Omnibiz: A Network of Networks for African Retail
TL;DR
In a crowded field, Omnibiz, a B2B e-commerce platform, is poised to capture West Africa’s informal retail market. It’s a network of networks that digitizes the existing traditional trade structure – instead of building a slow and expensive logistics network from scratch.
Since Omnibiz partners with other supply chain players for delivery and distribution, it is able to scale faster with higher margins than the industry standard. Omnibiz is already coordinating the movement of over $100M / month in goods. It generates 3-4X the cash per GMV of other players in the space.
In turn, Omnibiz is able to focus all its efforts on solving the problems for retailers to boost their profitability. When retailers see their revenues rise, they become repeat customers. The retention of retailers is truly excellent.
Its bottom up approach, focusing on the retailer, creates market pull. As more retailers procure FMCG goods from Omnibiz, it will bubble up the supply chain and incentivize other supply chain players (distributors and logistics companies) to join the platform. This creates multiple overlapping network effects and powerful incentives to participate. OmniBiz also has a parallel software platform for the largest FMCG players to manage their own distribution.
Omnibiz is announcing a fresh $15M Pre-Series A and we are thrilled to have led the round. With deep ties to West African FMCG and logistics, we have watched the space closely across the continent. Most players have opted to build out their own expensive first party logistics and compete head to head with existing distribution—while this does offer control, it slows down growth and severely hampers the ability to generate cash. Omnibiz is contrarian—with hard earned insights from founder Deepankar Rustagi’s time as Advisor to the CEO on Technology and Innovation at Tolaram (makers of Indomie, the hottest FMcCG product in Africa). Omnibiz works with existing distributors and manufacturers to digitize the value chain while remaining asset light—it is a network of networks.
After fintech, informal retail is turning into one of the hottest sectors in African tech (and it often involves fintech). Companies have raised massive rounds to service informal retailers - the mom and pop shops which drive 90% of FMCG sales worth $1TN across Africa. Informal retail is the African economy.
There’s a reason why VC investors are flocking to the category: B2B e-commerce is transforming the unit economics of delivery in a way that works for African consumer markets. By solving logistics, B2B e-commerce is unlocking the market in an unprecedented way. If you asked senior executives of large FMCG what they think their sales volumes could be if they didn’t suffer stockouts, they might think for a second and say, “At least double the volume.” (true story). When we see opportunities to take a lot of a large existing market—AND grow the market: we pay close attention.
To most folks who aren’t deeply immersed in the nuances of Africa’s complicated retail supply chains, the majority of African B2B e-commerce startups might seem the same. However, they differ in their go to market strategy and execution. Some choose to vertically integrate while others attempt a platform play. These choices have huge implications on the margin structure, rate of growth, and cash generation abilities of these businesses.
In a crowded field, Omnibiz stands out. It’s a network of networks for retail supply chains. Omnibiz acts as an infrastructure layer that connects supply chain players (from manufacturers to distributors to logistics providers) to the retailer at the last mile. Omnibiz is digitizing and coordinating the existing supply chain instead of building its own logistics chain.
Omnibiz is driving a bottom-up transformation of existing informal businesses in traditional trade. This big tent approach has been crucial in allowing Omnibiz to stay asset light. It doesn’t need to vertically integrate, build its own logistics fleets or own warehouses. How has it achieved this? It focuses relentlessly on the retailer as its core customer. We should note—many smart operators said that operating in this asset light model should not be possible and wouldn’t work. Deepankar and team are showing a prowess at technology-enabled logistics alchemy that we wouldn’t have believed if we hadn’t participated in the Seed round and worked with the company closely for a while. It’s easy to pay lip service to the retailer, but OmniBiz’ proof is in the numbers—continued 6X+ growth rates at scale and incredible retention and accelerating usage. Omnibiz created the right incentive structure and baked it into its technology stack to drive digital adoption in the entire retail value chain.
