South Africa’s townships (underdeveloped urban areas that until the end of apartheid, were reserved for non-whites) offer more than meets the eye for food producers and retailers. While Trade Intelligence estimates the South African fast-moving consumer goods (FMCG) market to be worth approximately R563 billion (about $35 billion), the value of informal retail remains a subject of ongoing debate and varies significantly according to the various sources. However, it is estimated to be at least R158 billion (about $9.8 billion) – a sizable chunk of the total market.
To find out more about the opportunities that exist, Jeanette Clark spoke to Jessica Boonstra, founder and CEO of Yebo Fresh, an e-commerce platform that sells groceries in Cape Town’s townships.
You previously mentioned traditional retailers underestimate the size of the township economy. Can you elaborate on this?
I think it is widely acknowledged that the informal market makes up approximately 30% of the total FMCG market but what we often see is that these large players underestimate the growth potential. Let’s put it this way: if the bigger players took this market seriously, Yebo Fresh would not exist. The square meterage of the average retailer in upper-income markets per consumer is eight to 10 times higher than in most townships. This could be seen during lockdown where people in townships queued up to six hours for their month-end shopping.
There seems to be a limited appetite to solve problems and positively transform these markets.
What is Yebo Fresh’s unique value proposition to customers?
We always wanted to solve the problem of that big monthly shopping trip. In South Africa’s townships, customers often have to travel long distances to larger shopping centres to do their shopping. The trip costs them money and it is a huge hassle to get the purchases back home.
We are not competing with the local spaza shop (informal convenience stores) where people to do top-up shopping. We are competing with the Shoprites and Pick n Pays of this world. We offer a service where a customer living in the township has the option to order their groceries online or via WhatsApp and have it delivered to their doorstep, eliminating the burden around that monthly shopping trip.
A lot of spaza shops have the same problem and we wanted to partner with them to solve that problem. It was a lightbulb moment when we realised we could provide a service to anyone who needed access to food in these areas. Whether it is a township restaurant, fast food place, soup kitchen, spaza shop or a daycare centre, we can help by making ordering, buying and delivering easier.
How has your business model changed over time?
We started in 2018 and grew consistently. However, 2020 has been quite a ride and we have already done a radical business model pivot twice this year.
When Covid-19 hit, we were approached by more consumers than ever before for home deliveries. We were also approached by sponsors who wanted to have food parcels delivered to employees, for example. On top of that, a wide range of community action networks and NGOs wanted to build on the expertise we had gained to safely and consistently get food into these areas. They wanted large volumes of food parcels and soup delivered.
This has been the real reason for our growth. We went from a small business with around 100 orders a month to thousands of orders a day. You can imagine what came with that: first doubling, then tripling, our warehouse space and increasing employee numbers from just six at the beginning of the year to approximately 50 at one stage.
We are pivoting yet again. The food parcel business has tapered off but interestingly, delivery to township small businesses has grown, such as fast food, daycare centres and spazas. In this market, you have to adapt quickly.
Do you think e-commerce is more suited to townships than traditional retail?
If you consider e-commerce the solution to a problem, then yes, e-commerce is suited to townships. Through channels like WhatsApp, our most popular channel, it becomes more attractive and interesting. It is about choice. In upmarket areas, you can enjoy a shopping trip, but you can also stay home and order in. Townships deserve that same choice. It’s not about eliminating options.
Tell us about the challenges of an online retailer targeting the informal market.
The first is building trust. We were a new company. Nobody had heard of Yebo Fresh. Often, we got the question: “Where is your store?” We had to explain that the store was on the consumer’s phone. To build trust, our service offering had to be excellent. There is a misconception that people on a small budget cannot afford to be choosy but it is quite the opposite. Our customers are incredibly picky as nearly a third of their budget is spent on food. We cannot afford to make mistakes and if we make them, we have to correct them, or the customer may never come back.
The second challenge is infrastructure. There are still a few parts in the townships that don’t have addresses or are informal structures. We had to hire local drivers who understand the area and ensure we were closely connected with the local communities to find the addresses for these deliveries. Community leaders will often get in the car to show us the way.
Data connectivity and cost remains a challenge. We’ve adapted our interfaces to what people are familiar with and what works for them; for example, by allowing orders through cheaper data options such as WhatsApp. We struggle to reach some customers as their phones get stolen or they are out of data; some customers send us messages to call them back.
Lastly, safety remains challenging and one of our top priorities. We have to work incredibly hard to keep our drivers safe. Fortunately, we have had fewer than five incidents, which is low in comparison to the number of deliveries. Sometimes we will get a police escort for deliveries of food parcels or to soup kitchens. We also make sure we have a good connection with communities and know which routes to take to keep our drivers safe.
Where does Yebo Fresh source its products; do you keep your stock in a warehouse or buy it from wholesalers as people order?
Our customers are particularly price sensitive; for many of them saving R10 (less than $1) is a huge thing. They readily give us feedback and we have to benchmark our products according to the prices that the supermarkets offer. We have to be efficient as everything we do is built around optimising every step. We buy in bulk from the manufacturer, pack in our warehouse and deliver. Every step is supported by technology and measured with the constant drive to save costs.
Initially, it was difficult to buy in bulk as our volumes were too low. However, thanks to the influx of business and orders during Covid-19, we are now fielding calls from manufacturers who want us to list their products in our portfolio.
For fresh products, our warehouses serve only as a transit point. We take orders the previous day and visit the market first thing in the morning to buy in bulk and deliver the same day. For other products, our team of buyers strategically plan and purchase, weighing up the cost of warehouse storage versus a potential saving if we know a price increase is on its way.
Delivery is free above R500 (about $31) and the same model applies to our NGO and spaza customers. We have estimated we have saved our customers around 7,000 taxi trips this year alone.
We don’t own any vehicles but rather work with a partner company with a large fleet of owner-drivers. These drivers are locals in the communities where we operate and use various forms of transport; anything from a small pickup to an eight-tonne truck. We train the drivers to work according to our policies but they are independent entrepreneurs.