Sim Shagaya: Building Konga, Africa's Version Of Alibaba – Part Two

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simdul_shagaya_20140527_1049393230Following part one’s coverage of Nigeria and West Africa’s # 1 online retailer Konga.com; founder and CEO, Simdul Shagaya, describing the growth trajectory of his fast-rising company said, “our progress so far simply speaks to what happens when you have this incredible focus on the needs of the customer. Retailers manifest the dreams and aspirations of customers.” Konga‘s laser-like focus on the customer (Amazon has similar strategy) is remarkable given that the odds against Shagaya and indeed most entrepreneurs in Africa are manifold and daunting; in Nigeria and indeed much of Africa, logistics is a huge challenge due to lack of relatively well-developed infrastructure (African countries typically conduct only about 10 per cent of their trade with each other), the continent is not a manufacturing hub and relies heavily on finished products typically from the East and the West (natural resource extraction contributes more that 30 percent of Africa’s GDP with very few industries on the continent adding value to their natural resources), low trust which diminishes transactions between buyer and seller (given the lack of digital-payment penetration across the continent, most consumers still pay with cash while a small percentage of people in Africa enjoy the convenience of card-based, online and mobile payments and banking); barriers to e-commerce in Africa seem insurmountable. “The primary challenge in Africa is the absence of coordinated and structured logistics networks. Logistics does exist in a chaotic, unstructured type of manner. And one of the greatest challenges Konga must tackle will be to bring order to this frenzied, unstructured energy of logistics that currently exists in the market,” said Shagaya.

Simdul Shagaya, founder & CEO of Konga.com and DealDey.com
Konga’s sweet spot lies in its ability to execute within an extremely challenging ecosystem as well as perform some “heavy lifting to ignite online commerce” through its two primary business units: Konga Online Services and Konga Logistics Services (K-Express). “Our company is a true marketplace that provides not only a platform for trading but an integrated fulfillment experience for Konga’s buyers and sellers,” said Shagaya. Konga Online Services manages the e-commerce platform and operates some proprietary trading; when asked about the company’s revenues, as with most privately-held companies, Shagaya said, “Konga doesn’t disclose revenues but the business is growing fast.” While Konga’s proprietary trading dropped from 100% of Gross Merchandise Value (GMV) at the start of 2014 to about half of GMV during 2014, this was largely due to its shift in strategy of opening up its platform to local merchants; “We expected to have 1,000 sellers on the marketplace by end of 2014. We closed the year at 8,000 merchants.” By transforming itself from being just a pure-play e-tailer to becoming an online platform and marketplace that enables merchants to connect with consumers, Konga’s long tail eclipsed that of competitor Jumia, which is backed by venture capital firm, Rocket Internet.

Nigeria’s population and certainly the rest of West Africa and the continent have long been primed for a long-tail business model and Konga is at the vanguard of it; connecting a vast and dispersed population, solving the logistics challenges and enabling commerce between sellers and buyers who do not have any digital means of exchanging money. The macro-economic context in Nigeria and in Africa was right for Shagaya and Konga; there was a critical mass of a middle class who have access to both smart phones and broadband.
Despite significant barriers to entry on many fronts, according to Shagaya, “pay-on-delivery is the overwhelmingly favorite of the Nigerian consumer right now and Konga has had to embrace this method of payment and build around it until such a time when there is a much more fundamental shift in the way people pay for things online.” For Konga, this means that they run a vertically integrated operation that tightly couples last mile logistics and retail operations; a buyer pays the delivery-person cash for items ordered and often times buyers try on the product before completing the transaction. In this part of the world it is during this crucial part of logistics, the ‘last mile’— the last leg of the supply chain, particularly during actual delivery to the customer that is critical as this is where Konga facilitates and secures most payments. Konga increasingly acts as a payment gateway via its K-Express subsidiary, where K-Express delivery personnel either collect cash from customers or carry point-of-sale equipment on their mobile devices to complete transactions. To put it in perspective, in the U.S and most developed markets, payment for online retail occurs upfront at the time of purchase as opposed to the ‘last mile’ at delivery.

