Jumia IPO Highlights Africa’s Shifting Online Travel Ecosystem

Jumia, an e-commerce superapp based in Nigeria, debuted last Friday on the public markets and raised $196 million. The company mainly helps 80,000 active merchants sell goods in 14 countries on the continent. Some investors called it an “Amazon for Africa.”

Unlike Amazon, however, Jumia has made travel sales an essential part of its offering. Jumia, founded in Nigeria and backed initially by Germany’s Rocket Internet, aims to become a superapp. It wants consumers to use it often to buy items like diapers. The idea is to cross-sell these shoppers into buying more expensive products, namely travel. The company’s JumiaPay and Jumia One payment and loan services may appeal to a continent that broadly relies on cash to avoid hefty bank fees.

Yet the more interesting part of Jumia Travel’s story is how it and its regional competitors have had to adapt to the distinctive local and regional nuances of Africa’s various travel markets and economies.
 
ENTHUSIASM VERSUS REALISM
On its first day of trading, Jumia’s shares closed up 75 percent.

However, not everyone shared investor enthusiasm. Jumia last year generated revenue of $149.6 million, but it lost $195 million. It had only four million customers for all of its services. That’s small on a continent with 1.2 billion people.

“You can’t scale as quickly as Alibaba did in China or Amazon did in the States,” said Ndubuisi Ekekwe, founder and chairman of Fasmicro, a Nigerian investment group that focuses on technology companies but avoids consumer travel businesses.

“In Nigeria, companies like Jumia only have about 30 million potential customers, we estimate, with the necessary disposable incomes for travel, out of about 190 million residents,” said Ekekwe. “Social mobility is too static. Africa’s strongest economies typically don’t have the broad and growing middle classes you need to repeat the success of a Ctrip.”

On the supply side, Africa also typically presents challenges.

“Companies have barely scratched the surface when it comes to bringing offline travel purchases online,” said Marek Zmys?owski, a founder of Jovango who helped Jumia Travel in its early days and is now a consultant. “Every online travel agency struggles to onboard supply and every hotel struggles with online distribution.”

JUMIA’S HOTEL BUSINESS GROWS
In 2013, Jumia acquired Jovago, a hotel booking site also founded by Rocket Internet, and created its Jumia Travel division. It focused on lodging first.

“In countries like Nigeria, Expedia and Booking only list big hotels in large cities,” said Estelle Verdier-Watine, chief operations officer of Jumia Travel. “But we’ve focused on properties anywhere in Africa, and we’ve sent out an army of acquisition agents to go to cities and villages and meet with hotel managers and bring offline inventory online. That’s the big value add of Jumia.”

Jumia Travel’s team of 200 workers has signed up hotels, serviced apartments, and guesthouses in 44 countries in Africa, Verdier-Watine said from her Nairobi office.

Some business travelers like Jumia’s results. “I see it when I travel across Nigeria that Jumia has aggregated a much broader geographic coverage of hotels than Booking.com and the other global brands, especially in remote areas,” said Kelechi Nwokocha, a private equity investor for GreenHouse Capital in Lagos, Nigeria, that has not invested in Jumia. “But it faces competition from other regional players like Hotels.ng and Wakanow.”

Jumia’s ground game extends to an ongoing relationship with hoteliers. The company built a mobile-based extranet for hotels to upload their rates and inventory.

“But many hotels outside of major cities are not tech-savvy,” said Verdier-Watine. “They need guiding help by phone for updating rates and inventory, and we provide that, which also makes us stand out from global players without real local presences.”

The hands-on relationships ensure that Jumia Travel gets the best inventory and can deliver best-rate guarantees for its shoppers, she said.

While Jumia has a desktop-browser-based website, consumers booked three out of four of travel products via its mobile app in countries like Kenya. It argues it has more market penetration for its mobile apps in many African markets than global companies such as Expedia, Booking.com, and Ctrip.

However, it’s not all smooth sailing. Some hotels accuse Jumia Travel of being slow to reimburse the money, and they tell their customers to book online but pay in person at the front desk. A majority of Jumia Travel’s customers choose to pay at the hotel, with only about a quarter making mobile payments, in key markets.

South Africa is a specific exception for Jumia Travel. It relies on Expedia Affiliate Network to provide hotel offerings for resale in the country rather than attempt to fight global giants, which have significant presences there.
Source: https://skift.com

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