I'm Brad Erickson, obviously. I think I've said that 42 times in the last 36 hours. So I cover internet here at RBC. Very pleased today to welcome straight in from Ivory Coast, Francis Dufay, CEO of Jumia Technologies. So thank you for being here.
Pleasure.
Thank you for seeing you in person, so we spent a lot of time on Zoom with one another, but yeah, I'm far away and now we're right next to each other, so it's fun. It's exciting.
Always a pleasure to be here.
Cool. So maybe just to start, you guys have been public for a little while, not exactly a new issue, but I think the company looks arguably pretty different today, right, than it did four or five years ago. You've obviously taken over sort of within the last two years as CEO. You were with the company. Talk about, as you kind of took over the CEO job, what has this journey been like in terms of changing the company to where we sit today?
Yeah, of course. So thanks for asking. For those of you who followed the story in the past or recently, a lot has changed at Jumia. I mean, it's been an eventful ride from the beginning, of course, but the past two years have been very interesting. This company had been designed originally in a very different way, kind of the way we would have designed e-commerce in the U.S. or in Europe. Over the past two years, we started a complete transformation of the company, focused on redesigning it for African consumers, which are obviously very, very different from the U.S. consumer, even from the South American consumer, from any other consumer on earth. I mean, there was some sense of emergency, right, because we were not in a great situation two years back. So we did very basic things, I mean, hard to execute, but basic to design.
We've massively refocused the company on our core business, which is e-commerce in Africa, which is the big prize: hundreds of millions of lower-class and middle-class consumers who have some disposable income and need the right supply and the right service. We have done a lot of work on the cost base, so reducing massively every possible line of the EBITDA so we can design a company that can serve people with low disposable income, with low cost. And then we've rebuilt, well, the right fundamentals to serve our customers with much better supply. So typically in Europe or in the U.S., if you're an e-commerce business, you would focus on incentivizing demand, stimulating demand, right? Marketing budgets, focus on the customer. In Africa, there is demand. We're not lacking demand. The challenge is supply.
So we focused on rebuilding, incentivizing supply, the supply side of the equation, which is the most critical one for our marketplace. And with that, we get much better value proposition for our customers. We've been able to reduce marketing costs, make the whole mix a lot more efficient, and become a much more relevant company for our customers. So now, in short, two years later, this company has half the workforce, a quarter of the marketing budget, and is growing again. And customers and the orders and everything. And all that happened, well, in a challenging macro environment. I often hear about headwinds in Africa when it comes to macro. The last two years were more hurricane than headwinds. But we've made it through, and I believe we've built a business that's a lot more resilient and a lot more relevant for the challenges of African consumers today.
Yeah. Yeah. Got it. So several components of efficiencies in there, right? There's a fulfillment component. You talked about sales and marketing. You've gotten out of a few countries. I want to hit kind of all those things. We'll start with fulfillment if we can. You've been doing a lot of footprint rationalizing. Just talk about what the process was to do that. What is that, and what has it accomplished for you?
Yeah. So I think a good comparison when it comes to fulfillment would be what Amazon has to do in the U.S. or, let's say, in Germany. They have to deliver pretty high SLAs to commit to same-day delivery, next-day delivery in all cities. So they would need to have fulfillment centers scattered across the country. They would need to replicate the inventory across like 20 locations and whatever. Because customers expect that. There's a level of convenience that's expected, and the customer base can pay for it, actually. Prime subscribers, everything. For our customers, affordability is a million times more important than convenience. So we don't do same-day delivery. Nobody wants to pay for it. We do next-day in some cities where it makes sense for us and for consumers. But what we offer is reliability. Reliability in our markets is luxury and quite unexpected in many places.
So with that, we don't have to have fulfillment centers scattered across the country. So affordability over convenience. So with that, we've decided in our biggest markets this year to reorganize, restructure, and concentrate all of our fulfillment in one big location, which prevents us from doing same-day in whatever city or country. But at least we get much more volumes in one location and much lower unit costs so we can become more affordable, charge lower shipping fees to customers, and so on. So that's the way we approach demand.
You've rationalized typically at a point of entry, right, for a country, maybe a couple points of entry for a particular market, and then you've got this up-country strategy, right?
Yeah.
