French wine and spirits company Pernod Ricard has invested in the leading African online retailer, Jumia. The two companies will form a strategic partnership to improve Pernod Ricard’s distribution in African markets.
For Pernod Ricard, Jumia’s 14 country coverage, online and payment platforms, services, logistics infrastructure and market expertise is a key attraction. In particular, Jumia’s strength as a fast food ordering platform (Jumia Food) and its hotel booking service (Jumia Travel) provide new points of access into out-of-home consumption.
For Jumia, the investment provides a blue chip partner and much need capital: in the first nine months of 2017 Jumia saw its losses widen to €80.7m ($99.1m), while revenues were just €57.3m ($70.4m). In September, we learnt that owner Rocket Internet was seeking an IPO for Jumia, often described as Africa’s answer to Amazon. 3 months later, there has been no further development.
In April 2018 Nigerian ecommerce platforms Yudala and Konga merged. In June 2018 CFAO (Carrefour’s franchisee in West Africa) closed down its online retail platform, Africashop. In December 2016, CDiscount, Casino’s online retail platform shut down its African operations. Demand for online retail in African markets is still very immature, and fraught with operational costs and complexities (lack of infrastructure, poor address systems, predominantly cash on delivery). Jumia continues to need significant amounts of investment while it scales its retail operations. It is stretched thinly: since its founding in 2012 the company has entered 14 markets and is spread thinly. We believe Lagos alone is contributes more in sales than several of its country markets combined.
It’s an interesting investment for Pernod Ricard in its own right, although the terms of the investment have not been disclosed. But Trendtype believes that the value of the strategic partnership as a means to transform Pernod Ricard’s distribution profile may be limited. It’s a big change in purchase profile for a consumer to go from ordering a $5-$10 fast food meal to purchasing a $50 bottle of Chivas Regal or Beefeater gin. Of course, Pernod Ricard can leverage Jumia data and networks to improve its distribution but an investment in an ecommerce retailer seems like an expensive way to acquire data and knowledge transfer.
