Wednesday, February 21, 2024

The rise of e-commerce in Kenya

On September 4, this year, global e-commerce powerhouse Amazon became the second company in history to attain a market value of Ksh. 100 trillion.

This market capitalization was a crowning moment for the company that was started as an online bookshop in a garage by Jeff Bezos.

The company, which was initially incorporated as Cadabra in 1994 with a capital injection from Bezos’ parents has now gone on to make Bezos the richest man in the world with a net worth of $160.2 billion.

Jeff Benzos
Amazon Founder and CEO Jeff Bezos.

Interestingly, the company went public within three years in early 1997. And for more than a decade, it prioritized growth over profit by investing heavily in warehouses, distribution networks, and data centres.

“Every cent that Amazon made was put back into the business. The company kept its eye on the prize and has now become a trailblazer in e-commerce,” says technology analyst Rob Enderle.

According to the research firm eMarketer, Amazon’s e-commerce revenue will grow more than 28 percent this year to reach $394 billion, and will account for 49 percent of US online retail sales and nearly five percent of all retail spending.

The rise of e-commerce in Kenya
E-Commerce market insight with e-bay and Amazon

Evidently then, the success of Amazon is a reflection of the growing e-commerce industry not only in the US, but across the world.

E-commerce industry in Africa  

According to the World Economic Forum (WEF), e-commerce sales in Africa are expected to soar to over $50 billion by the end of this year from just $8 billion in 2013. Interestingly, a huge chunk of this revenue growth will be contributed by the Kenyan online retail sector.

Over the past one decade, Kenya has witnessed a boom in the online marketplace as consumers shift from traditional retailers to online shopping.

While this shift has been gradual, it has been steady, and has seen the entrance of numerous e-commerce players such as Jumia, Kilimall, and Masoko. “Online marketers have been more aggressive with target marketing and advertising which have focused on individual preferences,” says Sterling Investment Bank in a research statement to Bizna Kenya.

This is echoed by Sam Chappatte, the Managing Director of Jumia who says that the growth of e-commerce is a boon to the whole spectrum of the online marketplace.

Sam Chappatte - MD Jumia Kenya
Sam Chappatte – MD Jumia Kenya

The ripple effects of the growing e-commerce sector in Kenya have also spread to the banking industry. For example, Finserve, which is a subsidiary of Equity Bank is now providing its payment platform to rival banks as it seeks a larger share of the e-commerce market.

The subsidiary has currently integrated its platform with payment providers that include Alibaba, Alipay, WeChat, Visa, and MasterCard.

E-commerce in Kenya

Leading the e-commerce revolution in Kenya is Jumia Kenya, which runs online brands such as Jumia Deals, Jumia Jobs, Jumia Food, Jumia Travel, and Jumia House.

The online retailer, which also operates in 22 other African countries, recorded 550 million visits across Africa in 2017. The number of products on its brands grew to 5 million from just 50,000 recorded in 2012.

Customer preference for Jumia cannot be said to be so far-fetched, says Nairobi-based economist Elias Muthee. “The online retail space in Kenya is largely unexploited. And over the past few years, we have seen Kilimall, and primarily Jumia establish themselves as the regional e-commerce powerhouses,” he says.

Ironically, during this period, some e-commerce businesses have shut down.  For example, in February this year, online classifieds firm OLX shut down its offices in Kenya and Nigeria.

Although OLX had gained its popularity as an open marketplace that enabled uninhibited buying and selling, it speedily turned into a breeding ground for fraudsters.

“This saw the emergence of regulated marketplaces, and it is under this that Jumia has set up structures that have placed it a cut above the rest,” says Muthee.

Innovation, Trust and Convenience

Jumia’s growth has been driven by innovation and enhancement of customers shopping experience. This has attracted buyers who have never transacted online before. ‘Try Jumia for Free’ campaign by Jumia mid this year is an innovation case in point.

The campaign saw customers buy maize flour at Sh. 1 only and provided free deliveries for the product attracted 10,000 customers who shopped online for the first time. This campaign was in line with the government’s initiative of creating awareness on e-commerce platforms in Kenya.

In response to customer need for fresh produce, May this year, Jumia Kenya launched a new service that allows customers to order and receive fresh produce within hours.

Jumia Fresh saves Nairobians time and the arduous task of going to fresh produce markets on the fringes of Nairobi like Kangemi, Kawangware or Jogoo Road to get their vegetables and fruits.

The rise of e-commerce in Kenya

They can now order on Jumia and have them delivered within hours while still fresh. Additionally, unlike other e-commerce firms, Jumia has also been quicker in addressing concerns on the quality of products that customers buy online.

“There’s a general perception that since goods are sold at a discount, they are usually rejects or stock clearances,” says Muthee.

For example, Jumia has been running a free 3 month-guarantee on products valued at Sh. 1,500. “This means that the company takes direct responsibility for any unsatisfactory products a customer receives by offering refunds or replacements,” he says.

According to Sam Chappatte, the e-commerce has good prospects, “With e-commerce sales to grow 10x in value terms over the next 4-5 years (vs 2017).

This may sound aggressive, but it’s based on a conservative benchmark of how the industry has evolved in other parts of the world.” Further, “With 10x growth by 2022, we can expect the e-commerce industry to support at least 200,000 jobs. The industry will allow entrepreneurs, including women & people in rural areas, to build meaningful businesses & will support a thriving local manufacturing sector.” He adds.

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