Omnibiz does this in two ways:
Its core product is straightforward. Retailers can buy a wide selection of FMCG goods, which are delivered to their doorstep. Omnibiz is solving for: product variety, pricing, convenience, and extreme reliability for a retailer to have the tools to drive their own growth. Manufacturers like this product for the visibility into product movement and distribution—and increased volume of sales due to not stocking out.
Mplify, an ERP tool, helps FMCG manufacturers drive growth by automating their sales and marketing on a best in class technology stack. For its clients, Mplify digitizes the flow of consumer goods that moves through the supply chain, bringing efficiency to an offline and highly fragmented sector.
In this piece, part informal retail deep dive, part investment memo, we’ll unpack why Omnibiz is poised to capture the category with its unique network of networks approach.
Why African Informal Retail?
A decade ago, pundits spoke of a new dawn in African retail. In 2010, Walmart entered sub-Saharan Africa by acquiring South Africa’s Massmart. Three years later, Carrefour announced its expansion into the continent.
Despite representing a mere 4% of retailing value in sub-Saharan Africa, it appeared as though modern retailing was starting to take hold on the continent. Large retail is a combination of logistics, pricing power, brand, and returns to scale—if the model works well.
Fast forward to 2021. Shoprite, the South African retail chain, announced it was pulling out of its African markets to double down on its domestic operations. A local consortium of investors bought its Nigerian subsidiary, which included 24 stores. Reporting 2-3% cash flow margins, Shoprite didn’t have much room for error in Nigeria, a difficult operating environment with challenging logistics.
Shopping malls will undoubtedly exist in African markets. But they will cater to the affluent. Or, remain an aspirational destination where people socialize and take selfies. The real market is informal retail—and how local champions emerge from it that are native to gnarly operating environments. While we expect some formalization to happen over time, for the vast majority of Africans for quite a while, retail will continue to look like this:
These mom and pop shops – which go by different names depending on the country, like duka (Kenya), spaza (South Africa), oja (among the Yoruba of southwestern Nigeria) or Diallos or Mauritians (Côte d’Ivoire) – are the face of retail.
Though there is variability in size, the average retailer is small. In Nigeria, a typical retailer sells 60-100 SKUs from a 20-50 m2 store. On average, their turnover is 250,000 to 500,000 naira per month and makes about 15% profit (that would be ~$375 - 800 per month in topline given current USD/NGN rates).
Despite their small size, they are a mighty force in aggregate, driving 70% of food, beverages, and personal care item sales across the continent. It is estimated that there are 2.5 million small retailers in Africa. They generate $1TN in sales annually and contribute $2.6 trillion to nominal GDP. The informal sector produces 80% of jobs - of which a large chunk are linked to traditional trade.
The retailer is a fixture of local neighborhoods. In Nigeria, the average retail shop is located 30-100m from houses, catering to 100-150 families. A family visits a retail shop two times per week to buy the necessities: eggs, bread, biscuits, soft drinks, cooking oil, semo, Golden Penny spaghetti, Indomie, Milo, and powdered milk. In provincial cities or rural areas, people visit retailers on a daily basis as they use their daily wages to buy food for that day.
Interestingly, 76% of shops are run by women.
As a neighborhood institution, retailers enjoy unparalleled trust from their customers. And, given their access to the consumer, they are the most valuable player in the retail supply chain. Until now, they have not been treated as valuable because there weren’t good technology-enabled ways to work with all of them in aggregate. Fundamental rule of technology products: the closer you can get to the consumer at the end of the value chain, the more you can dictate the economics of the value chain to everyone else.
Retailers face immense challenges
Despite their paramount importance in supply chains, retailers face immense challenges in scaling their businesses (hence the average topline numbers of < $1000 / month):
Procurement: they have to travel to wholesale markets to buy their goods. They lose income as they have to close shop for a day. They also pay high transport costs. Yet, once they arrive at the market, they might only be able to buy two-thirds of the SKUs they need. This is because wholesale markets have limited product availability because manufacturers can’t accurately match supply to meet demand.
Stockouts: Due to the challenges of buying inventory, retailers often run out of their most popular items. (On a separate note, eliminating stockouts is also a major revenue opportunity for manufacturers. Many estimate that they could increase their revenues by 50-100% if they could solve stockouts.)
