Covid-19 is jamming the rocket that launched SA’s e-commerce business

Just before his death in January 2020, renowned American innovation scientist Professor Clayton Christensen published his last book:The prosperity paradox: how innovation can lift nations out of poverty“

The content of the book was simple and controversial enough: “Poor countries develop best not through traditional channels of investment in things like public education and health care, but rather by introducing ‘market-making innovations’ that serve needs among those that are most largely ignored by current value mechanisms and create new ways in which people can access and contribute to the economy.”

While politicians do well when they publicly campaign to spend billions on education or magically create generous health care financing programs that are designed to benefit everyone in the future; these investments, unsurprisingly, underperform in terms of their impact on reducing poverty.

We assume that these are the most important levers of prosperity, but research on their effectiveness does not confirm this. However, this seemingly ‘good news’ is favored by political and economic analysts, which is probably why we focus on it rather than the incredible industry transformation that has taken place in South Africa over the last four years.

Before the pandemic (a much overused term that should henceforth be abbreviated as ‘BTP’), the proportion of retail trade through online channels in South Africa was around 4% of the total ‘recorded amount’.

This figure was well below international benchmarks in more developed markets and, depressingly, the South African index also included all online banking transactions, as well as transactions for random things bought online such as airline tickets and all ticket trading that takes place via via portals such as Computicket.

The category continued to grow, but at a slower pace than the snaking queue at the Home Office.

Back then, there were several assumed challenges that held things back.

Logistics has been a perennial scapegoat, as has the frustratingly low level of Internet penetration among the general population. You didn’t have to look too hard for credible reasons to justify the position that “making money on the e-commerce channel is difficult and not worth trying.”

Access to a real retail environment, both online and offline, was completely unavailable to most aspiring South African entrepreneurs. The cost of renting stores in popular shopping centers was also unaffordable, which meant that trade in this category was reserved only for the best-capitalized competitors.

Insulation

Then in early 2020, hell froze over and we were all stuck at home with nothing to do. The lockdown was a godsend for this category. Being forced to stay at home has been a key catalyst for many households to switch to fiber optic internet connections and turn to services such as Netflix and Showmax to distract themselves from thinking about sending their children to boarding school. Suddenly I subscribe to access Game of Thrones and Real Housewives of Pretoria it made sense and it was safe.

Then came the debut of the Checkers Sixty60 phenomenon, and almost overnight, the e-commerce racket was strapped and set on fire. Then all the other supermarket brands suddenly woke up and tried to catch up with similar e-commerce offerings.

Read more on Daily Maverick: How Checkers quietly won the delivery app wars

In addition to fast grocery delivery, TFG has launched an online platform and Bash app. MRP Group acquired Yuppiechef to strengthen the huge gap it had in its brand portfolio in the premium household products segment, but also to strengthen its position in the digital world. Chinese e-commerce behemoth Shein has targeted its massive sales pipeline to the region; just like Temu. In the blink of an eye, we went from a situation of woefully limited choice to a plethora of online shopping options.

Now Amazon.co.za is here (they’re still busy warming up the engines before they turn on the afterburner), going head to head with Takealot and Superbalist. And don’t forget, the Shoprite/Checkers group is still in the works and has just announced that it will make 10,000 new items from its Checkers Hypers available to users of the service in selected locations.

It is now expected that by next year over 10% of all retail in South Africa will be online, an increase of 150% in just four years.

These are certainly great times for South African shoppers, but it is also a new beginning for entrepreneurs who have previously been excluded from participating in the retail industry.

While the big players invest billions in developing and strengthening value chains and in training average South African consumers to become great online shoppers, a much more robust and functioning e-commerce ecosystem for the South African economy is emerging as a by-product.

It would take a very long time for local dominant entities to create such a solution, but thanks to the huge amount of incoming foreign investment, the commercial viability of this category has increased in record time.

What does it mean

Selling your stuff, no matter where you live in South Africa, has never been easier and more financially rewarding than it is now.

It doesn’t matter whether you offer old clothes or a used stroller on websites such as Yaga or Facebook Marketplace; or you have big ambitions and have developed a new brand of designer sneakers and sell them through your own dedicated store on Takealot or Amazon Marketplace.

This new e-commerce ecosystem in South Africa is a classic example of one of Clayton Christensen’s “market-making innovations.” This is an industry that can create thousands of jobs (in design, production, logistics and marketing); profits from new brands that can achieve higher margins on their products, and most importantly; change South Africa’s culture to be more entrepreneurial and more entrepreneurial-friendly. DM