The Trajectory Africa Distilled #08: A Light Unpacking of Asset-Zero Models in African Digital Commerce
If digital distribution only pays at scale, something has to carry it until then. Tayo Akinyemi looks at two asset-free players and asks: scaling to what end?
Hello Everyone,
In my previous distil, I wrote about the range of decisions that founders make about asset intensity (that is, how many assets to own) in B2B informal retail e-commerce businesses. These choices represent to what degree a founder believes their company should create value for “middlemen” in FMCG supply chains along with other stakeholders, or disintermediate them.
In light of that, “asset-heavy” replacement is a strategy that connects supply from brands (also known as manufacturers and importers) to retailers, cutting out (some portion of) distributors and wholesalers.
On the other hand, augmentation is an “asset-light” strategy that delivers value to all supply chain actors, working with partners to handle the logistics. This approach eschews asset ownership.
In this piece, I’m exploring another stop on the asset-intensity continuum – asset-zero models.
Tayo Akinyemi
Boost: enabling the “middle layer” of FMCG supply chains
Boost is a B2B commerce platform that powers growth for manufacturers and their distribution networks through a simple, easy ordering process. What’s notable about Boost’s positioning is its focus on the middle layer of the supply chain.
As co-founder and CEO Mike Quinn explains, manufacturers can’t reach retailers directly, so they work with key distributors who sell to wholesalers and sub-distributors. These independent owners might turn over USD 10,000 to USD 100,000 a month in stock. Unlike companies that seek to dislodge distributors and wholesalers, Boost recognises that they represent the next level of growth for informal retailers.
In Mike’s words:
“There was this narrative that the middlemen…were a problem to remove. But when you think from their perspective, what’s the upward-mobility path of a small retail entrepreneur? You start off selling on the street from a tabletop. Then you get a store. With more capital you might open another store. Then you become a wholesaler to smaller vendors on the street. And what everybody wants to do is go up the distribution ladder and end up becoming a key distributor for a manufacturer, because that’s where the most margin is. You will never replace that because there are so many small businesses. Even if you try to cut out the middleman, many more will pop up.”
Boost: value proposition, customers and partnerships
Boost delivers a platform-as-a-service, or a digitisation layer that provides visibility to stock movements and transactions from the manufacturer to the retailer.
Here’s what the value proposition for each customer looks like:
- Manufacturers, who are Boost’s main customers, gain visibility into the movement of their products through a self-ordering platform used by Boost’s other customers. The platform reduces costs, enables manufacturers to communicate directly with points of sale, and run digital promotions.
- Key distributors, wholesalers, and sub-distributors get tools to manage their inventory, customers, payments, and orders. These are Boost’s main users, but they don’t pay to access the platform.
- Retailers get simple ordering capabilities, access to promotions, and better service.
To scale its platform, Boost is partnering with Unilever, which is a key element of its “many markets at once” strategy. Why? Because a USD 65B company like Unilever would only invest in a solution that could be rolled out in multiple markets.
While proving its model with them, Boost is partnering with other big brands in multiple countries, like Mastercard and banks, to offer working-capital solutions using data from its platform.
Typically, much of the available credit in an informal retail supply chain is extended from manufacturers to key distributors and wholesalers. Sub-distributors might have bank accounts or use mobile money, but generally don’t have access to formal credit. Boost is looking to offer these services starting in Nigeria, before expanding across Africa and into Latin America and the Middle East.
Pika: a data layer for the “downmarket” retailer
Pika is addressing the lack of data on trade in Africa’s informal sector, which accounts for 70–90% of GDP.
This lack of data has different implications for different stakeholders. For financial institutions, it means they lack critical input for the type of underwriting that enables affordable loans and insurance. For FMCG and CPG manufacturers, the outcome is a lack of visibility into how their products are doing in the market. Finally, retailers suffer from financial exclusion and limited intelligence about their businesses.
How does Pika address this? Its primary customers are informal traders, to whom it provides a bookkeeping app that allows them to create credit histories. Those histories then become a gateway to financial services delivered through Pika’s marketplace of lenders and insurance providers. Of course, the data that unlocks access to finance also helps traders determine which products to stock. This is important because small traders have limited space on their shelves, and can’t afford to stock the wrong products.
