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Wednesday, 24 March 2021

How two Egyptian startups are filling supply chain gaps

A tale of two startups: How nascent companies are helping solve supply chain fragmentation and pandemic-level customer demand — Part 1: Back in April 2020, we suggested that a crucial factor for infrastructure companies to survive through the pandemic would be reducing physical interaction.

In fact, social distancing created a golden window for growth for one segment: Supply chain-focused startups. Big companies, including fast moving consumer goods (FMCG) players and manufacturers, struggled to keep up with soaring demand from customers who stayed at home and relied instead on e-commerce and apps to order and purchase their needs online.

Today, we look at how, in a big industry, B2B bulk ordering app MaxAB found success by solving lingering gaps in supply chain management.

Pre-covid, big players were reliant on a flawed, multi-fragmented supply chain: Before 2020, e-commerce used to be a marketplace living off single-product, single-item orders, which were often fulfilled by the supplier itself. Egypt and the wider MENA region were not ready in terms of fulfillment infrastructure to cope with bulk orders of home-use goods and commodities, CEO and cofounder of social commerce platform Brimore Mohamed Abdelaziz tells Enterprise. However, online grocery delivery boomed last year, with customers ordering multiple products in large quantities, which need fleets and warehouses to be fulfilled, he added.

How does the supply chain typically work? Typically, a product traveling from the manufacturer to the consumer will change hands almost six times until it reaches the consumer, AbdelAziz explains. It travels from the factory to a distributor, then a sub-distributor, a big wholesaler, a smaller wholesaler, and then a retailer, where it is finally within arm’s reach for the consumer. For FMCG products to reach the consumer, a wholesaler vehicle stocked with one product from one company drives around, trying to sell the stock to a few of the 400k grocery shops all over Egypt, which oftentimes results in wasted time and expenses, cofounder and CEO of MaxAB Belal ElMegharbel says.

This setup causes massive fragmentation and makes efficient data collection extremely difficult. Data points like how the product price changes over time, the company’s market share, general market trends, and price elasticity in different areas are very difficult to attain, ElMegharbel explains. Add covid to the mix, and it becomes all the more problematic for manufacturers to handle on-ground fleets, and keep up with the demand in general.

In steps B2B bulk ordering: MaxAB uses ordering bulk deliveries as a way to mitigate this fragmented supply chain. On one hand, the ordering helps provide the tech platform with real time data that can be more efficiently utilized by its delivery infrastructure. Based on the data points it collects — including product price changes while traveling through the market and the quantity of each product that is sold — MaxAB can predict the demand and product needs of retailers in different districts, filling the data gap for manufacturers and allowing them to better anticipate output requirements.

And just like a good e-commerce platform, it has its own entire fulfillment operation, including warehouses and fleets. Basically, the same model Amazon uses to ensure single-day delivery of its goods. Its warehouse area grew in 2020 from 10k sqm to 45k sqm, as it now owns 11 warehouses in Greater Cairo, as well as Tanta, Mahalla and Mansoura.

Data from ordering helps MaxAB optimize its fulfillment service, by stocking its warehouses in advance. For retailers, MaxAB’s app offers a way to order the exact products and quantities needed for the store. As retailers order their needed products through the app or website, MaxAB has an overview of who needs what when. Accordingly, it can fill its warehouses ahead of time and efficiently deliver the exact amount and variety of products needed directly to the retailer.

MaxAB benefited from the pandemic, in terms of revenue growth and customer base expansion. During 2020, MaxAB’s top line grew 4.5x, and its active retailer base multiplied to 22k from 8k. Today, 92% of MaxAB’s orders come through the app, as opposed to the 40% of orders placed through its website before covid, Elmegharbel tells Enterprise. And the company sees high engagement levels: More than 40% of the company’s retailer base opens the app on a daily basis.

What happens to smaller retailers when cashflow cannot keep up with demand? To continue fulfilling orders, retailers started to stock much more. While this put a strain on supply availability, it also put the retailers in a difficult cashflow position. Since they have to pay upfront for the products they are purchasing, more stock meant more capital was needed.

This is why MaxAB introduced its microfinancing product for retailers, to allow them to buy on credit, in partnership with microfinancing company Cassbana, Elmegharbel tells us. Cassbana focuses on individuals and businesses that do not use conventional banking services and uses AI to run a behavior-based credit scoring system, determining access to credit. The ultimate aim is to build financial identities for those who are unbanked — in short: financial inclusion. Cassbana aims to reach 1 mn users by end-2021 and has recently raised a seed round of USD 1 mn, led by Egyptian fintech-focused VC Disruptech.

MaxAB raised a USD 6.2 mn seed round in 2019, as well as an undisclosed bridge round.

NEXT WEEK: We look at social commerce platform Brimore, which is providing a smaller-scale solution to the fragmented supply chain by turning average, regular households into points-of-sales themselves.

Your top infrastructure stories for the week:

  • Water management: A EGP 1.9 bn project to deliver potable water to 192 villages in Minya is being considered by the government.
  • Metro: Italian contractor Saipem is interested in taking part in the planned construction of Cairo Metro’s sixth line, which is expected to be led by US infrastructure giant Bechtel.
  • Desalination: Tenders for four water desalination plant projects in El Hammam, El Quseir, Marsa Alam, and Safaga with a combined daily output capacity of 240k cbm will be launched shortly for private sector participation.
  • Telecom: Telecom Egypt will establish a new fiber optic connection between the Red Sea and the Mediterranean under an agreement with the Suez Canal Authority and the Armed Forces’ Signal Corps
  • Transport: Public transport company Mowasalat Misr is planning to grow its fleet of buses to 1k from 300 within the next two years.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.