Case study: Why MarketForce Shut Down RejaReja

RejaReja, a Kenyan B2B e-commerce platform aimed at simplifying inventory management for retailers, shuttered its doors in April. Launched in 2020 by MarketForce, a Y Combinator-backed startup, RejaReja promised retailers access to popular FMCG (Fast-Moving Consumer Goods) at wholesale prices with convenient delivery within 24 hours. MarketForce helped shopkeepers in Africa by giving them loans at good interest rates. This meant shopkeepers could buy more things from their stores and pay later. 

Their goal was to make shopkeepers happy customers so they could come back for more. RejaReja was MarketForce's marketplace that covered 21 cities across five African countries. They worked with a lot of shopkeepers, around 270,000, and helped them process over $160 million in transactions. However, the company struggled to navigate the complexities of the FMCG market.

Let’s take a look at what might have gone wrong.

Slim profit margin

The FMCG (Fast Moving Consumer Goods) market inherently deals with low profit margins. These are the everyday items like soap, toothpaste, and cooking oil that people buy frequently. While there's constant demand, each sale's profit is relatively small. This means RejaReja needed to sell a high volume of goods to make a decent profit. Many other companies sell the same supplies, often at very competitive prices. This creates price wars, where businesses are forced to lower their prices to attract customers. In such a scenario, it becomes even harder for RejaReja to profit, as their margins are already tight. They couldn't charge shopkeepers enough to cover their costs because of the low-profit margins and price competition. This financial pressure ultimately led to RejaReja's struggles.

Capital Intensive Business Model

RejaReja needed a lot of money upfront to get started and keep things running. This is because they didn't just connect buyers and sellers; they also bought the supplies, stored them in warehouses, and then delivered them to shopkeepers. Instead of shopkeepers buying supplies directly, RejaReja purchased them in large quantities, which can be expensive. They also needed to rent storage space (warehousing) to keep all those supplies organized, and finally, they needed to pay for trucks or vans (logistics) to deliver the supplies to the shops. All of this costs a lot of money upfront before they could even start making a profit.

Although they were able to raise money from investors a couple of times, they couldn't get enough to grow as fast as they wanted.

Loan repayment difficulties

RejaReja's decision to offer credit to a vast network of shopkeepers introduced an element of risk into their business model. This can be compared to lending money to a large group of friends, there's always the possibility that some might not be able to repay the loan. This is exactly what RejaReja faced. Some shopkeepers might have struggled to repay their loans for various reasons. Perhaps their shops weren't as profitable as they expected, or there were unexpected market disruptions. Whatever the cause, if a significant number of shopkeepers defaulted on their loans, it would mean RejaReja wouldn't receive the money they were counting on. This would negatively impact their cash flow, which is the lifeblood of any business. Without a healthy cash flow, it becomes difficult for RejaReja to meet its obligations.

Tesh Mbaabu, a co-founder of RejaReja, acknowledged these challenges in a recent phone chat with TechCabal. He explained that despite their best efforts to find a sustainable approach, which included cutting costs to extend their runway (buying more time), they ultimately had to shut down RejaReja. 

The financial burden proved too much to overcome, forcing them to conclude that keeping the business operational was simply not feasible. Instead of giving up, they decided to pivot to something new. They plan to create an online shopping platform called Chpter. This Chpter platform seems interesting. It's all about online shopping but in a social way. They're even using clever computer programs (AI) to help with advertising and talking to customers on WhatsApp and Instagram. This new approach might be a better fit for the African market and could help MarketForce grow its business faster and make more money.