Sadiq Edu, Pika’s co-founder and CEO, describes the company as the data layer for the most difficult segment of the supply chain:
“Most players primarily target retailers who can afford Android POS devices. Our traders struggle to do so. [Additionally], digital commerce players move upmarket because the margins are higher. We serve the downmarket retailer – the one selling directly to consumers. We give data they can’t get. We enable lenders to go downmarket and we enable distributors to understand retail performance downmarket.”
Pika: unlocking access to critical services for traders
Pika has built a scalable pathway to reach and engage informal sector traders through structured, community-based networks. By working within existing market clusters and trade groups, they’re able to access traders in an organised and repeatable way, avoiding fragmented distribution channels.
Pika’s approach is centred on expanding access to critical government and social services. Through their platform, traders can be onboarded into programmes that provide financial services, insurance, identity, and other public-sector initiatives that have historically struggled to reach the informal economy.
How does this work in practice?
They provide the digital infrastructure to onboard, verify, and engage traders at scale. This enables government and institutional partners to deliver services efficiently to defined groups, creating a reliable distribution layer into the informal sector.
This model also makes a complex market more navigable. Pika can onboard traders in clusters of 1,000–5,000 at a time, driving both speed and efficiency. Ongoing engagement through the platform also enables the capture of more consistent and reliable data, improving service delivery and unlocking deeper insights into trader behaviour.
How Pika makes money
Pika makes money in two ways.
First, the bookkeeping app acts as a gateway to financial services. This means that Pika earns commissions on loan repayments, insurance premiums, and levy payments.
Second, Pika makes money on data. To access services, traders must log sales. These transactions are displayed in real time as products move through the supply chain. Then, the data is pushed onto a dashboard and sold to corporates via subscription. For example, a company like Coca-Cola could subscribe to see the performance of carbonated soft drinks in their category.
The problem behind the problem
Maybe it’s just me, but the way Boost and Pika serve the “most difficult” part of the FMCG supply chain seems paradoxical. They’re both asset-free, but they’re also both serving downstream players (downstream from manufacturers, anyway). One could be forgiven for assuming that the deeper within the supply chain a company penetrates, the more assets would be required.
Certainly, this follows the logic of asset-intensive replacement, in which technology helps optimise the use of assets, e.g. increasing warehouse throughput and delivery vehicle utilisation. But again, Boost and Pika are asset-free. How does this conundrum get resolved?
Part of the answer is that each company serves as an operating system of sorts for partner(s) that “own” the chain and/or need reliable access to it. Another dimension reflects how one conceptualises the “real” problem in these supply chains.
One problem statement is that the price of goods can be lowered if the cost of moving them through supply chains is reduced by remaking those supply chains (using assets) and/or improving their efficiency (using technology, with varying levels of assets). Another points to the possibility that the core challenge is elsewhere; namely, the lack of working capital and access to critical resources in the system.
Because what Boost and Pika are essentially building towards is helping the “downmarket” segment of FMCG supply chains – the sub-distributors, wholesalers, and retailers – to access capital and resources.
Andile Masuku
But Olumuyiwa Olowogboyega argues that working capital is just one of multiple attempts (data and private labelling are the other two) to subsidise digitalised distribution as a business until it’s scaled enough to make the economics work.
The logic is that distribution is a business that only works at scale because of razor-thin margins (3–5%). So, it’ll work eventually once it scales. But in the meantime, the distribution business needs another profitable business to absorb losses until it does.
To be fair, I’ve heard some of this before. Maad co-founder Jessica Long told me that distribution is, in fact, a scale business and Ismael Belkhayat, co-founder and CEO of Chari, described how the key to monetisation was fintech services. And in a conversation with Dotun Olowoporoku, managing partner of Ventures Platform Fund, Daniel Yu, founder and CEO of Wasoko (merged with MaxAB), described the company’s foray into contract manufacturing to produce private label products.
Here’s what I don’t understand, though: if the problem to be solved is more efficient distribution, and the solution is technology, who needs that solution? What benefits accrue from scaling technology-enabled distribution, and what will incentivise retailers, distributors, and manufacturers to sign on? Especially if it’s not working capital and data? If the answer is private labelling, what’s the question?
In Olumuyiwa’s framing, it’s what can sustain a digital logistics business until it scales. The “scaling to what end” part? Not so sure…
That’s a thread I’ll be pulling in the final instalment of this series.
Until then, stay safe!