CEO: Deep-Pocketed Competitors Force Jumia to Discontinue Food Delivery

Last week, pan-African e-commerce platform Jumia said it was discontinuing its food delivery service, Jumia Food. However, of all the streamlining efforts, its exit from the food delivery business across seven markets was the most unexpected. This trend might persist with its exit from the food delivery business. Jumia’s statement last week said that the company’s food delivery business wasn’t suitable to its market’s operating environment and macroeconomic conditions. Also, how fast will the company grow the physical goods business to make up for this food delivery exit?

Last week, pan-African e-commerce platform Jumia announced the discontinuation of its food delivery service, Jumia Food. According to the company, the decision came due to the current operational landscape and macroeconomic conditions in seven markets:

  • Nigeria
  • Kenya
  • Uganda
  • Morocco
  • Tunisia
  • Algeria
  • Ivory Coast

As a result, Jumia Food will cease to exist in these markets by the end of the month.

Jumia has been cutting costs since new management took over last year, and the numbers show significant progress on that front. Year-to-date, Jumia’s adjusted EBITDA loss stands at $61 million, a 61% decrease from the first nine months of 2022, and the company projects not to exceed $90 million by the end of the year. Jumia has already suspended its first-party grocery offering, logistics-as-a-service, and food delivery operations in specific markets where economic viability was deemed unsustainable.

However, out of all the streamlining efforts, the exit from the food delivery business across seven markets came as the most unexpected. Jumia Food previously accounted for approximately 11% of the company’s gross merchandise volume (GMV) in Q3 2023. It was also the fastest-growing category on the e-commerce platform and the second-largest category behind fashion in volume terms for years.

“When we announced our decision to discontinue food delivery, what I’ve tried explaining is that while it’s sad news because, at least internally, we were all quite emotionally attached to the service, and it’s been part of the family for a long time, it’s good news for the company as we continue to reduce losses,” Jumia CEO Francis Dufay said in an interview with TechCrunch.

While reducing losses is significant, it’s crucial to note Jumia has also experienced a decline in active customers and orders compared to the previous year. This trend is expected to continue with the exit from the food delivery business. In this interview, Dufay addresses how Jumia intends to navigate this, the company’s focus on its core physical goods business, and the reason behind the decision to exit the food delivery market.

The company’s statement last week stated that Jumia’s food delivery business was not suitable for the operating environment and macroeconomic conditions in the market. In an interview, Dufay provided more insight into this decision.

Q: Can you explain what this means?

We had two main business lines: ecommerce physical goods and food delivery. The physical goods business has consistently shown positive growth trends with healthy economics and fantastic potential. And in that segment, we believe that we know what to do to grow and we’re better than many competitors. On the other hand, with Jumia Food, we were fighting very hard in a difficult and extremely competitive market with many competitors having very deep pockets and being aggressive.

To me, it made little sense to continue economically speaking. Some of these markets are small and crowded. While we had little upside potential, it required disproportionate efforts to maintain the business because of huge competition, operational complexity, management of many vendors, and so on.

And so, since we’re a company with limited resources, we have to make choices. When I say limited resources, it means not infinite. At the end of last quarter, we had $147 million in the bank accounts. So we have resources. But as a CEO, I must decide where they will be better invested. So we decided to focus all our energy, teams, leadership, and financial resources on the one big opportunity with a clear upside and where we know how to capture it and grow profitably: physical goods e-commerce.

In response to the discussion about Jumia Food’s exit from the market, Dufay also commented on the company’s competition and the overall state of the market.

Q: Who were Jumia Food’s main competitors, and what are your thoughts about the market?

Across the whole continent, there are international players, such as DeliveryHero behind Glovo and Yandex behind Yango Delivery. And we expect them to keep on expanding across many more countries. Even though Bolt is leaving Nigeria and South Africa, Uber Eats and local players, such as Yassir in Northern Africa or Chowdeck in Nigeria, still exist.

In general, we saw over the past year that while we expected the market to become a bit more rational, it did not surprise us. Food delivery is a market with very low barriers to entry. You need an app that’s working somewhere in the world. But then you will always find restaurants that have already been educated about the business and are ready to join your platform anytime. You will always find bikes and people to ride them. And you’ll always find customers willing to use the vouchers you distribute. So, getting into a new market is ridiculously fast; it’s just a matter of buying market share. I mean, I might be simplifying a bit, but the barriers to entry are usually pretty weak, making it a very unattractive business worldwide.

Q: What do you mean the market wasn’t rational?

When a company advertises 30% off, including free delivery, you can be sure they’re losing money on every single order. It’s justified by the fact that they’re burning money to grow and buy market share. Many players are still very aggressive in how they look at the business and the markets, which results in unfavorable economics. The point is that it’s not short-term; it’s been this way for years across many African markets. And from what we’ve seen in competitive dynamics, it will remain this way for a long time because there will always be someone new coming into play.

That’s why we are exiting the segment and focusing all of our resources on physical goods e-commerce, where the dynamics are very different. We have very clear assets and barriers to entry, such as logistics footprints, which are very hard for competitors to replicate. The dynamics are also very different between physical goods e-commerce and food delivery across other markets.

Q: Can you explain further?

A: We have an extremely well-developed logistics network in the physical goods business, with a mix of door delivery and pickup stations in many countries. We have our technology and partners that are often loyal and dedicated to Jumia. And any competitor coming in would need to build a distribution network. And that will take a lot of time. It takes a lot of adaptation. The dynamics across Africa are very different from the dynamics, let’s say, in Europe when it comes to logistics.

While addressing concerns about the impact of exiting the food delivery business, Dufay also discussed the company’s plans to grow its core physical goods business.

Q: Aren’t you concerned about the further drop in users and orders on the platform? Also, how fast will the company grow the physical goods business to make up for this food delivery exit?

A: My thinking and my bet as a CEO is that by focusing all of our resources on one business line where we know we’re stronger, we should make up for the lost orders and customers faster with one business line with clear potential. We should make up for it, but I can’t give you a specific timeline as you can imagine. But that’s clearly the plan.

Dufay also highlighted the categories that Jumia is optimistic about in the physical goods segment.

Q: What are the items in the physical goods category that Jumia is optimistic about?

A: We’re seeing solid results in 2023 on phones and electronics, TV, appliances, home and living fashion and beauty; those are our core categories that we’re pushing hard on. And we believe that focusing there will make up for the lost usage of Jumia Food. We already see very positive trends in five countries thanks to those categories.

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Ava Patel

Ava Patel is a cultural critic and commentator with a focus on literature and the arts. She is known for her thought-provoking essays and reviews, and has a talent for bringing new and diverse voices to the forefront of the cultural conversation.

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