Inventory: They also keep a limited inventory because they don’t know what products will sell quickly. So, even though there might be demand for more “luxury” higher margin consumer goods (like a Unilever shampoo or branded baby diapers), retailers wouldn’t know to stock them. No retailer wants or has the ability to tie up precious capital in inventory.
Working capital: As small informal businesses, retailers don’t have access to credit, so they have to make due with limited working capital. On average, retailers sell goods worth 75,000 naira per week (current parallel market exchange rates have fluctuated ~680-700 NGN to 1 USD)
Not only that, retailers are vulnerable to price hikes. 2022 has probably been the most difficult year yet. In July, Nigeria’s inflation rate climbed to 19.64%, a 17-year high.
Food prices have soared due to widespread inflation:
And soaring diesel prices - which have surged 200% in Nigeria - are leading to higher transportation costs.
Given their existing place in supply chains as the small fry, retailers are the most vulnerable to price increases. Whereas distributors will increase the cost of goods, retailers are reluctant to pass on those costs to their customers for fear of hurting sales. In response, they often reduce their orders.
If these problems were solved, Africa’s retailers could scale their business, generate more profit, offer a better experience to their customers, creating a retail industry (already generating $1TN in sales) that was orders of magnitude bigger. The potential of retail in Africa has barely scratched the surface. The sector contributes $2.6TN to Africa’s nominal GDP. If you increase retailers’ profitability by three to four fold, it is not unreasonable that the industry could double in size to $5TN. Those are big numbers.
Let’s dig deeper: the challenges of the retailer point to deeply broken retail supply chains.
Broken supply chains
Africa’s retail supply chains are highly complex. They depend on multiple layers of intermediaries to deliver goods to the consumer at the last mile. For a can of Coke or a bar of Unilever soap to reach the retailer at the last mile, it passes through a layer of key distributors who pay for the goods in bulk and resell down the chain to many wholesalers. They in turn sell the goods to smaller wholesalers and agents. For most, it’s a cash-and-carry relationship as there isn’t clear data to underwrite credit..
The reality on the ground looks messy:
These convoluted supply chains, which depend on layers of redistribution, result in many problems (we already elaborated on the ones facing retailers). By far, the biggest one is: last-mile delivery is freaking expensive.
Logistics adds 75% to the cost of goods in Sub-Saharan Africa. For the typical delivery service in Lagos, it is a genuine obstacle course to deliver goods to retailers. They get stuck in gridlock; they get detained by traffic cops; their vehicles suffer from breakdowns. And, everything becomes twice as hard in the rainy season!
Logistics players can struggle to make enough deliveries to pay off the high costs of fuel and turn a profit. And the cost structure of FMCG distribution - razor thin margins - doesn’t allow much room for error.
This is why distributors have proliferated in African retail supply chains: they are in close enough proximity to retailers. Despite this, retailers still have to travel to market to buy their inventory, having to absorb high logistics costs to procure their goods. Retail needs to unwind the culture of cash and carry if it is to scale in a meaningful way.
Demand and supply is disconnected
We’ve already talked about the retailers’ unique challenges, but other FMCG players are equally frustrated by fragmented supply chains.
For FMCG manufacturers, it is a constant headache not having access to the end consumer:
It's difficult to develop new products since they’re unable to do market research.
They can’t pass on promotions, or discounts, to move inventory because distributors will absorb them.
They have no visibility on stock in trade, what inventory is available in the market, to guide their production. This partially drives stockouts.
How the FMCG giants (partially) solved it
To gain access to the end consumer, the multinational FMCG manufacturers rolled up their sleeves and built their own distribution channels.
Few FMCG manufacturers are able to handle distribution themselves as it is extremely capital intensive. There are the costs of warehousing, logistics (vehicles, fuel, and maintenance), and staff, ranging from distributors to marketing and sales teams.
