The biggest online retailer on the continent, Jumia, made the startling announcement that Jumia Food, its food delivery service, would close by the end of December 2023. This news has repercussions for the whole African e-commerce sector.
This abrupt departure creates a significant vacuum in Africa’s booming food delivery market and raises questions about the future of the industry and the difficulties faced by key participants.
Francis Dufay, CEO of Jumia, cited a strategic focus on the company’s primary physical goods business and the Jumia Pay platform as the main causes of this departure.
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Even though Jumia Food made up 11% of the company’s gross merchandise value, its continuous efforts to turn a profit eventually proved to be the deciding factor.
“The more we focus on our physical goods business, the more we see the significant opportunities for Jumia to grow and turn a profit,” he said. Therefore, we need to act wisely and focus our teams, management, and financial resources on taking advantage of this chance.
The announcement of Jumia Food’s closure did not come as a surprise to industry observers, given its unpredictable history. Following an impressive 82% year-over-year growth in 2021, a focus on profitability and lower customer incentives caused the company to suffer a severe fall in 2023.
This move reflects a larger pattern; prominent player Bolt Food has revealed its intention to leave South Africa and Nigeria, highlighting the difficult reality of the continent’s food delivery market.
A turbulent and difficult business environment is exacerbated by economic downturns, rising inflation, and fierce rivalry from well-established rivals like Uber Eats and Gokada.
It’s a segment that’s really tough globally, with extremely terrible economic conditions and significant losses. Additionally, it’s a highly competitive market in Africa and the rest of the world, Chief Executive Officer Francis Dufay told Reuters.
Because of the high prices and intense rivalry in this sector, “the economics are tough because there is downward pressure on our commissions and upward pressure on marketing costs because everyone is fighting for customers.”
Amidst the industry’s troubles, certain players are prospering. Glovo, a company established in Barcelona, is establishing strong relationships with restaurant chains to gain traction in Sub-Saharan Africa. Over ₦1 billion worth of food was delivered in a single month by Nigerian firm Chowdeck, marking a noteworthy milestone.
Even while Chowdeck has achieved remarkable success, Jumia’s size is noteworthy. Jumia failed to turn a profit for nine months while bringing in an incredible ₦5.7 billion in food delivery GMV, which is a common problem in the worldwide food delivery sector. Even with behemoths like Doordash and Uber, this issue is apparent despite large venture capital investments.
The market for food delivery in Africa is expected to grow to $1.7 billion by 2028, indicating enormous potential. But to succeed in this industry, one must overcome challenges; the keys to success may lie in technical advancements, strategic alliances, and capital-efficient business models like Chowdeck.
