The food delivery industry in the region is witnessing
intense competition among prominent players such as Chowdeck, FoodCourt, and
Heyfood, all of whom have received backing from the renowned startup incubator
Y Combinator. Additionally, Spain’s Glovo is making significant efforts to
capture market share. These companies are vying for the attention of a
population where families allocate approximately 60% of their income to food
expenses.
The Nigerian market Is projected to experience substantial
growth over the next eight years, with a forecasted compound annual growth rate
of approximately 11 percent. This expansion is expected to more than double the
market’s value, reaching $2.4 billion, according to a report published by the
market research firm IMARC.
“Africa has huge potential,” Glovo co-founder Sacha Michaud
told the Financial Times. “We’re seeing the rapid growth of our business across
Africa and above all Nigeria,” helped by better internet speed and reach.
Two-year-old Chowdeck in April unveiled $2.5mn in seed
funding from investors including California-based Y Combinator, a backer of
Instacart and DoorDash, and the co-founders of Bogotá-based Rappi, the largest
online delivery platform in Latin America.
Glovo, owned by publicly traded German group Delivery Hero,
three years ago raised more than half a billion dollars, with plans to expand
beyond its Spanish roots into Africa. The company has invested more than $100mn
to establish itself on the continent. It entered Nigeria in 2021 and operates
in six other countries.
However, economic malaise threatens to hamper the industry’s
growth prospects as Nigeria experiences its worst cost of living crisis in a
generation, with inflation at a three-decade high of nearly 34 per cent. Food
inflation is running at 40.7 per cent. The local naira currency has lost about
70 per cent of its value against the US dollar following two devaluations over
the past year.
Multinational companies that invested in Nigeria, betting on
a rising middle class, are retreating from the country and the economy has
slipped from top spot two years ago to third in Africa today.
Bolt Food, the food delivery arm of Estonian ride-hailing
service Bolt, closed shop there last year. So did Jumia, the pioneering New
York-listed ecommerce group.
Jumia at the time “determined that its food delivery
business is not suitable to the current operating environment and macroeconomic
conditions”. The company, at the peak of its powers, could barely muster 19,000
daily orders across 11 countries, according to a person familiar with its
operations.
Elsewhere, in the US and Europe, the four biggest food delivery apps have struggled to sustain a pandemic-fuelled growth spurt and have collectively lost more than $20bn since they went public. Many question their potential to turn a profit.
“Food is essential, delivery is not,” said Eghosa Omoigui, a
venture capital investor at Lagos-based EchoVC. “How big is the target market
for food delivery in Nigeria and how fast is that market shrinking?”
He pointed to a “direct correlation between those who are
employed and those who order delivery”, adding that the business is “much
harder” to build and even tougher to scale.
Omoigui, however, highlighted the potential for success,
especially if companies deliver reliably.
Glovo and Chowdeck are among the start-ups striving to
improve standards from the industry’s early days when meals would often take
hours to arrive or would be delivered half-eaten or not at all. Both companies
have cut waiting times to about 40 minutes.
“Food delivery appears to be a necessity and I couldn’t
understand why more food delivery companies couldn’t work in Africa,” Femi
Aluko, co-founder of Chowdeck, told the FT. “I kept hearing the same thing: it
can’t work in Nigeria because of traffic, rider behaviour, dispatch not being
reliable.”
For Aluko, the impetus to set up Chowdeck came after
struggling during the Covid-19 pandemic to have cooked meals delivered promptly
to his home in Lagos.
His company, launched in January 2022, today makes 20,000
deliveries daily and is seeking to expand beyond the eight Nigerian cities
where it operates. The start-up has branched into other deliveries such as
medicines and groceries, as has its rival Glovo.
Other local industry players include FoodCourt, which
collects from its own ghost kitchens rather than third-party outlets. Heyfood
primarily operates in the south-western city of Ibadan and the capital, Abuja.
Sendme, with backing from Y Combinator, sends meat to
households and businesses in Ibadan. The company has stalled its deliveries
temporarily as it expands its offering and improves its process, according to
its website.
“One of the problems with businesses in emerging markets —
and Nigeria certainly qualifies — is that there is such low trust because
reliability is such a premium deliverable,” Omoigui said.
“If you’re able to figure out how to be reliable, you’ll
never have a retention problem,” he added. “The hypothesis is that Nigerians,
as price-sensitive as they are, will pay a premium for reliability.”-Financial Times