The Margin Problem That Won’t Go Away

Alerzo's eventful week

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First, it started with Alerzo

On Thursday, I saw news that Ibadan-based B2B e-commerce startup Alerzo was selling off its delivery fleet in connection with a ₦4.38 billion debt it owes Moniepoint. The story turned out to be wrong. Alerzo’s founder told Technext the company was disposing of damaged, non-functional vehicles from its fleet of about 400, something it’s been doing for six months. The publication has since amended the piece.

It was, of course, instantly believable. Alerzo has been in the news for struggles since 2023: layoffs, cost-cutting, and a Federal High Court asset freeze in connection with said working capital loan from Moniepoint. It has rarely addressed the issues and one of the dangers of silence is that people fill in the gaps for you, and they are rarely charitable when they do.

But that’s probably unfair to Alerzo specifically. With the notable exception of OmniRetail, the entire B2B e-commerce sector seems to just be focused on surviving.

MarketForce shut down its B2B platform entirely, and Sabi pivoted to commodity exports. Vendease abandoned its warehouses. The Wasoko-MaxAB merger, billed as Africa’s largest tech, has already seen a co-founder exit and COMESA opening a competition inquiry.

There have been many articles written on the impossible margins in this business model. Last May, in a piece called “Two Startups Walk Into an FMCG,” which told the story of how Flour Mills of Nigeria put about $8 million into Alerzo and also backed OmniRetail with sharply divergent outcomes so far.

But today I'm not thinking about who's winning and losing, but what the future of this sector looks like.

The core problem was never that founders were foolish. It's that venture capital returns from wholesale distribution economics are likely a long road. Credit was supposed to fix that. Then data. Now the sector is trying private labelling. That's the most interesting bet yet and also the one most worth interrogating.

Why the margins are brutal

Warren Buffett owns McLane, one of the largest wholesale distribution companies in the United States. It moves about $50 billion in revenue annually. Buffett has said it's a business that gives Berkshire Hathaway steady, reliable income.

A senior executive at one of Nigeria's major B2B e-commerce players pointed this out to me recently, unprompted. Distribution, he argued, is a model that works. It generates long-term, compounding returns. The problem — and it is the whole problem — is the margins.

FMCG distribution in Nigeria is a 2-5% gross margin business. The people who've done it successfully for decades understand this and built accordingly. Traditional distributors run lean: fewer than ten full-time staff, no delivery unless the retailer buys in bulk, no tech. They survive precisely because they never tried to make distribution better than it is.

Startups took a different view and layered an entirely different cost structure on top of those same thin margins. VC-grade salaries. Engineering teams building apps. Product managers. Growth marketers. Customer acquisition subsidies, discounting products to win retailers from the analogue guys. Two hundred vehicles. Twenty warehouses. Full-stack logistics. All funded by venture capital, expecting 10x or 20x returns.

The traditional distributor spending ₦5 million a month to move product was being outbid by a startup burning ₦50 million a month to move the same product, to the same retailers, at the same or lower prices. The startup had the better app, the nicer truck, and frankly, the better idea.

But the margins didn't budge. If you make a 3% gross margin on a ₦10,000 order, that's ₦300. Out of that ₦300, you need to cover picking, packing, loading a vehicle, driving through Lagos or Ibadan traffic, finding a retailer who may or may not be at the address they gave you, unloading, and getting the vehicle back.

The asset-light question

The received wisdom in the sector has been that the winners will be asset-light players that own no warehouses and no vehicles; they’ll plug into third-party logistics instead. OmniRetail’s success story is often told this way; it runs a network of 1,100 third-party vehicles and 85 partner warehouses.

The executive I spoke to pushed back on this. “You cannot distribute physical products without physical infrastructure,” he said. “I’ve seen a lot of people talk about 3PL and all those things.”

This is one operator’s view, and it’s worth noting he has obvious reasons to defend asset-heavy models. But the logic is hard to dismiss entirely.

If you’re using third-party logistics, someone still owns those vehicles and warehouses, and that someone needs to be paid. You might avoid the capital expenditure, but you’re paying for it in per-delivery fees, and you lose control over service quality, timing, and routing. In a business where margins are already thin, giving up cost control on your single biggest expense line can be tricky. Maybe the question isn’t “should someone own the infrastructure?” It sounds like it should be “can you reach the density where owning it starts paying for itself?”

He drew an analogy to telecoms. A telecom company investing in fibre doesn’t make money in month one; the upfront cost is enormous. But when you reach the point where one delivery vehicle is supplying 50, 100, 200 customers in the same area, loaded from morning to evening, dropping off for one retailer and the next one is two minutes away, that’s when the economics flip.

“You need time to get there,” he said. “It’s not something you just do from day one.”

This is the central tension. The distribution model probably does work at sufficient density and scale; Buffett’s McLane proves it. But getting there requires the kind of patient, long-term capital that venture-backed startups burning through runway simply don’t have.

So the sector went looking for something to subsidise the wait.

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The search for a cash cow

The B2B e-commerce sector in Africa has spent the last five years searching for a cash cow; some adjacent business that generates real profit to subsidize the distribution engine while it scales toward density.

The first answer was lending. The second was data. The third, which I’ll get to, is private labelling. None of them has been easy.

The lending thesis was elegant. You’re delivering inventory to retailers weekly. You know exactly what they buy and how quickly they restock.