How does that work exactly, and speak to kind of how you run that model efficiently?
Yeah. So one of the biggest assets for Jumia is the logistics ecosystem. I will not even say network or whatever, but it's an ecosystem. It usually starts from one main fulfillment center, which is in the capital city or in the main port, importing goods to the country. Most of what we sell has been manufactured in Asia, so it has to be imported at some point. And from there, so fulfillment centers are pretty basic, just like any other e-commerce company would run with lots of tents. No automation for us. Staff cost is really low, and there's no point in bringing in robots at this stage. That would look great on an investor presentation, but totally useless. And then the very specific thing around Jumia is the way we've built the ecosystem around us.
I believe in Africa and in emerging markets in general, the more you can keep outside of your payroll and outside of your balance sheet, the better, as long as you provide the right incentive for the whole ecosystem to work in your favor. That's what we've done with logistics. So all of deliveries are outsourced to local entrepreneurs. We're not very sophisticated. We provide them with the tech. We provide them with the volumes. And these guys, they know their ways into the country. Right now, we're expanding in northern Nigeria. They can operate at scale in northern Nigeria. I will not fly there, but they can do it. They know their ways. They will spend the CapEx. So we have almost no CapEx involved in the process. They can expand really quickly, and they're a lot cheaper than we would be.
We, the big U.S.-listed company, would not be able to run the same cost, and we have built that ecosystem that most of local entrepreneurs who are working for us, growing the business, expanding it in a very cost-efficient way. They're very sticky, of course, because we provide the tech. They have no tech. We provide the volumes. We provide the business plan. They get loans from the bank thanks to us, and no competitor can replicate that. No competitor can use them. They're exclusive to us, and it's a great barrier to entry and huge asset to grow e-commerce in a very cost-efficient way.
And so you talk about the asset lightness. Maybe just give a little bit more color too on you don't own the facilities. Where does the inventory ownership boundary get crossed or not?
So yeah, Jumia is asset light by design, and we believe it's the right way to go forward. We take some things on the balance sheet when necessary, right? We've just raised some money recently, thanks to RBC, by the way. And on that, as I mentioned, the name of the game is supply in Africa because you need amazing value for money for your customers. Nothing can beat that. So one of the topics on which we're willing to spend some money, one of the very few topics, has been securing supply. So lately, we've invested more, for example, in working capital, securing bigger inventories for Black Friday and end of year. That's one of the relevant topics of investment for us. Much more impactful than handing over the money to Meta and Google in our case.
Yeah. Yeah. Got it. Okay. Let's shift to kind of users and volumes, obviously. You mentioned the marketing spend. Obviously, there was some inefficiency there. You had a food delivery business. The unit economics were not working. You pulled back. I think that's pretty straightforward and not all that surprising. As you kind of get back to a good baseline here, how do you guys think about going after new users? What drives the flywheel? Do you spend money in marketing channels? You kind of just spoke to it, but help us with what the strategy is there.
So now, I mean, if you look at the whole timeline, Jumia has been restructuring quite a bit. I mean, we're ending a phase of two years of restructuring. I think when I talk to investors and everyone, people are tired of it, understandably. Now we're turning a page and we're entering a growth phase. Arguably, we need to deliver the numbers, right? It's just me talking for the moment, but that's the idea. I mean, it's something that's sometimes hard to explain because when we talk about e-commerce, we assume that growth is a function of marketing, which in our case, given our customer base, is very, very different.
Growth for us is going to be the outcome of, well, compounded impacts of very hard work on getting better supply from local suppliers, from Chinese suppliers, of expanding to new cities to reach new consumer pools and getting much more efficient and much more relevant marketing mix in place. All that is pretty much in place across the nine countries with different levels of maturity. We're starting to see great impact at country level. So we've disclosed numbers country by country along the way over the past couple of quarters. And now the last question is when it will start clicking at group level so we can disclose double-digit growth at group level.
Got it. Got it.
The question is not if, but when.
Yeah. And I don't know if you can share anything in terms of when you're getting this supply in from a conversion standpoint or a frequency standpoint? Maybe anything you can share what drives that growth there?
