TechCrunch features Launch Africa Portfolio OmniRetail
Image Credits: OmniRetail
Tage Kene-Okafor | March 14, 2024 | Techcrunch
Hyperlocal logistics and service partners drive OmniRetail to profitability in harsh B2B e-commerce industry.
Save for fintech and clean tech, B2B e-commerce and retail was the leading destination for venture capital dollars over the last five years. The premise of digitizing the continent’s mom-and-pop convenience stores and offering various solutions to streamline logistics and procurement processes saw hundreds of millions of dollars flood the segment, particularly during the venture capital boom of 2021.
However, the sustainability of building large, scalable businesses in this sector is now questioned due to funding constraints, tighter margins, and heightened competition. Most B2B e-commerce startups have struggled to keep subsidizing their products and expanding operations, leading to retreats, closures, downsizingand mergers.
As Ismael Belkhayat, CEO of Chari, one of Africa’s B2B e-commerce startups wrote in a blog post, “Startups in this space whose contribution margins were negative (meaning their margin from an order was lower than the order’s operational costs) correlated their growth to their burn rate. The faster they grew, the more money they lost. Unprofitable growth at all costs turns into a death sentence the moment the funding market freezes.”
For startups still operational, choosing the most optimal strategy for digitizing store operations while simultaneously achieving profitable scaling in the fast-moving consumer goods (FMCG) space is increasingly vital. Gross margins in the industry are tight, typically ranging between 3% and 6%, influenced by factors such as goods category, operational scale, negotiation power and supplier relationships. Logistics and warehousing costs are also factored in, differing between asset-light and asset-heavy models.
Making a case for asset-light models is Nigeria-based OmniRetail. The company says it’s currently profitable dating back to last November, an impressive feat in an industry where startups have struggled to break even and whose conditions are worsened by present currency devaluation issues affecting the cost of FMCG items.
OmniRetail says it owes its profitability to partnering with 65 brands (manufacturers) across Nigeria and Ghana and sweetening its margins through rebates and incentives. In January, the B2B e-commerce platform’s gross margins stood at 9% and net contribution margins, 5%; that means for every transaction worth $1 (~N1,500), OmniRetail makes $0.05 (~N75).
The five-year-old startup also claims to have achieved breakeven in earnings before interest and taxes (EBIT); this stands out against the backdrop of many platforms in the industry operating at negative EBIT margins of 6% to 8% or attaining only breakeven net contribution margins.
