Sokowatch, a Nairobi-based start-up, has launched a business-to-business (B2B) e-commerce supply chain that directly connects small scale retailers to big manufacturers in a bid to eliminate middle-men who exploit small scale retailers.
According to Sokowatch Chief Executive Officer David Yu, the e-commerce supply chain will bridge the gap between small scale retailers and the big manufacturers given that there is currently limited logistics infrastructure linking the two since the markets are predominantly informal without sophisticated supply chains.
“We are eliminating the multiple layers of middle-men, from distributors to wholesalers and becoming a connective layer for manufacturers and small shops,” said Yu.
This comes following the dire effects middlemen cause to small scale retailers where they raise the price of commodities forcing retailers to hike the price of their goods. This makes them count losses and some even close down their shops. For instance, over 2.2m Micro Small and Medium Enterprises (MSMEs) shut down in the last five years to 2016 according to a new survey by the Kenya National Bureau of Statistics (KNBS).
The Journal of Agriculture and Social Research (JASR) paper 2010 on the implications of middlemen in the supply chain of products found that middlemen pretend to bridge the gap between small scale retailer and the manufactures but their mode of doing business is a threat to small scale retailers.
“The real profit goes to the middlemen who buy up the farm products at almost give away prices and sell at outrageous prices to the consumers. This attitude of middle men have discouraged genuine investors getting into agriculture because of the marginal profit associated with it as the middle men cart away the bulk of the profits,” read the research in part.
Yu said that the B2B e-commerce platform will help small scale retailers make direct orders from the manufactures while digitizing delivery and payments to the manufactures thus saving time as well as reducing costs.
“In this case, the informal shop owners order their products from Sokowatch’s online platform by using the Short Message Service (SMS), phone, and mobile app. Once the order is received, Sokowatch requests the aggregate demand from the suppliers such as Proctor and Gamble and Unilever and deliver the goods to the retailers by a fleet of tuk-tuks,” he said.
Furthermore, the B2B provides room where independent retailers can negotiate for better prices from manufacturers.
Improving efficiencies in informal sectors which account for as much as 40 per cent to 70 per cent of many African economies is a potentially rewarding opportunity for any business that can get it right.
Sokowatch, which raised $2.5m in additional seed funding from new and existing investors earlier this February on top of $2 million a year ago, says it has delivered 500,000 orders to over 10,000 retailers in Kenya and Tanzania and is now expanding to Uganda and Rwanda.
In America for instance, B2B was ranked larger and more advanced in e-commerce adoption than business-to-consumer (B2C) according to DHL Supply Chain survey.
“B2B domestic e-commerce sales hit $1.134 trillion in 2018, according to Forrester Research. That amounted to 12 per cent of the $9 trillion in total B2B United State spending, defined as employee-generated transactions on e-commerce sites,” the survey revealed.
According to Sokowatch, Africa’s cities alone have more than 10m informal shops selling over $180 billion worth of goods every year. Despite their importance to local economies, these shops routinely stock out of products, have limited access to financial services, and lack proper business management tools. Sokowatch aims to transform communities across Africa by revolutionizing access to essential goods and services.
The B2B e-commerce model has been well demonstrated by Alibaba in China and Udaan in India.
“Alibaba and Udaan have been fascinating role models for us because they also developed their e-commerce businesses in emerging markets without existing third-party service providers,” said Daniel Yu.