Jumia builds powerful brand as Africa’s first unicorn

In April, Jumia became the first African brand to list on the New York Stock Exchange. Will McBain examines the factors behind the company’s rise and its prospects for future growth.

When Susan Opara from Abuja first ordered a take-away on Jumia’s online platform, she felt like she was breaking a taboo.

As she had always enjoyed buying groceries at the market, the purchase seemed counterintuitive, but with less time to cook following a promotion she put her trust in the recommendation of a colleague, and ordered an instant egusi soup. 

Two years later the 37-year-old sales manager is one of a reported 4m Africans who shop online with Jumia, as it bids to become the so-called “Amazon of Africa”.  

“Literally everything you could possibly want you can get on Jumia. Data, clothes, food, it’s all there, so you don’t have to walk around a big shopping centre or market each time,” says Opara.   

The company has been described as Africa’s first unicorn (a tech startup that reaches a $1bn dollar market value).

Having built a business focused on an initial 14 African countries, Jumia Technologies AG listed on the New York Stock Exchange (NYSE) in April, becoming the first African startup to do so.

By early May, its shares had risen from an initial asking price of $14.5 to $44.69, although they have subsequently fallen back sharply (see below).

Critics have questioned whether Jumia can truly be described as an African company. Its two main founders are French, and although the company is Africa’s largest e-commerce business, it is incorporated in Germany as part of startup investor Rocket Internet group.

Furthermore, even if most of Jumia’s management staff in Africa are local, its tech hub is in Portugal and the global headquarters are in Dubai. 

However, speaking to African Business, Juliet Anammah, the CEO of Jumia Nigeria, points out that the question “Is this really African?” may be an ingrained response on the part of sceptics unaccustomed to positive news stories emanating from the continent.

Customised for Africa

Anammah argues that Jumia set out from the beginning to build the brand as an ecosystem that was exclusively customised for Africa.  

Aware that many Africans and specifically Nigerians – Nigeria is Jumia’s largest market, providing 28% of revenue – were particularly wary of online fraud, Jumia decided to adopt a “cash on delivery” option for many goods. The company established its own delivery fleet, as well as integrating an extensive network of third-party logistics service providers.  

Jumia trains up motorcycle riders and van drivers to deliver goods throughout the country, including the often volatile northeast, and company vehicles emblazoned with the Jumia logo have become commonplace in many of Africa’s most vibrant and populous cities. 

On the marketplace, the pan-African business has coordinated with more than 80,000 sellers to offer a broad range of goods and on-demand services.

Jumia harnesses social media “influencers” to push products on Instagram and YouTube and the company has created JForce – a small army of self-employed individuals working for commission who assist customers in placing orders online. Some JForce workers provide their home addresses as mini-depots for customer collection. 

With a long-term goal of trying to dominate the market via first-mover advantage, Jumia provides numerous entry points for consumers.

While the bulk of revenue comes from sales in electrical goods to the growing middle-classes, Jumia also seeks to be relevant to low-income earners through airtime recharge and small bill payments.

“By creating multiple services this allows everyone to have some entry points onto Jumia. That’s the way we drive the business,” Anammah says. 

Laying the infrastructure and groundwork for e-commerce dominance in numerous markets has proved an expensive venture, with heavy investment in warehouses, logistics, marketing and management.

This outlay brought losses last year of $195.2m on revenue of just $149.6m.

The multinational has burned through cash and accumulated losses of nearly $1bn since its formation in 2012.

The company has never made an annual profit, but Jumia has nevertheless driven significant excitement among investors keen to gain exposure to Africa’s consumer and online retail story. 

NYSE listing

The company has been buoyed by key investments from Goldman Sachs, insurance giant AXA, and Africa’s largest mobile network company, South Africa’s MTN, and in April became the first African startup to be listed on the New York Stock Exchange. 

The initial public offer (IPO) brought new inflows of capital from both institutional and retail investors that will be ploughed back into expansion.

After one month, it was being heralded as a success by the company, with $196m raised, and the stocks showing one of the best 10 IPO performances on the NYSE in 2019. 

Jumia’s global brand exposure was much increased and analysts were saying that such publicity could allow it to attract more sellers and partners as it acts as a gateway to the continent, as well as improving the company’s ability to target managerial and executive talent from around the world.   

However, at the end of the fourth week of trading, some investors became spooked by a report released by Citron Research – compiled by controversial short seller Andrew Left – which accused the company of fraud and claiming its equity “is worthless”.

In six days the company’s stocks declined from a high of $46.99 to $20.30.

Citron claims there were “material discrepancies” between numbers reported in April’s IPO filing and a presentation Jumia made to investors in October 2018.

Chiefly, Citron claimed that Jumia inflated its active customer and active merchant numbers by up to 30%, and that 41% of its deliveries were either returned, not delivered or cancelled. 

“When a company markets to investors ahead of its IPO and then a few months later omits material facts and makes material changes to its key financial metrics to make the business seem viable, this is securities fraud,” Citron claimed. 

The firm denies any wrongdoing. However, some would-be customers of the firm are put off by suggestions that its goods delivery system is less effective than claimed, while others complain that Jumia’s customer service is slow, and delivery staff often have difficulty finding customer addresses as they endure poor roads and a lack of street signs.  

Much of this is to be expected on a continent where transport infrastructure remains patchy even in major urban areas. But the challenges of finding a path to e-commerce profitability are significant, according to Tomi Davies, a prominent angel investor in Nigeria’s tech startup scene. Companies have to contend with smaller markets, nascent infrastructure, and traffic and customers wary of online shopping.  

“It’s not sustainable yet, and can only be successful if the company is willing to fail fast, be serious about scale and adopt a continent-wide strategy. They’re fortunate to be able to spread the seeds and see if a thousand flowers bloom,” Davies said. 

Drivers of growth

Yet the company believes that the fundamentals are very much in its favour. By Jumia’s calculations, less than 1% of retail sales in its African base are conducted online, compared with nearly 24% in China. Jumia and its backers are betting on the growth of smartphones in Africa, which are projected to grow to 650m users by 2025, according to GSMA, the trade body of mobile carriers. Young demographics should drive future growth, with rising internet access pointing to a better future for e-commerce. 

The statistical case for retail growth remains strong. According to the UN, more than half of global population growth from now to 2050 is expected to occur in Africa, while McKinsey Global Institute predicts that consumer spend on the continent is set to accelerate to $1.4 trillion in 2020 from a $860bn base in 2008. 

The direction of travel appears to be in Jumia’s favour. Its continental exposure ensures that the firm can spread risk while attracting foreign capital investment. The company says it will use some of the funds harvested from its IPO to grow staff numbers in customer service and returns, while inaccurate listings and unreliable sellers will be weeded out more efficiently, it claims.  

But change will not come overnight. For the next three years, Jumia aims to consolidate and grow in existing markets, and educate consumers on how to shop online. The company works to increase the visibility of the brand and improve trust levels and deliver on promises, Anammah said. 

Other e-commerce companies have noted the boost to Jumia’s brand gleaned by its status as Africa’s first unicorn. 

“There’s a lot of talk we don’t do unicorns or any other mythical beasts in Africa,” says Davies, “but Jumia may prove us wrong.”