So you can lend to them with confidence, either cash or inventory on credit. Distribution is the loss leader; credit is the profit engine. TradeDepot’s $110 million raise was anchored on Buy-Now-Pay-Later for five million SMEs. Alerzo launched its lending product around 2021. In that Flour Mills piece, I noted that at least two major players suffered significant losses from lending and paused their credit programs entirely.

One B2B e-commerce startup I spoke to claims near-zero NPL rates on its pilot lending product. It has refused to scale it. “Someone will buy from you today and not buy from you tomorrow, after taking your product on credit, and go somewhere else,” the executive said. “Even if you’re the smartest person in the world, that is one of the problems you might not be able to solve unless the government finds a way to do it for you.”

Lending to the mass market in Nigeria is expensive even for specialists. FairMoney, the consumer lender, is a useful reference point not because consumer digital lending and merchant trade credit are the same business, but because it shows what underwriting at scale actually costs.

FairMoney grew revenue 62% to ₦121.9 billion in 2024 and turned a ₦7.9 billion profit. But it absorbed ₦59.4 billion in loan impairments that year. It makes the model work by pricing that risk into interest rates, and by spending seven years and $57 million in venture funding building its credit models. B2B e-commerce platforms, already losing money on distribution, never had the luxury of spending years and tens of millions fine-tuning a lending business on the side.

The data thesis had a similar timing problem. B2B platforms are sitting on valuable retailer data: what sells, where, at what price, and how fast it moves. Manufacturers currently spend millions of dollars buying this kind of intelligence from firms like AC Nielsen. In theory, they should be willing to pay platforms for the same insights.

In practice, the executive said, they don’t need to.

“The demand is still chasing the production,” he explained. When a Nigerian manufacturer has three months of backlogged orders and is reporting record profits, they don’t care about your data. They can sell everything they make without it. The data play becomes valuable when manufacturer competition intensifies,” the executive noted, but that moment hasn’t fully arrived.

So neither lending nor data turned out to be the cash cow. Which brings us to the latest candidate: making your own products.

The private label bet

If you can’t make money reselling someone else’s product at commodity margins, the logical next question is: what if you made your own?

That’s what private labelling is. Instead of buying Dangote sugar from a distributor at the same price as every other platform, you partner with a manufacturer — or become one — to produce “your” sugar, or rice, or cooking oil, under your own brand. You control the product, the pricing, and critically, the margin.

The word on the street is that several major players are already doing this. Public disclosures from the Wasoko-MaxAB merger indicate private-label products — cooking oil, rice, tomato paste — now account for over 10% of their combined e-commerce sales. TradeDepot has moved in a similar direction. The trend is not exactly new; African B2B platforms are following a path that retailers globally have been on for decades. But for this sector specifically, it might be the most consequential strategic shift since the original pivot to credit.

Why are private-label margins structurally better? The mechanics are straightforward. When you distribute a national brand — say, Unilever’s Omo detergent — the manufacturer sets the price, the distributor takes a cut, and by the time the product reaches you, there’s almost nothing left.

You’re competing with every other distributor on delivery speed alone. With a private-label product, you eliminate the middlemen and the brand markup. You go directly to a contract manufacturer (or, in some cases, manufacture yourself), which cuts production costs by 40-50%. In the U.S., private-label products yield about 35% profit margins compared to 26% for national brands. McKinsey has found that private labels in distribution can carry roughly double the gross margin of their branded equivalents.

Now, we don’t have precise comparable figures for Nigeria, and it would be dishonest to pretend U.S. economics translate directly. Private-label penetration across Africa and the Middle East sits at just 6.1% of total FMCG sales, according to NielsenIQ versus 36% in Western Europe. The infrastructure for contract manufacturing is less mature. Brand loyalty to national brands among Nigerian retailers is strong. And there’s no getting around the fact that launching a private-label product requires capital for manufacturing relationships, quality control, packaging, and marketing, exactly the kind of capital these companies are short on. It also carries reputational risk: if your private-label rice is bad, it’s your brand that takes the hit, not Dangote’s.

But even if the margin advantage in Nigeria is half of what it is in the U.S. — say, 15-20% gross instead of 3-5% on a branded product — that’s transformative for a sector that’s been haemorrhaging cash trying to make the distribution math work.

The executive I spoke to described his ideal model as “a mix of private label and some sort of direct partnership with a manufacturer. It doesn’t have to be a subsidiary. But some sort of control over the product so you make very reasonable margins.”

The key, in his framing, is that private labelling isn’t meant to replace everything else — it’s meant to generate enough profit to subsidise the distribution business while it scales toward the density where it becomes self-sustaining.

He compared it to how Moniepoint built its business. Moniepoint started with POS terminals, a genuine cash cow, and then layered personal banking, remittances and everything else on top.

“What you need is to find that cash cow,” he said. “Then you start layering up. Some of the layers might be unprofitable. But when you lay them on top of each other over time, you find a way to subsidise.”

For the rest of the sector, private labelling is an attempt to find that cash cow after years of trying credit and data and coming up short. Whether it works depends on things that are genuinely uncertain: manufacturing relationships, consumer acceptance, capital availability, and time. But for a sector that has spent the better part of five years learning what doesn’t work, it at least points the economics in a direction where the answer isn’t permanently negative.

That, for B2B e-commerce in Africa, counts as progress.