Powering the kiosk next door is a billion-dollar business

Delivering goods and credit to small retailers is big business and startups want a piece

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Helping Informal Traders Find Scale

For many people in Nigeria, shopping at a retail chain is not an everyday experience. Their perception from the outside is that these outlets are for the rich and that the items sold at these stores are expensive because of their massive buildings and impressive aesthetic. Yet, this perception is false. This misconception is from the shopping realities of the average Nigerian.

Most people shop at informal street vendors—street hawkers, open market stalls, and mom-and-pop stores. In almost every neighbourhood in the country, there are dozens of makeshift outlets at different corners selling sweets, soaps, food items, among many others. And it makes sense because most households don’t buy in bulk. If they need toothpaste, they will get one Close-Up to last for a week and buy again when they’ve visibly squeezed every paste. This is also true for fresh and frozen food, among many others.

Because these informal retailers have displaced big outlets in the shopping habits of most Nigerians, they cannot be ignored. You need them. Consumer goods companies from Coca-Cola to Indomie Multipro know these. So they’ve spent decades building complicated supply chain relationships with distributors and wholesalers to serve these last-mile retailers. Yet for these retailers, despite their extensive trading history, many of them cannot access the right services to scale their businesses. The Hausa-speaking trader down your street has been in that zinc kiosk for years. He wants to build a bigger shop, but financial institutions won’t give him loans, and he may not have basic bookkeeping practices that lenders find helpful. So his shop remains small, and he frequently runs low on inventory and has to take long breaks from his business to restock.

Over the last four years, a new group of tech-enabled startups have emerged to serve these last-mile retailers. Some operate as online-only platforms where manufacturers and distributors sell to retailers. But other companies have quickly inserted themselves into the value chain by purchasing goods in large quantities like other distributors to sell directly to retailers. In this case, these startups handle everything from the platform to logistics involved with moving items around. These startups markup the price as everybody, although at lower percentages, to make a profit. They’re not tied to one company or industry. They can sell Indomie from Multipro while delivering Dangote Noodles, CloseUp toothpaste from Unilever and GlaxoSmithKline’s Macleans toothpaste.

Internationally too, the model is getting major attention. Big companies like Reliance in India and world-famous Coca-Cola have developed their own B2B services. Mukesh Ambani’s JioMart is leveraging Reliance’s megastores for offline growth and last year Coca-Cola introduced a service called Wapi in Nigeria and India to sell not just Coke and Fanta, but products from other manufacturing companies.

I spoke to one seller and another distributor in Surulere this week, and they told me they’d seen a bunch of agents from various companies over the last year. From TradeDepot's hugely popular ShopTopUp to Omnibiz (which sellers believe is a major Indomie partner) to a brand called WareDirect and Wabi.

But the value of these startups is not just in order fulfilment but in their data. Their platforms use transaction data from traders, which is useful for understanding consumer trends at a broader level than individual consumer goods companies can capture. Also, that data is critical for credit financing. Because they have information on a trader’s buying behaviour, these startups can offer working capital to these folks, allowing them to grow their business, or at least, not lack capital to restock. And in the last four months, startups like Wasoko, Marketforce and TradeDepot, have collectively raised over $250 million in debt and equity with a significant focus on credit for retailers in Nigeria, Ghana, and a few East and West African countries.

Now, because informal retail is already a big part of Nigerian life, valued at over $200 billion, some investors say these B2B startups could grow larger than existing consumer-facing e-commerce businesses, i.e., Jumia. Startups like Wasoko (formerly Sokowatch) and Sabi are already posting annualized sales exceeding $300 million, and others like TradeDepot are possibly way larger.

And to be clear, the focus on the informal sector is not just shopping; it also extends to the healthcare industry. Companies like Helium Health and Lifestore have developed tailored solutions to cater to hospitals and pharmacies, respectively. Helium Health digitizes hospital records and uses that information to provide insurance and credit financing to these health institutions. Lifestore acts as a logistics and software service to pharmacies and uses that data for possible financing to these businesses.

Elsewhere, many folks in the startup community raise their eyebrows at this overwhelming focus on credit by B2B. It’s understandable, though. Issuing loans is not a problem. Recovery and defaults are the primary headaches. And as much as the industry is excited about the wave of B2B startups and their growth, their credit operations are still too early to pass judgment. Neither do we have enough details about their default rates.

Regardless, the model has significant potential, and it’s the kind of market-creating innovation many have long believed technology can bring to Africa. It’s an industry worth following and understanding because there's a lot to learn if it succeeds (or even fails).

What I’ve been reading

4 Women with 4 Very Different Incomes Open Up About the Lives They Can Afford.

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Despotism creates the circumstances of its own undermining. The information gets worse. The sycophants get greater in number. The corrective mechanisms become fewer. And the mistakes become much more consequential.

Big Cabal Media raises $2.3m to expand its compelling line of digital products.

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Something I couldn’t resist adding

*Editorial: Abubakar Idris