#2. Connecting the physical world to the Internet
There is a business. There is a client. The client loves the product, they want to buy it. There is just one problem: the business is on the Internet, and the client is unbanked and has no smartphone.
Welcome! Issue #2 Emerging Markets explorer ðŸ§Â will cover stories of connecting an Internet to the physical world since in EM the infrastructure to buy on the Internet cannot be taken for granted. We’ll explore how a Mexican and a West African retailer tackled this issue.
If you wonder what Emerging Markets explorer 🧠is, start here.
OXXO: Shop the Internet in a convenience store
OXXO is the convenience store in the corner in several countries in Latin America. OXXO is a subsidiary of the Mexican Femsa, which is a gigantic conglomerate that is notorious for being the bottling company of Coca-Cola in Latin America.
OXXO are 100m2 convenience stores that serve 14 million Mexican shoppers daily. Like any convenience store, you can buy groceries, but in OXXO you can also buy Fortnite V-Bucks, a Tarjeta Saldazo, and pick up our order from Amazon.
OXXO is a touchpoint for Mexican consumers: having stores everywhere has earned OXXO a high consumer trust.
The supply is pretty crazy in OXXO, but it has a reason to be: to meet a special demand. OXXO does not only meet demand’s requirements, but it also makes life easier for its clients. It responds to the following challenges:
Unbanked population. 60% of the population in Mexico is unbanked, and thus the economy is largely cash-based. But that does not stop the Mexicans to want to play Fortnite as much as anyone does, and cash can buy you V-Bucks on OXXO. Easy.
Safe pickup. Addresses can be outdated / messy in Mexico, and deliveries can get dangerous for the carriers in some neighborhoods. Thus, by acting as a pickup point, OXXO makes it easier for the logistics of Amazon while it remains convenient for the final client since there are many OXXOs in Mexico.
As expected, OXXO faces direct competition. In Mexico, it comes from 7-Eleven, Circle K, Extra, and Super City. But OXXO has around 20,000 stores, and that in 2018 made 73% of the convenience stores in Mexico, while each competitor had 10% or less of them.Â
OXXO is a giant split in many small stores. Belonging to Femsa has allowed OXXO to invest and build very solid competitive advantages that they keep and build services upon: proximity, number of customers, and high customer trust.
Failure story. J-Force: a good idea became corrupted
Jumia ($JMIA in NYSE) is a pan-African e-commerce platform. It was founded in 2013 by Jeremy Hodara and Sacha Poignonnec. Jumia was supported by the VC Rocket Internet and is headquartered in Lagos, Nigeria. Jumia operates in many African countries, having the majority of its revenue coming from West Africa. Its business model is a marketplace connecting sellers with consumers.
Jumia was created with the aspiration of becoming the Amazon of Africa.
But in Nigeria, the penetration of the Internet is not as high as in the US or China. You cannot assume that the Internet will reach all your prospective clients or that they have a credit card to pay with, you need the support of physical connections. For this, Jumia offers pay-on-delivery and they created the J-force.
J-force is a special team of sales agents. The sales process of a J-force agent is as follows:Â They find the customers, persuade them to buy, and then the J-force agent places the order on behalf of the client in Jumia. The J-force agent makes a commission on the placed orders.
The Afrobility podcast defined this as affiliate marketing with human beings.
The idea behind the J-force was clever, but it became corrupted.
The single metric of success for a J-force agent would be a placed order. A J-force agent would get paid a base salary of $110 (N40,000) in Nigeria and commissions for the placed orders, but they would only earn the base salary if they hit the agreed target. Later on, the base pay got canceled. And thus, the pressure on J-force agents intensified.
When corruption in the J-force happened, Jumia became aware of it. In Jumia’s 2019 financial statements, they disclosed how they had discovered this corruption:
They had found cases of improper orders placed in the J-force program, that got subsequently canceled after the J-force agent got paid. Jumia claimed that the value of these transactions was less than 2% of Jumia’s GMV in Q2 2019.
They had found cases of cooperation between J-force agents, sellers on Jumia, and employees. J-force agents would place the order on said sellers, the sellers would get charged a commission, and the J-force agent would earn their commission, but since the J-force agent received a higher commission they would split the profit with the vendor. Jumia claimed the value of these transactions was 1% of Jumia’s GMV in 2018 and Q1 2019.
The consequences of this was a loss of trust from Jumia’s investors and an internal investigation on these incidents. The J-force still exists because it is a model proven to work, but these cases have represented one of many challenges for Jumia to maintain trust in their business from investors.
Source: Afrobility: Africa Tech & Business Podcast
The idea to write the story of the J-Force came from listening to episode #2 of the Afrobility podcast on Jumia.
I’m not quite a podcast person, reading is my preferred medium. But before the medium, I am an insight person, and the episodes of the Afrobility Podcast are full of high-quality insight.
The Afrobility podcast covers stories of African startups and Analyses the landscape of African technology. Olumide Ogunsanwo and Bankole Makanju started recording it in 2020 and to this date, it has 21 episodes, of a length ranging from 45 minutes to 1.5 hours. Their content is very valuable and told in a very relaxed conversational way, the stories just flow.
You can listen to them here: https://www.afrobility.com/
That’s it from me! If you like this, please consider sharing it. Furthermore, if you have feedback or interesting stories you’d like to learn from, do not hesitate to reply!