According to Shagaya, “Konga operates the largest proprietary delivery fleet in Nigeria.” Konga, which is funded primarily by two investors – Naspers and Kinnevik, through its subsidiary, K-Express, owns assets that perform supply chain logistics. K-Express, a fully licensed courier company also plays the critical role of coordinating third party logistics providers – large and small – to enable e-commerce logistics. “We had to build this business out of necessity rather than desire; but by building a world-class logistics company, we give the Nigerian customer a fulfillment experience unlike order fulfilment experiences in most developed parts of the world.” Additionally, Konga has a proprietary messaging tool built into its ecommerce platform that allows for real-time communication across web and mobile between buyers and sellers; “K-Talk, as we call it, is enormously popular amongst Konga buyers and sellers as it allows for trade and commerce to happen in a manner that speaks to the African’s cultural need to communicate. We find that this is one way in which ecommerce in this region differs from others parts of the world. People here tend to communicate a lot before concluding a transaction.”

In addition to Konga marketplace, there is Kaymu, a marketplace platform funded by European-based Rocket Internet that was launched in 16 African countries, Buyam founded by Emeka Mordi of Nigeria and other smaller ecommerce platforms. Although still in the early stages of growth, Nigeria and certainly the continent’s ecommerce ecosystem is profitable and showing signs of exponential growth and super sized profitability. Although there are relatively a few players given the potential size of the market, winners in this space will need to understand that the DNA of an ecommerce marketplace in Africa is complex; they need to know the nuances of the region’s geography, culture, and language, the fabric and texture of the local lifestyle, as well as the history and aspirations of the local communities, etc. “For longevity and success in Africa, you simply cannot just parachute technology into an area,” said Shagaya. To be sure, successful ecommerce marketplaces in other parts of the world were indeed founded by entrepreneurs indigenous to their particular region; Alibaba in China (Jack Ma), Tokopedia in Indonesia (William Tanuwijaya), GMarket in Korea (Young Bae Ku), GittiGidiyor in Turkey (Serkan Borançılı, Burak Divanlıoğlu and Tolga Kabataş), MercadoLibre in Latin America (Marcos Galperin), eBay in the U.S (Pierre Omidyar whose family moved to the U.S. when Omidyar was a child).
Konga Marketplace’s measured moves and ‘heart and smart’ efforts appear to resonate well with local buyers and merchants. Lola Udu, a merchant on Konga.com who sells her own luxury hair line and beauty brand, Lo’Lavita said, “I signed on with Konga because of the aggression and passion in which they penetrated, captured and sustained their market share; I wanted to be part of its growth. I knew that joining the Konga marketplace would give my brand increased visibility and it has paid off.” As such, Konga’s magic formula lies in the strength of its relationships with the various marketplace participants, “I don’t believe I’m an ordinary vendor with Konga but a partner who brings value to the platform,” said Ms. Udu. “It was listening to the customer that drove our strategy, our catalog expansion, the build-out of our logistics network, our pricing and the sort of people we hire,” said Shagaya, explaining the popularity of the Konga platform with merchants and customers. According to the serial entrepreneur, close to USD $100 million has been raised towards achieving Konga’s vision and strategy.

Africa’s retail industry, much like the rest of the developing world, is coming of age in an era of digital disruption, “issues such as Ebola, Boko Haram and other geo-political matters mask the economic progress this continent is making. We can’t dismiss these. But underneath lies, in Nigeria for example, a country that has grown at 7% annually for almost 15 years now. That’s impressive and gives one reason for hope. And it shows in the consuming trends of Nigerians,” said Shagaya, founder of Konga.com, a rising African ecommerce behemoth that is deftly riding the wave of Nigeria’s mobile and internet revolution.

* Long tail: coined by, Chris Anderson in his book, The Long Tail, explains online retailers’s ability to offer seemingly infinite inventory and aggregate a vast and dispersed market that traditional retailers cannot offer or reach.

 

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