‘Fast Food, Slow Money’ Kills Top Player Jumia Food Fuelling Industry Scepticism
Jumia Technologies, Africa’s leading e-tailer, is pulling the plug on Jumia Food, its food delivery arm; shuttering the operation in seven countries where the unit operates.
The move, set to conclude by year-end, aims to bolster the company’s primary focus on advancing its online retail business, the company told to Reuters on Wednesday. It would come as an abrupt end to a platform considered the most established on-demand food delivery service on the continent, casting further doubt on a category deemed to be notoriously hard to pull off profitably.
Bolt Food’s recently announced exits from the Nigerian and South African markets in December amid struggles, underscores the taxing and challenging nature of the industry. In June 2022, Kune Food, a Kenyan food delivery startup operating a dark kitchen model closed shop barely a year after raising USD 1 M in pre-seed. The company’s Founder/CEO Robin Reecht said they “ran out of money completely” and couldn’t find investors, nor a buyer, though insiders allege mismanagement also played a part.
Africa’s food delivery market, projected to reach USD 7.45 B in revenue this year, has long been dominated by formidable players like Bolt Food, Glovo, and African e-commerce powerhouse Jumia which also launched a grocery delivery offering, Jumia Food Mart, last year.
Notable challengers have also emerged in recent years, including some startups backed by the coveted Silicon Valley accelerator, Y Combinator. At least one such meal delivery startup Chowdeck, which entered into this tricky landscape in 2021, is mounting a challenge to the status quo, hitting a growth tear that has also encouraged the rollout of a grocery delivery operation.
There will be more market share up for grabs following the recent exits of Jumia Food and Bolt Food, observers reckon, and the absence of the sort of additional financial encumbrances common with multinationals in multiple verticals could prove advantageous to pure-play delivery upstarts.
However, agility and expansion in markets fraught with challenges such as dwindling spending power, economic decline, rising fuel prices, traffic congestion—and poor road infrastructure/address systems which make deliveries inconsistent and inefficient—can often prove a loss-making effort or come at a cost too steep to make the numbers work.
Jumia’s food delivery business, present in Nigeria, Kenya, Uganda, Morocco, Tunisia, Algeria, and Ivory Coast, constitutes approximately 11 percent of the company’s general merchandise value for the nine months leading up to September 30. Despite its depth, the segment has yet to generate profits since its inception.
Nevertheless, sunsetting Jumia Food aligns with Jumia’s aggressive cost-cutting measures geared toward achieving profitability. The company has undertaken measures such as reducing its workforce, exiting everyday grocery items, and scaling back delivery services unrelated to its core e-commerce operations.
According to Jumia, this move signifies a deliberate effort to optimise capital and resources, marking a crucial step towards sustainable profitability. The decision was also attributed to the receding viability of Jumia Food within the current operational landscape and prevailing macroeconomic conditions.
Francis Dufay, CEO of Jumia, highlighted the challenges inherent in the food delivery segment, stating, “It’s a segment that’s very difficult across the world, with very challenging economics and big losses.” He emphasized the highly competitive nature of the segment, indicating intense competition both globally and in the African market. Dufay pointed out the economic strain due to high operational costs and intensified marketing expenses in the quest for customers.
In response to the closure, Jumia clarified that employees involved in the food delivery division will transition to supporting the core e-commerce operations in the affected countries.
The e-commerce player, known as the first Africa-focused startup to be listed on the New York Stock Exchange, has been actively curbing its losses. Recent reports indicate a substantial 67 percent reduction in third-quarter losses compared to the previous year, showcasing the efficacy of the company’s cost-reduction strategies.
