THE FUTURE OF ECOMMERCE IN SOUTH AFRICA
South Africa’s ecommerce market only accounts for around 1% of total retail sales in the country, but experts believe this will increase to over 5% in the near future if a few key aspects of online shopping are addressed.
Central to growing ecommerce in South Africa is improved online shopping experiences, faster and cheaper delivery, growing mobile purchases, better integration of online and offline shopping, and better and more secure payments.
Parcelninja CEO Justin Drennan, one of the country’s prominent ecommerce players, said while South Africa is lagging behind global standards, it is catching up fast. He said the growing middle class, increased trust in online shopping, better payment solutions, and more people using the Internet are big drivers of ecommerce adoption.
According to Drennan, South Africa is a leader in payment services, which includes the likes of Zapper, Snapscan, and instant EFT. These platforms are not widely available globally and serve the local industry well.
There are, however, many challenges, including the cost and speed of delivery. The South African Post Office could make a big difference, and its CEO Mark Barnes said in 2016 that ecommerce will be a big revenue driver for the company. To date, not much has come of his ecommerce plans and most online shopping players rely on courier companies for deliveries.
Another challenge is a lack of skills in the local market. Drennan said that apart from a shortage of good technical skills in the country, there are not many people with knowledge of the ecommerce market who can help new companies grow. He said many local businesses get off the ground, but are unable to scale - as they get the wrong advice, land in trouble, and ultimately close. “Running a small ecommerce business from home is relatively easy, but the transition from a small business to a medium or large enterprise requires a bigger skillset,” said Drennan. This includes custom solutions, skilled software developers to build the custom systems, and experienced managers to oversee the growth.
Winners and losers
Luke Mckend, Country Director at Google South Africa, concurred with Drennan, saying technical proficiency is where South African ecommerce will be won or lost. Mckend said better websites, platforms, and customer journeys will be a big driver for online shopping growth - especially in the mobile space.
General Manager for Online and Mobile at Pick n Pay Mike Cotterell agreed, stating that a crucial ingredient to grow online shopping is to offer quality products in a quality online environment. Drennan said this is often a catch-22 for online businesses, as they need the correct products to bring people online, but unless these shoppers are already online, you cannot sell to them.
While South Africa is facing challenges, the country’s entrepreneurial spirit and “making a plan” attitude stands it in good stead. Drennan highlighted the example of Takealot acquiring Mr Delivery, which is now known as Mr D, to overcome the challenge of a poor postal system.
A question asked by many industry players is: Who is going to win and who is going to lose in the ecommerce space in South Africa? Drennan said it is becoming a winner-takes-all market, with Takealot “doing amazing work” to dominate the online shopping space.
“South Africa is lagging global standards, but it is catching up fast”
“I think smaller players trying to compete with Takealot are going to have a hard time, because of Takealot’s scale,” said Drennan. This is especially true with the growth of Takealot’s marketplace, which will extend the company’s product offerings.
Traditional retailers will continue to get into online, but it is not certain if they will dedicate enough resources to ecommerce to become serious players. Drennan said the attitude of large brick-and-mortar retailers in South Africa to ecommerce will define the online shopping landscape over the next two years. “There may be retailers with a large online presence, or they may get dominated by Takealot.”
Becoming an ecommerce player
For traditional retailers to become strong ecommerce players, they will need to get people with experience to help them in the journey. “They may know their current business, but ecommerce is fundamentally different,” said Drennan.
He said most large retailers in the United States have separate offices and divisions within the company to deal with ecommerce. As strange as it sounds, the traditional brick-and-mortar business needs to face direct competition from its own ecommerce offering and must allow their online offering to cannibalize their existing business.
With Takealot and a few large retailers dominating the market, it may seem like opportunities in the local ecommerce market are drying up. Not so. Niche players, which offer consumers products or services which they cannot get anywhere else, will remain popular. For these ventures to be successful, they will need to operate on low-cost bases and high margins. This includes using off-the-shelf technology and limiting the need for custom development.
A growing middle class and Internet population, the growth of mobile commerce, and the availability of quality payment systems bodes well for the local ecommerce market. How it evolves will depend on how the big retailers approach online shopping and how much they are willing to invest. ■