Fragmented infrastructure is proving a headache for e-commerce players in Egypt
Egypt’s infrastructure isn’t where it needs to be for e-commerce players to run the show in an orderly fashion: E-commerce players are having a hard time accessing the infrastructure needed to run their businesses seeing that the demand for e-commerce-suitable infrastructure outweighs what the country has to offer, industry players tell us. E-commerce businesses typically require physical infrastructure such as warehouses and distribution facilities, tech infrastructure for their platforms to be online, and delivery services to get their products into their customers’ hands. All three areas raise different problems for businesses, with smaller players often having a harder time than others, our sources suggest.
These difficulties come at a time when e-commerce is booming: The covid-induced e-commerce boom in the country saw the rise of new e-commerce businesses and the expansion of existing ones, which spurred demand for suitable infrastructure and logistics.
When it comes to physical infrastructure, the demand simply outweighs supply: “From an infrastructure perspective, I think the demand for warehousing capacity is way more than the supply and the prices are too expensive,” B2B food and grocery platform MaxAB CEO and co-founder Belal El Megharbel tells us. “There is definitely a big lack in sustainable warehousing spaces — in terms of size, location, layout and design — that allow us to operate efficiently,” El Megharbel. MaxAB had to make do with suboptimal warehouses in terms of layout, location and capacity, because it is all that is available.
This dearth of warehousing options makes building (and maintaining) the required infrastructure quite expensive: “An end-to-end distribution infrastructure is expensive to build and more expensive to run, and it requires a strong, disciplined strategic approach to run it in a sustainable way that delivers a great customer experience,” said Ismail Hafez, chief operating officer of grocery delivery startup Rabbit. Local sportswear Magma — which was recently acquired by Mohamed El Sewedy — initially rented out a warehouse with its own in-house team, but eventually their overhead costs became too high, Marketing Director Reem Adel said. At that point, the company decided to use digital warehousing and fulfillment management platform Khazenly’s services.
And that’s to say nothing of the geographical and licensing issues: Finding “the right spot” for fulfillment centers is also a process of its own, with factors to consider such as “location, space, surroundings, and many other factors that solve for maximum city coverage,” Rabbit’s Hafez told us. And businesses that want to expand out of Cairo face difficulties finding suitable warehousing spaces in remote areas, and even within the city, it’s “very hard to get a license for a warehouse except in extremely designated areas,” El Megharbel said.
Tech is crucial for all e-commerce players, but the complexity of the infrastructure (and its cost) varies significantly: Half of Rabbit’s investments went towards building out the company’s “tech backbone,” which Hafez tells us was crucial to allow the business to minimize its “reliance on external factors.” On the other side of the spectrum, founder of dried fruits and vegetables brand Foya Khadiga El Mawardy tells us that building a website was not an initial priority for her, and started out by selling her products through her business’ Instagram account. After growing her customer base, El Mawardy turned to Zammit to build a website for Foya. “It’s very cheap and suitable for Foya right now because we’re still a small business that doesn’t need a ton of tech maintenance — just an online shop for customers to buy my products with minimal human interaction,” El Mawardy says. Magma took a similar route, but opted for Canada’s Shopify, which Adel says was an ideal choice for Magma instead of building out its own website from scratch.
Once e-commerce players figure out warehousing and tech infrastructure, it’s time to stare down one of the biggest issues: Delivery. Businesses that don’t have an in-house delivery team tell us that it’s unideal to rely on third parties for delivery. “I’ve tested out a few delivery companies, but due to poor handling from the delivery companies’ end the products would see a decline in quality, so I decided that it’s better for me to handle delivery myself,” says El Mawardy. Magma also continues to rely on third-party delivery services, but faces “some level of hassle,” because they require constant monitoring and follow-up to ensure that deliveries are fulfilled, Adel says.
So it’s unsurprising that businesses integrate delivery into their own operations: Rabbit, whose motto is “groceries and more in under 20 minutes,” relies on a fully vertically-integrated business model, where they control the process end-to-end and with minimal dependencies on third parties. “There are no fleet providers that can offload or take a last minute piece of B2B e-commerce and that’s why we resorted to operating our own warehouses and operating our own fleet of last mile delivery,” El Megharbel said.
What do businesses want to see for an easier infrastructure landscape for startups? Ideally, startups would like to benefit from a one-stop-shop from the government for local licensing, utilities management and logistical needs, Hafez tells us. “The significant development in roads and transportation infrastructure, payments and financial infrastructure, especially over the past year has had a massive positive impact on e-commerce as well, and will set the sector up for further growth and success over the coming years.” El Megharbel, meanwhile, suggests that it would be massively helpful for e-commerce players if authorities were to provide cheaper infrastructure — particularly warehousing options.
Your top infrastructure stories for the week:
- EGAS is joining forces with Norway-based Kanfer Shipping and Leth Suez Transit to establish an LNG bunkering service at the Suez Canal.
- The Dabaa nuclear plant is finally getting off the ground: Russian state nuclear company Rosatom has started building the 4.8 GW Dabaa nuclear power plant
- The Suez Canal Container Terminal wants to invest USD 500 mn to expand the capacity of East Port Said port by building a 1k-meter container berth.
- The EU is providing Egypt with a EUR 117.9 mn grant for water and energy efficiency.