E-commerce fuels innovation in logistics
March 19, 2024
Ububele Kopo

In my previous article, I mentioned how e-commerce is driving further innovation in related markets such as financial services and logistics. Let’s delve deeper into this topic.

Ease of transactions and delivery

With the rise of e-commerce and the demand for shopping online, two key challenges emerged:

  • How can we make online transactions safe and easy for people?
  • How can we ensure customers receive their products efficiently?

Payments have been extensively discussed over the years, both globally and locally here in South Africa.

The second, though initially addressed through outdated methods (e.g. post office), accelerated the boom of the e-commerce fulfilment and logistics industry. Couriers emerged with fit-for-purpose solutions in an industry with complex needs because a parcel is not just a parcel.

Let’s Zoom in on the second challenge — fulfilment and logistics. In this R84 billion (approx. $4.4 billion) market, moving goods from merchants to consumers requires significant investment in infrastructure. When I say, infrastructure, I mean warehouses, vehicles and technology. Hundreds of millions of parcels are navigating through a fragmented market of service providers, each grappling for scale.

Pingo Delivery: A zero to one billion case study

In 2022, Shoprite Holdings entered into a 50/50 Joint Venture with their logistics partner, RTT, to transfer the delivery component of Sixty60 into a separate entity called Pingo Delivery PTY LTD. RTT has been a trusted delivery partner since the initial launch of Sixty60. This allows us to have a glimpse into the profitability of on-demand, a highly contentious sector that emerged during the recent peak period of zero-interest rate policy (ZIRP). Since then, the global startup community has witnessed some major players either get acquired for significantly less than their last funding round valuations or go out of business altogether. Therefore, the attention given to Sixty60 and the questions surrounding this phenomenon are justified.

However, my personal evaluation of the scale of Sixty60’s gross merchandise sales in the presentation made is modest. This is because I believe the sales element of the Sixty60 business is viewed by them as an extension of their stores, a hyper-local, almost decentralised profit and loss (P&L) for each store. The only aggregated and visible element is Pingo Delivery.

The Pingo Delivery figures showcase a zero-to-one billion (rands) case study for a business that was virtually non-existent before 2020. While financially insignificant on Shoprite Holdings’ financials, these figures are crucial for investor sentiment. For the startup community, these figures represent a dream and an indication of value creation and value capture.

However, this is just one valuable nugget within a vast market encompassing multiple industries and numerous providers, only accessible through the purchase of Shoprite shares.

Consolidation in the South African logistics market

The need for scale in this fragmented landscape led to increasing acquisitions of fulfilment and logistics providers in the South African market from the beginning of 2021:

  • Imperial acquires ParcelNinja (see)
  • DP World acquires Imperial (see)
  • DPD Lazer acquires Fast + Furious (see)
  • Clearwater Capital, through City Logistics, acquires Fastway (see)
  • Adenia acquires The Courier Guy (see)

Interestingly, apart from ParcelNinja, all the companies mentioned above are pure courier businesses. They have been around for a while and primarily adopted the franchise model for scaling, as capital investment in company-owned vehicles is scarce for this industry. Therefore, one would argue that the value of these companies is the scale of their logistics network within an accelerating market — e-commerce.

While the franchise business model in logistics deserves a separate investigation, this is how these players scaled in their time. In the age of tech-first, not just tech-enabled logistics providers, scalability of the logistics network lies not in franchising but in the asset-light and efficient aggregation of both new and existing analogue providers, plus carving out a niche you can dominate, such as courier aggregators and click-and-collect providers. This is evident with Bob Go (previously by uAfrica) and Pargo, respectively.

This once-fragmented market is consolidating around the singular opportunity that’s being presented by the growth of e-commerce in South Africa. This opportunity extends beyond the nation’s borders, creating a landscape ripe for innovative, tech-first logistics providers to carve their niche and dominate during this period of consolidation.

Ububele Kopo leads Project Office: Business & Programs at Bash, with this article the second of a two-part series. Sign up for Ububele’s Newsletter on Substack, where you can access Ububele’s high-quality insights on e-commerce in South Africa.