Jumia blames deep-pocketed rivals for food business exit

E-commerce giant Jumia which announced the discontinuation of its food delivery business in all the seven African markets it operates in including Kenya has blamed the decision on deep-pocketed and aggressive competitors.

The decision, communicated last week and which also affects Nigeria, Uganda, Morocco, Tunisia, Algeria, and Ivory Coast was attributed to the challenges posed by the current operational landscape and prevailing macroeconomic conditions in these regions.

Jumia CEO Francis Dufay shed light on the company’s rationale behind the move, pointing to the fierce competition from well-funded and aggressive rivals, such as Uber and Bolt, as a major factor influencing the decision.

He emphasised the difficulties of sustaining a food delivery business in markets characterised by deep-pocketed competitors. “In a difficult and extremely competitive market with many competitors having very deep pockets and being aggressive,” Dufay explained, adding: “It made little sense to continue, economically speaking.”

He highlighted the operational complexity, management challenges associated with numerous vendors, and the intense competition in small and crowded markets as significant hurdles that made the food delivery segment less economically viable for Jumia.

Financial resources

“And so, since we’re a company with limited resources, we have to make choices. When I say limited resources, it means not infinite. At the end of last quarter, we had $147 million in the bank accounts. So, we have resources. But as CEO, I must decide where they will be better invested,” Dufay said.

“So, we decided to focus all our energy, teams, leadership and financial resources on the one big opportunity with a clear upside and where we know how to capture it and grow profitably: physical goods e-commerce,” he told Techcrunch, a US-based tech news platform.

The decision to discontinue Jumia Food reflects a strategic realignment for Jumia, focusing on areas where the company can achieve greater economic efficiency and scalability. Jumia has been a prominent player in the African e-commerce landscape, offering a wide range of products and services.

The move to streamline its operations and exit the food delivery sector underscores the company’s commitment to optimising its portfolio and allocating resources to high-potential areas.

As Jumia navigates the evolving dynamics of the African e-commerce market, the decision to cease Jumia Food operations is seen as a proactive measure to ensure sustainability and competitiveness.

The move allows Jumia to concentrate on core business segments, where it can leverage its strengths and better serve the diverse needs of consumers across the continent. The discontinuation of Jumia Food is set to take effect by the end of the month, marking the end of an era for the e-commerce platform’s foray into the food delivery space in these specific markets.

Jumia’s withdrawal from the food market comes at a time when the space in Kenya has been teeming with new entrants, a trend that intensified competition.

In a statement last week, e-commerce giant said following a strategic review of Jumia Food, it determined that its food delivery business is not suitable to the current operating environment and macroeconomic conditions and will close its operations in all markets by the end of December 2023.

The firm added that the food delivery business accounted for 11 per cent of its gross merchandise value (GMV) during the nine months to September 2023, noting that it has never been profitable since its inception.

Shipping fees

GMV refers to the total value of orders for products and services, including shipping fees, tax, and before deductions of any discounts or vouchers, irrespective of cancellations or returns for the relevant period.

In June this year, an internal survey by Jumia revealed that beauty products were the most ordered items on the platform among Kenya’s rural customers, contributing 16 percent of all upcountry deliveries ahead of phones and home items such as furniture and beddings.

According to the survey, urban customers mainly purchased food items that included groceries and uncooked cereals.