Building Ethiopia’s first online food delivery company: Entrepreneur shares his story

Feleg Tsegaye, founder of Deliver Addis

Feleg Tsegaye, founder of Deliver Addis

Not wanting to learn how to cook was what spurred Feleg Tsegaye to start Deliver Addis, the first online delivery company in Ethiopia. He’s only half-joking. “For some reason I thought this would be a simpler solution.” The work turned out to be a lot more complicated than doing his own cooking.

The Addis Ababa-based company delivers take-away restaurant food, groceries, beverages, flowers and books. Feleg set it up in 2015 as an online platform, and there’s also an app.

“What really prompted me to pursue this was the fact that we were creating a completely new industry that did not exist in Ethiopia,” he says. It’s about getting customers what they want in the convenience of their homes and offices. It’s also about generating business for small and medium enterprises – like restaurants that cannot afford space or a good location – and creating jobs for young people as back-office staff or drivers.

From civil service to business

Feleg was born in the United States to Ethiopian parents in exile and moved to Ethiopia in 2012, aged 24, driven by a goal to create opportunities for young people – directly or indirectly – through technology.

Starting the delivery business was a great leap for someone who comes from a civil service background, working at the US Federal Reserve Bank and focussing on IT. Even the language, Amharic, was unfamiliar to him.

It was a modest beginning and he never imagined he’d go big. “At first, it was just me and my office with one guy and a motorbike,” Feleg recalls.

Initially, orders were through a password-protected site only 25 or 30 people could access – mostly friends and clients of the tech company Feleg worked for at the time. The latter encouraged him to turn Deliver Addis into a fully-fledged business and provided office space for the first year and a half.

There was virtually no advertising for the first three years. “We didn’t have the capacity to support too much business at one time.”

Delivery was free for the first eight months, even after the password was removed. “For most Ethiopians this was a completely new experience. They had never clicked on something online and had something happen physically in real life, so we wanted to reduce the barrier to entry as much as possible. We thought free delivery would be a good way to de-risk it for most people.”

Funding challenges

It’s a challenge to raise funds for a business in Ethiopia and Deliver Addis never got a lot of funding in the early days, Feleg says. The first customers – his friends and clients from his previous job who had special access to the order site – also became the first investors. “I had never done a lot of financial modelling or anything like that, but they saw something greater in the idea and they knew that I would be a good person to help execute on it.”

There was a good working relationship and mutual trust with his early investors, which was fortunate because finding initial capital is often the most difficult part, he adds.

It was still small, “far less” than $100,000.

Feleg reveals it also took some effort to understand the local market. “Food here is a very communal experience, and so people generally eat together,” he says. The local staple, injera, is shared from one large plate and the concept of take-aways and eating alone is not widespread. “Thankfully there were enough people that had hectic enough lifestyles to support it in the early days.”

When the going gets slow

Getting drivers to deliver a speedy service took some doing. “Everyone [here] feels like they have plenty of time to do something.” Recruiting motorbike drivers who were open and willing to learn and leading by example helped. “I would do deliveries myself, personally, and they would see how seriously I would take it, and how quickly I would move,” he remembers.

Internet shutdowns by the government after it declared a state of emergency for political reasons forced the business to adapt and find ways to work around them. “Our first internet shutdown was when I was on a flight to the US.” When he landed on the other side, he got desperate messages from his colleagues in Ethiopia. The business was unprepared for this even though he thought he’d prepared it for all eventualities that could occur in his absence. Offline processes for ordering – by phone, or SMS, when available – were created as a result, which saw order volumes go up.

Overcoming the odds

Power cuts that affect office connectivity and seemingly irrational motorbike restrictions by the government are some of the additional challenges the business has to contend with. This has a knock-on effect on the 140-plus restaurants it serves. “We are responsible for up to 60% of some restaurants’ business,” explains Feleg.

Deliver Addis evaluates its partner restaurants carefully, checking the quality of the food, the focus of the menu, and even the cleanliness of the bathrooms – often a good indicator of the quality of the management.

Growing bit by bit

The business grew by means of “a lot of smaller iterations”. During the states of emergency – with the accompanying internet shutdowns – in 2016 and 2017, resources were low and investors disappeared. “We had to find some bridge capital from another anchor investor. It was a struggle just to keep the doors open.”

The first institutional investor came on board towards the end of 2017 and it helped the business build up its governance and structure. It started to transition from a startup towards a “properly functioning and running business”.

More capital and a formal structure helped attract international investors. “You have to prove yourself in a market like this; prove that demand is there, that the economics make sense and the team has the competence to execute on its ambitions,” he says. “But I think with five years under our belt and solid and sustainable economics, Deliver Addis paints a different picture than what some people expect in Ethiopia.”

The revenue model is similar to most on-demand delivery services, with a slightly subsidised delivery fee and service charges to vendors. Covid-19 changed things and several restaurants that worked with Deliver Addis shut their doors. A reduced delivery fee helped drive business back to restaurants and it repositioned Deliver Addis for good.

“Before Covid a lot of our [customer] demographics were high-net-worth individuals [who left Ethiopia for the perceived safety of their home countries when the pandemic struck], so we had to shift and change the market completely.” Even with the reduced prices, the business remained sustainable.

Shifting to online

Ethiopians are gradually becoming more comfortable with e-commerce with a lot of it taking place on social media chat platforms like Telegram and Facebook, he says. It helps that there is a growing number of young professionals who are more tech-savvy and less averse to risk than older generations, and they are helping to propel e-commerce.

Payments are still in cash, and a credit card culture might be some way off. “Ensuring that people trust their money with new solutions is going to be another task entirely,” Feleg notes. Mobile banking and even ATMs can be unpredictable, a big downer in an industry where trust is important.

Going bigger

Growth opportunities depend on regulatory and political challenges, but on the upside, Feleg says: “We built up a lot of great technology that has helped us make last-mile delivery more efficient in imperfect environments”.

He set up a company called Roadrunner with the help of investors as a separate tech arm, and sister business to Deliver Addis, to do development and testing. “As we look to extend our technology outside, it helps structure that a little bit better. That kind of licensing and structuring will make it much easier for us to license our technology and hit other markets when we are ready to do that.”

Hindsight is 20/20

If he could do it again, Feleg believes he would look harder for a solid co-founder. He’d also try to raise more capital sooner to have built a larger management team. “When you first start out you’re thinking about equity and dilution, but what I’ve learnt in the on-demand space is that time is the only resource you don’t get back. So if you had more resources working on the same problem, there is a chance that you could have moved a lot further in the same period of time.”