Only the giants - Nestle, Unilever, Coca-Cola, and Seven-Up and the likes - have cracked distribution to gain access to the retailer. Yet, even with their own supply chains, built over decades and costing millions of dollars, manufacturers still aren’t able to go entirely direct to retailers. It is simply too expensive to reach 200 million Nigerians at the last mile.
Able to only partially reach the retailer at the last mile, the FMCG manufacturers still end up selling their goods via the large wholesale markets. In Nigeria, for example, only 30% of total FMCG goods are sold directly to retailers. The vast majority, 70%, are sold via wholesale markets.
Coca-Cola or Unilever have the deep pockets to pay for high distribution costs - even though it is far from a perfect system.
But what would African informal retail look like if there was a solution that provided rock solid logistics and provided visibility into the whole chain by connecting supply and demand? How much bigger can the $1TN informal retail sector be if all the frictions in the supply chain were removed? How much more money can retailers, and all supply chain players, make?
Enter Omnibiz.
Why Omnibiz
Deepankar Rustagi: a phenomenal operational CEO
First, we invested in Omnibiz because of Deepankar Rustagi, the CEO/founder, and his team of FMCG experts. Some founders are master storytellers, excelling at fundraising, but they’re not great operational leaders. That can work for some businesses. When you’re dealing with massively fragmented markets, thin margins, and genuinely hard problems that is not the right kind of founder.
Deepankar is a phenomenal operational CEO. He has brought his 15+ years of African FMCG experience into Omnibiz’s products, strategy, and business model. It truly is the magic of the company. And people in the FMCG industry have noticed—the depth is in the cap table. Deepankar’s insights were earned working on strategy and digital transformation with the Tolaram Group (makers of Indomie).
Bottoms Up: starting with the retailer
Omnibiz realized you have to make the retailer your first point of contact, your first customer. It’s the retailer who drives tech adoption back up the chain. They are the market pull. When retailers start ordering inventory online, the market will have to change and adopt technology. They have no choice. Pushing technology from the top fizzles out fast.
This bottom up approach - starting with the retailer - is in stark contrast to how the FMCG sector has operated in the past. For example, a major Nigerian FMCG manufacturer, gave out tablets to its distributors to track their sales, but they weren’t incentivized to use it. The technology was never pushed deeper down the value chain. The real question on serving the retailer is retaining them. In other African markets, retailers hop between B2B ecommerce companies looking for the lowest price and the cheapest financing—as investors, we don’t love races to the bottom on pricing power.
The Big Tent: asset light and collaborative approach
So it could focus on the retailer, Omnibiz adopted a third party logistics (3PL) model. Not to throw too much shade, but we believe that when a company says everything is a priority it just means they don’t know what direction True North is yet. In this B2B ecommerce space, there’s a lot of experimentation around payment processing, trying to become a bank, and so on—all of those things are very hard businesses in their own right. And various players are taking them on because their margin structure relative to GMV is terrible. We are deeply appreciative of Omnibiz’s clarity on focusing on the value to be unlocked by just having the goods in the right place at the right time and absolute clarity on their primary customer, the retailer. Omnibiz brings on logistics providers and distributors, who both own their fleets and warehouses, onto their platform. Omnibiz coordinates the deliveries, but doesn’t actually do them.
This has a massive impact on cash flows and margins. A first party logistics model (1PL) typically yields a 2-3% take rate on the total GMV, while a successful 3PL model produces margins that are 2-5 times better. What’s truly exciting is that the 3PL model massively decreases the capital needed to scale. More orders from retailers leads to more deliveries, attracting logistics providers who are looking for customers vs. having to raise more and more capital to continue to build your own warehouses and delivery fleets.
By being asset light, Omnibiz not only saves on costs, but it positions itself as an ally to supply chain players, especially distributors. Traditional trade is an enormous source of employment in SSA, providing up to 80% of jobs. Large-scale distributors have been in the business for decades, with the business being passed down in the family, and are some of the heroes of mid-sized businesses on the African continent with top line revenues in the millions and tens of millions.
