in the long run. Retail business in Africa is not built only on lower prices and discounts but on trust with long-standing relations across the whole value chain from farmers to manufacturers, distributors, wholesalers, retailers, and the end consumers.
One of the key challenges facing B2B retail e-commerce platforms in Africa is the fragmented nature of the market. Retailers have to contend with multiple apps from different B2B marketplaces that offer almost the same services, leading to a lack of standardization and a higher learning curve for retailers who need to keep switching from one app to another with no loyalty toward a specific platform. In Kenya for example, it is no news to find a retailer with over five apps installed from different operators ranging from Wasoko, Twiga Foods, RejaReja, Dukaree, Copia, and Kyosk among others. What unique value proposition can all these B2B marketplaces offer to retailers to win their loyalty in the long haul? The increased competition can only be expected to drive innovation and improve service delivery, ultimately benefiting retailers and consumers alike.
Another area of focus for B2B retail e-commerce platforms in Africa is the replacement of traditional distributors. By offering a digital platform for transactions, orders, and inventory management, e-commerce platforms can streamline the supply chain and reduce costs for retailers. This trend is particularly evident in the fast-moving consumer goods (FMCG) sector, where the adoption of e-commerce is expected to increase rapidly in the coming years. However, many of the B2B marketplaces have found it difficult to compete amongst themselves and traditional distributors alike, often resulting in price wars by offering product promotions to woo retailers. Despite how difficult it might be to replace traditional distributors who have long relationships with manufacturers, as B2B e-commerce continues to grow, it is likely that more and more retailers will turn to online platforms to source their products, bypassing traditional distributors altogether. However, this will likely only happen if there is a higher value proposition from these marketplaces, which has proven to be insignificant so far compared to traditional distributors who can command better price negotiations from manufacturers owing to many years of doing business together.
Often, traditional distributors have survived by having segmented zones in which they distribute their products with assurances from manufacturers that they won’t appoint other distributors in those zones. This has always given a monopoly to these distributors. Unfortunately, this is not the case for the B2B retail platforms which compete for the same customers for the same products. If the distributors were to launch their own tech, what would be the unique selling point of these marketplaces? With increased competition, this puts a strong urge for both traditional distributors and B2B retail marketplaces to diversify their product lines, increase their market sizes and negotiate better rates with manufacturers.
We have noted B2B retail marketplaces extending credit facilities to retailers. Still, traditional distributors alike offer extended credit limits coupled with credit days, again, from longer trading durations with the retailers. What guarantees repeat orders from a retailer who has defaulted on their credit facility but has the option of ordering from another B2B marketplace? B2B marketplaces might not beat traditional distributors in regard to retailer loyalty, but if they are to improve it in their favor, there will be certainly a need for harmonization of credit information. How will retailers however respond to such a move as they might opine that their credit facilities from different marketplaces should be independent as each marketplace might have their own credit score?
Product promotions and incentives are also expected to be critical in the growth of B2B retail e-commerce in Africa. E-commerce platforms can leverage the vast amounts of data they collect to offer personalized promotions and recommendations to buyers, increasing sales and loyalty. Additionally, offering incentives such as discounts, free delivery, and cashback programs can help to drive adoption and encourage more retailers to transition to e-commerce. However, B2B retail e-commerce platforms can only compete on prices if they can command higher volumes from manufacturers.
But, how should they handle instances where manufacturers offer almost the same price to all and worse, lower prices to traditional distributors? This implies the need for value variation, which cannot be based only on offering price incentives. By offering a wide range of products, B2B marketplaces should be able to understand their customers better and tailor-make their products to suit the market. In the long run, all these B2B marketplaces need to establish whether to maintain a high-value small number of retailers or a low-value higher number of retailers, keeping in mind that low-value retailers are more likely to resist price changes.
Price wars cannot be the only value proposition to retain retailers. Building a loyal customer base with a solid loyalty program will become even more important in the future. It not only helps retain customers but also attracts new ones. B2B retail marketplaces and traditional distributors can build customer loyalty in many ways. First, by providing excellent customer service. Customer service is key to building customer loyalty. Offering a wide range of customer support channels, such as phone, email, and chat, especially WhatsApp, and ensuring that their sales representatives are knowledgeable and responsive can highly help in retaining existing customers. According to a report by Zendesk in 2022, more than six out of ten consumers say they will stop buying from a company and switch to a competitor after just one poor customer service experience.
Secondly, by offering personalized experiences, B2B retail marketplaces and traditional distributors should use data to personalize the ordering experience for their customers. This can include personalized recommendations, tailored promotions, and customized search results based on the customer’s browsing and purchase history. Not all customers should get the same offers and promotions, but by leveraging historical purchase data, these platforms can entice different customers with different promotions to help build a repetitive business from them.
Third, by implementing strong loyalty programs. A good loyalty program can incentivize customers to continue purchasing. This can include offering points for repeat purchases, or exclusive access to new services or features. For example, customers enrolled in a loyalty program can get exclusive access to higher credit facilities or better discounts, or even redeeming of their accumulated points from other service providers like airtime, electricity tokens, or even holiday offers. Therefore, it is crucial that B2B retail marketplaces build partnerships with other service providers to offer more value to their customers.
As well, these marketplaces and traditional distributors can provide value-added services by differentiating themselves by offering value-added services such as financing options, logistics, and inventory management. These services can help streamline a customer’s operations, making it more convenient for them to continue using the services. For example, offering added services for retailers to manage their retail outlets, from inventory to sales and simplified reporting, can help such retailers remain loyal to the extra value they get.
Finally, building a community around a B2B marketplace or a traditional distributor can help foster a sense of belonging and loyalty among customers. This can include hosting forums, webinars, and other events that bring together like-minded people in the industry. In Africa, we have a high affinity for social organizations like SACCOs (Savings and Credit Cooperative Organisations), and building such communities from where retailers meet to interact with other retailers can highly improve customer loyalty. Importantly, the communities can be leveraged to provide other services and cross-sell. Through such communities, the marketplaces should actively seek feedback from their customers and use it to improve their offerings. This can include soliciting feedback through surveys, and reviews, and effecting changes based on the feedback received.
The dream of every distributor or any B2B retail e-commerce platform is to have customers generating orders on their own without the distributors or marketplaces creating the demand, and in my opinion, whoever builds a strong customer loyalty base be able to do this without needing sales representatives to visit the customers, will have taken a yard off the rest of the market in building a sustainable retail distribution business and will be able to negotiate better rates, discounts, longer credit terms and larger markets with manufacturers.
In conclusion, the future of B2B retail e-commerce in Africa is bright, with increased funding and competition driving innovation and growth. However, there are still challenges to be overcome, such as market fragmentation and the need for more value addition other than offering ordering and delivery of products. I do not however believe that B2B e-commerce retail marketplaces will replace traditional distributors in the near future. Though, with the right strategies and investments, B2B retail e-commerce platforms will help to revolutionize the value chain and drive economic growth across the continent. In the end, it will be a win-win situation for everyone in the supply chain from the farmers supplying the manufacturers to the consumers purchasing from the retailers.