Who's holding the bag?

Of FMCG distributors and tech therein

If you missed Friday’s newsletter, catch up here. And if this email was forwarded to you, subscribe here while it’s still free!

TOGETHER WITH CREDIT DIRECT

High-value connections deserve high-value gestures. “Gift a Yield” lets you share financial growth with colleagues, mentees, or partners, turning generosity into compounding potential. It’s thoughtful, strategic, and leaves an impact beyond the immediate moment.

Always follow the risk

On Friday, while trying to confirm layoffs at a B2B e-commerce startup that is now in its fourth round of layoffs, I did what any self-respecting internet detective would do: I went on Glassdoor. Recent reviews complained about late salaries and another round of cuts. And it got me thinking (again) about why B2B e-commerce has proved so hard to crack for the first wave of startups that tried their hands at it.

“How do you make money with 33% interest rates while your margins are 3%?” was one friend’s answer.It’s a great line if you ignore the comparison of annualised interest to gross margins.

A business can survive on thin margins if inventory turns fast, cost-to-serve is disciplined, and you’re not keeping fraud at bay. It’s a lot of work and that’s exactly the point: B2B e-commerce asks you to juggle a lot of operational risk with very little margin for error.

If we roll back to the beginning, B2B e-commerce initially began with considerable promise and funding. The thesis was something like, “informal retail is massive but structurally broken. If we make ordering simple, make fulfillment reliable, and use transaction data to underwrite inventory credit, we can become the rails for commerce + finance for millions of mom-and-pop stores.”

It was a mesh of ideas: (1) a logistics/distribution business with thin margins and (2) a credit business that could lucrative because, in theory, you have data.

The hope was that the ugly one (distribution) would be justified by the sexy one (credit), and the sexy one would be safer because the ugly one generates demand. There’s also a supplier economics bet: that once you become the dominant channel, FMCGs will reward you with better terms, rebates, trade promo capture, or exclusivity that can improve margins.

The space got crowded fast. Wasoko, TradeDepot, Alerzo, MaxAB, and friends turned on a “firehose” of similar products, all connected to the same FMCG companies. More cynical people will define it as a stampede into the same thin slice of value with competitors duelling over supplier terms, fulfilment efficiency and credit spreads. It’s made for some tough going.

Stephen Deng’s “Africa’s S-curves” framework theorises that African markets often aren’t ready to bend as quickly to “tech-as-infrastructure.” The winners tend to be the ones with a mindset of augmenting existing markets instead of trying to replace them.

If your business requires you to build warehouses, fleets and inventory while also subsidising price-sensitive merchants, on venture capital timelines, the scale of difficulty increases.

Take MarketForce. In April 2024, it wound down its B2B e-commerce arm (RejaReja) and cited the fundamentals: razor-thin margins, unit-level profitability problems, a capital-intensive model, and constant price wars in a price-elastic segment. Copia entered administration in May 2024 after failing to secure new funding, then moved toward liquidation weeks later. Model that needed continuous working capital met a funding environment that stopped supplying it.

B2B e-commerce is one of those categories where growth is just another word for more working capital. Every extra merchant you acquire is another merchant you have to serve reliably, quickly, and cheaply, sometimes on credit. If your cost of capital spikes, risks compound.

OmniRetail is one of the better-known counterexamples because it tries to avoid carrying all of that at once. In its model, orders are fulfilled by partner distributors (warehousing sits with them) and delivery is handled by third-party logistics. The company plugs into existing infrastructure rather than trying to own the entire machine. In one TechCrunch article, OmniRetail’s CEO admits that “Just buying from distributors and selling to retailers did not have enough margin.”

Moving deeper into the value chain and embedding working-capital tools is what made the economics work. Where do your inventory and credit risk sit and will they grow in lockstep with GMV?

If you don’t have distribution margin, you have three options: find better margins through operational excellence and supplier terms; earn margin by pricing financial risk correctly; or do both and hope losses don’t eat you alive.

But OmniRetail isn’t the first company to tell a story about rails/infrastructure being the smarter play. Sabi told a similarly compelling narrative about becoming infrastructure for commerce rather than merely being a distributor with a nicer app.

In 2023, it claimed it crossed $1bn in annualised Gross Merchandise Volume (GMV) but then two years later, laid off 20% of its workforce and pivoted to traceable exports. Whatever your interpretation, big pivots in capital-intensive categories usually happen when the original margin pool is not deep enough to justify the risk you’re carrying.

When you zoom out, B2B e-commerce startups have split into three categories:

• Species 1: The Balance-Sheet Retailer. This model can look brilliant when capital is cheap because subsidies hide inefficiencies. When capital tightens, everything you were glossing over becomes a cost centre.

• Species 2: The Consolidator. When you can’t fix the math in isolation, you try to fix it in aggregate. Consolidation can work if it changes the underlying economics: better supplier terms, shared logistics utilisation, reduced duplication, standardised underwriting, fewer irrational price wars. But scale is not magic. If it doesn’t improve unit economics and collections discipline, it just produces a larger company with bigger working-capital needs.

• Species 3: The Distribution Operating System. This is the “augment, don’t replace” approach: digitise existing distributors, plug into third-party logistics, and push credit risk outward to partners where possible. The goal is not to eliminate risk. It’s to avoid carrying every risk on your own books as you grow. If your GMV can rise without your net working-capital requirement rising at the same rate, you’ve built something that can survive a capital cycle.

It might sound like a stretch, but B2B commerce reminds me of Nigeria’s motorcycle-hailing boom before Lagos State’s restrictions sucked oxygen out of the market.

Bike-hailing was also sold as software: matching, routing, safety. But the category’s reality was always asset finance hiding inside an app. Whatever your motivation—modernising transport, chasing growth, using bikes as distribution for something else—you still had to acquire bikes, put them on the road, and finance them.

Take ORide. Even with the OPay distribution layer theory, the mechanics mattered: It ran a hire-purchase model where riders paid a portion of the cost of the bike and then repaid daily over time. People close to the product insist it worked and was profitable.

When Lagos banned bikes, ORide tried logistics for a hot minute before focusing wholly on payments. Gokada also pivoted to deliveries and last-mile logistics and from the outside, it often looked like it was working until the news that it was filing for bankruptcy protection while trying to make sense of its finances.

SafeBoda was the genius counterexample because it didn’t even enter Lagos. It launched in Ibadan in 2020, essentially choosing a simpler operating environment. For a while, that move looked like chess but it eventually met the same end result. By December 2022, SafeBoda exited Nigeria, explicitly framing the sector as not economically viable without significant investment. City arbitrage bought them them time but didn’t automatically create healthy margins.

And then you get to MAX, the last healthy man standing. On Friday, MAX announced a $24m equity+debt raise and claimed profitability in Nigeria. It has stayed in the sector by financing and formalising mobility and partnering with government on digitisation. Today, its pitch is explicitly about electric mobility financing, augmenting the existing machine rather than trying to replace it.

This is the deduction I think matters for sectors like B2B e-commerce:

In categories like this, tech is the coordination layer. Software can match demand and supply, improve routing, create records, and reduce friction. But there are harder questions: who holds inventory, who carries receivables, who eats fraud and leakage, who survives when the cost of money spikes or the rules change?

Lots of people can digitise commerce. But not everyone can do it without carrying every risk on their books.

See you next week!