The ‘Amazon of Africa’ is reducing staff and cutting premature products in its new era

African e-commerce company Jumia reported $50.5 million in revenue for this year’s third quarter with declining operating losses (33%) and increasing gross profit (29%) compared to last year, while active customers and the value of services sold improved marginally. These results come out barely a week after the company’s co-CEOs since 2012 stepped down—a move that raised eyebrows in the industry as to the company’s direction.

The company said the results underscore its march towards profitability and that it will cut services that are out of line with that goal.

One such service being cut is Jumia Prime, an Amazon Prime-like loyalty program that promised unlimited free delivery on all orders. Jumia started it in June 2019 with a pilot in three Nigerian cities at a monthly cost of 2,999 naira ($7), later extending it to Egypt, Kenya, Morocco, Côte d’Ivoire, Ghana, Uganda, Tunisia, and Senegal. Jumia Prime’s premise was that would-be regular shoppers preferred paying a renewable subscription to being charged varying shipping fees per order.

But the company now believes online commerce in Africa is “too early in the adoption curve” for that product, per its earnings presentation (pdf), and will instead focus on understanding how to make customers repeat buyers.

“Over the past couple of years, we tested the concept of a monthly subscription program offering free delivery to consumers. The results from this experiment, in terms of consumer traction and stickiness, fell short of our targets as the market is probably not yet mature enough, leading us to pause this initiative.” ~ Jumia’s SEC filing, Q3 2022

Axing Prime is a milestone for a new Jumia era: Jeremy Hodara and Sacha Poignonnec, co-CEOs since 2012, stepped down on Nov. 7. An interim chief executive and new management board have been in charge since.

Jumia will be more realistic about product-market fit

A presence in 11 countries makes Jumia Africa’s largest online retailer, but the company’s activities will be more constrained going forward. “We cannot be sharp in our execution if we are spreading ourselves too thin across too many projects,” said Francis Dufay, the acting CEO who joined Jumia in 2014, on an earnings call yesterday (Nov. 17).

The company will stop offering logistics as a service “in countries where logistics infrastructure is not yet ready to support third-party volumes.” It will be retained in Nigeria, Morocco, and Côte d’Ivoire.

The vertical, in addition to advertising and marketing, was one of the company’s attempts to make more money by leasing assets to other companies. The advertising bit seems to be going well with revenue from that vertical growing 64% year-on-year.

Trimming the Dubai team

Apart from cutting products, Jumia’s filing to the US Securities and Exchange Commission (SEC) alludes to an ongoing layoff exercise.

“We intend to drive more staff costs savings and are implementing headcount reductions in a number of areas of the business,” the company said, in a section describing general and administrative expenses.

The affected roles appear to be based in Jumia’s Dubai office where its executives tend to operate from. More of the company’s senior team will relocate from there to Africa to be closer to the market, Dufay said on the call.

Food delivery is Jumia’s star product

Jumia notably transitioned in 2020 from prioritizing the sale of high value-high cost items like phones and electronics to cheaper, more everyday items like food.

That seems to be going well: one in five items sold on Jumia between July and September was food as the category grew 38% year-on-year. It was their second largest category for the quarter in terms of volume behind fashion, making it “a core aspect of our consumer value proposition,” Antoine Maillet-Mezeray, Jumia’s Executive vice president for finance and operations, said.

Jumia faces competition from international companies like Bolt, and Glovo in Africa’s food delivery industry. In Nigeria, Eden, Chowdeck, and CoKitchen are venture-backed startups aiming for market share. Jumia is betting on an easy-to-use app and an ability to connect customers to nearby restaurants for differentiation, but tight margins amidst rising cost of food in Africa due to inflation could yet prove a challenge to keeping prices attractive. The company is already scaling back on grocery deliveries in some markets due to poor unit economics.

While Jumia’s new leadership is eager for new milestones that accelerate profitability, patience will be required. A trend of slowing demand that started around September is expected to continue till December, with the financial year closing with an adjusted EBITDA loss of up to $220 million. The company had $104.3 million in cash and cash equivalents as of Sept. 30.