Jumia Food: A Post-Mortem

Company Overview

Jumia Food was a pre-payment food delivery platform founded in 2013 by Sacha Poignonnec and Jeremy Hodara, both ex-McKinsey consultants, alongside Tunde Kehinde and Raphael Kofi Afaedor. Initially launched in Nigeria as an arm of the e-commerce platform Jumia, its operations spread to other African countries like Morocco, South Africa, Kenya, and Ivory Coast. By 2014, Jumia Food launched its offices in other African countries like Algeria, Ghana, Tanzania, and Tunisia.

Nigerian vendors partnered with the e-commerce platform to showcase and sell their products. During the peak of the COVID-19 pandemic, this partnership was utilized, yielding significant returns. This business model helped Jumia Food establish itself as a trusted food delivery platform in several states.

Ahead of World Food Day in 2020, Jumia released its first Africa Food Index Report to show the impact of the pandemic on food trends and choices. The study revealed that due to the advent of smart technology, more individuals purchased more fast food online and preferred Indigenous meals to continental dishes.

This research report strengthened Jumia Food’s drive to expand operations from its primary delivery station in Lagos to other states in Nigeria. The company had about 110,000 active food vendors on its platform to meet customers' demands, directly competing with Konga.

Jumia Food made strategic moves to become a leading delivery platform in various cities and countries amidst fierce competition. By partnering with several food vendors as third-party providers, they were able to provide a wide range of meals, some peculiar to certain locations. Meal prices were made affordable to accommodate the budgets of low-income earners, who comprised a large percentage of young people who ordered food online. They also have partnerships with logistics companies such as Errand360 to ensure seamless deliveries.

These efforts were concentrated in major cities and featured mainly online operations. However, Jumia Food aimed to expand into rural areas by setting up pick-up stations, and offering hybrid delivery options.

Jumia Food's Obstacles

During its early years of operation, Jumia Food faced stiff competition from other food delivery platforms, especially Konga, in the African e-commerce space. This was offset by subsequent funding rounds Jumia received as a group. In the first quarter of 2019, Jumia Group went public on the New York Stock Exchange (NYSE), listing at $14.50 per share. This quickly rose to $49.77 within one week of listing, raising its initial valuation from $1.2 billion to $3.8 billion.

Reports about public relations crises, fraud allegations, and repeated losses within the company caused the share prices to fall and remain stagnant at $10 throughout 2022. Currently, Jumia’s share prices are valued at ~$3.72 (at the time of publishing). Shortly after Jumia’s shares plummeted in the New York Stock Exchange (NYSE), Sacha Poignonnec and Jeremy Hodara stepped down from their co-executive role.

The new management ceased operations in seven countries including Nigeria, Kenya, and Uganda during the last quarter of 2023 in order to cut costs. Francis Dufay, the new C.E.O, explained that selling food is “very difficult across the world, with very challenging economics and big losses.”

He noted that the African market for the business was extremely competitive. He also included economic factors: "Costs are very high and there is plenty of competition; so there is downward pressure on the commissions we make, and upward pressure on marketing costs because everyone is fighting for customers”.

Although Jumia’s food delivery arm made up 11% of the company’s Gross Merchandise Value by the third quarter of 2023, amounting to $63.9 million, this did not prevent the company from re-evaluating its decision to shut down. While the business was shut down, staff across the affected countries were re-assigned to the company’s core services, bringing in higher profit.

Where Did Things Go Wrong?

It was a laudable feat that Jumia Food set up markets across several African countries within record time. Perhaps, launching in one market and understanding its intricacies, before moving on to the next destination would have been a better option.

Public records showed that regardless of the upward growth in active users and returning customers, the business experienced revenue decline, and failed to make substantial profits since its inception. Using the same business strategies for a long period after such losses, despite how minimal, was bound to provide unfavourable results.

Jumia Food ceased operations in South Africa and Tunisia during the last quarter of 2022. According to the company, these markets contributed 4.5% and 3.7% of the Gross Merchandise Value, respectively. They also slashed their workforce by 20%, leading to 900 staff exiting the company. This was done to cut costs and strengthen their hold in other operational markets. However, this took a dark turn as the CEO reported a 64% decline in operating loss, subsequently declaring the business unprofitable.

Key Takeaways from Jumia Food's Mistakes

Jumia Food had a good run, despite the challenges discussed that hindered them. Unforeseen economic factors, such as cash scarcity, currency depreciation, and inflation contributed majorly to the lag in progress. Owing to this, the business could not meet up with set goals.

Business owners and startup founders should conduct thorough market validations before embarking on expansion plans. This can be done through pilot programs and market research.

Sustainable growth is essential and should be embodied as a core business ideal. Customer-centric benefits like promos and discounts are bound to gain traction, but they reduce profitability by a wide margin.

Diversifying business interests without a clear-cut strategy might lead to a loss of capital. Making a profit should be a key milestone, and as such, all marketing efforts should be geared towards it.

It is near impossible to predict economic conditions, but unstable financial situations can be managed by staying informed about economic trends and adjusting business strategies to fit such downturns.