Omnibiz doesn’t seek to replace distributors; it wants them to make more money. Omnibiz deepens their market by connecting them to new retailers, suggesting new sales of higher margin products, and increasing their inventory turnover and cash flow cycle. This keeps stability in the sector. Manufacturers like it too as they are not keen to jeopardize their distributor relationships which they’ve spent decades building.
Omnibiz’s model is yielding outstanding results. Distributors are increasing their inventory rotation velocity by 50%, while logistics partners have boosted their deliveries by 200%. Emmanuel Mmerichukwu, owner of Ebebiz International, a FMCG distribution company in Asaba, Nigeria, has tripled his rotations since onboarding with Omnibiz. When Stephen Ajeniya, owner of Stake Logistix Solution, joined Omnibiz in 2019, he was making 20 deliveries per day. Over two years later, his deliveries have increased to 150 per day. His number of employees have grown from two to 25 people. We believe in technology platforms providing a base layer for great entrepreneurs up and down the stack to build bigger businesses—and we are watching that happen in real time with Omnibiz.
How a network of networks drives digitization of the supply chain
Lastly, Deepankar and the Omnibiz team have a unique worldview about digitizing the entire value chain as a mission which has transformed Omnibiz into a network of networks. Thanks to this singular drive, he has given the company a broader perspective on deepening informal retail and making it profitable.
As we’ve already mentioned, one result of this worldview was Mplify, a key differentiator for Omnibiz.
Mplify is a salesforce automation platform that helps large manufacturers run their own distribution and logistics networks side by side with Omnibiz’s network.
Plenty of folks have tried to build salesforce automation software for the FMCG sector. And, none of them really worked out. These types of tools don't work well when you try and push them down from the top, because the incentive structure breaks down. A Unilever, or a Flour Mills of Nigeria (FMN), can force their super agents to use a software product, and they push it down to their agents, but why would people further down in the supply chain care? Tapping tablets is just more work for them.
These past failures showed the difficulty of making technology adoption stick. Where Omnibiz has succeeded is they brought their insights from building a product for retailers to the tools that manufacturers can use directly.
With multiple overlapping networks, Omnibiz is coordinating over a hundred million dollars a month in movement of goods. Omnibiz, along with Mplify, are growing faster at scale than anyone else in Nigeria. That wouldn’t have been possible if it weren’t for Deepankar’s worldview on digitizing the entire value chain – a mission that lets Omniz be asset light and collaborative in its approach.
Omnibiz’s worldview and strategy has translated into take rates that are unrivaled in B2B e-commerce.
Future of African retail
For the moment, Omnibiz is focused on removing the frictions in informal retail by solving for:
Logistics
Procurement
Inventory management
Capital (BNPL)
This points to a big, ambitious vision: Omnibiz is positioning itself to become the enabling layer that transforms informal retailers into modern retail in sub Saharan Africa.
If you look at modern retail in developed markets, what do Walmart, Costco, and 7-11 all have in common? They have great merchandising and rock solid logistics. With those fundamentals, they are able to build a brand that resonates with consumers and gains their trust across different geographies.
We’ve already seen that formal retail, Shoprite and the like, struggle to gain a foothold in SSA markets. The market rejects their cost structure - it doesn’t make sense.
But what if the neighborhood informal retailer offered its consumers a similar experience as Shoprite?
Provided the tools and capital, informal retailers would be able to create scale for themselves built on top of a platform like Omnibiz. They can expand to 3-6 locations in adjacent neighborhoods. That’s the exciting vision of Omnibiz. It’s why it couches its success in terms of its retailers’ profitability. This year, Omnibiz aims to increase its retailers’ revenues by 4X.
What the future will look like for Africa’s informal retail is still not clear. One interesting parallel to Omnibiz is Mpharma which has provided logistics, inventory management, and drug procurement to its own and franchisee pharmacies.
Omnibiz could become the 7-11s of SSA, rolling out its brand to partner retailers who use its tools to improve their services and scale. This would grow Africa’s traditional trade by orders of magnitude.
Africa’s informal retail is going through an exciting transformation. With its stellar team, products, execution, the Omnibiz team is emerging as the industry leader.
More coverage on Omnibiz from TechCrunch