We have proof points that this strategy is working. It's an unconventional one for e-commerce that's relevant for Africa, and this is working. What we've seen over the past two years while slashing marketing costs, we divided marketing by four since 2022, and we see that the repurchase rate from our new customers keeps on increasing. So we're like 200, 300 basis points versus last year for 90-day repurchase. So it shows that the customer base is becoming more loyal, more sticky, and it's all about accelerating with compounded.
Yeah. And on the competitive front, right? There's obviously the global sites that exist globally. But I think it's interesting as we were doing some of our work, we noticed that the traffic trends that you might sort of intuitively look at didn't actually line up with volumes and everything. Help us understand maybe why that is?
Traffic? Start with that.
Yeah. Sure.
So that's a very personal topic. This company spent so much money on marketing in the previous phase. We realized that we could slash marketing costs massively, particularly on the paid online marketing. So I'm going to admit that, not to name names, without hurting what really matters, which is orders and customers. In the process, we lost lots of traffic. We went down the rankings on Google Trends, Similarweb, everything, but orders grew in the process. So we have countries. I mean, our fastest-growing country, which was in Ghana last year, nearly times two in dollars, is actually collapsing on Google Trends because the marketing channels we're using are very different, and they're not being captured the same way by online tools. But in the end, we're not paid with traffic. We're paid with real orders and real customers. So that works.
And so when you think about the way that maybe customers are window shopping or discovering maybe a broader range of products elsewhere, but buying from you, talk about that buying engine.
Yeah. Exactly. I mean, across our countries, Amazon has some brand equity, right? Obviously. So they get traffic from our countries, but they don't get orders. I mean, typically, if you want to order Amazon from one of our countries, it's either impossible or you have to wait for one month. You have to prepay with credit card that you don't have. You have to go and pick up your order in the capital city in one and only bus station. So it's absolutely impractical, but they would still get numbers in traffic, and they would still be in the rankings. So at this point, I mean, when we look at competition right now across Africa, I mean, of course, we take Amazon very seriously. I would say I take Temu and Shein and AliExpress even more seriously because these guys have understood something about value proposition that's really special.
We look up to them when it comes to value for money. But we believe we can fight, and we have the right to compete here. And we have assets that they don't have. We have the logistics ecosystem and delivery network that they cannot have with the biggest delivery provider in most of the countries where we operate. They cannot replicate that, or they would have to go through us. We can do cash-on-delivery to camps. We deliver within a few days to camps. And very importantly, we've been replicating in-house the same Chinese business model that they have, right? So we have a sourcing team in China, about 70 people. That's the only team that grew in size over the past two years, given the scale of the potential we could tap there.
And I mean, we're leveraging a pool of thousands of Chinese suppliers who are shipping millions of items to our warehouses. So we're able to replicate the value proposition with a brand name and with a delivery proposition that matches the needs of Africans.
Got it. Talk about the payments piece because I think that's an important nuance in terms of the composition of your orders and how people pay for them.
Yeah. Africa as a whole, originally, I mean, has been a cash-on-delivery market, just like India a few years back. Mostly cash-on-delivery because people did not trust e-commerce in the first place, and digital payment methods are not as widespread as we would hope. Then this ecosystem is very different. The payment ecosystem is very different across countries. So we really have to adapt our value proposition and our UX in each country. Of course, our goal as an e-commerce company is to move as much of the payment as possible towards digital transactions and as much as possible towards prepayments rather than payments and delivery, understandably, right? But we cannot rush it. It all depends on the ecosystem, on the payment ecosystem in each country, and on the trust that we've built around Jumia. We have countries where we're already at 99% digital payments, like Kenya with M-PESA, understandably.
Other countries still have 20% digital payments in Western Africa. We're gently pushing people towards digital prepayments by working on the UX and the right incentives, but we cannot force it. Our goal for the coming years is to massively expand our consumer base, and we're not going to do that by restricting payment options. Not yet.
Yeah. Yeah. Got it. Maybe real quick too, let's just hit the geographies, right? You just exited a couple of countries. Talk about what the rationale was behind that, and then what are kind of your strongest countries, growth opportunity countries, that type of thing. Just lay it out if you can in a little bit more detail.
So that was in the news recently. We just exited South Africa and Tunisia, which were our two smallest markets that were not really making sense in terms of economics. South Africa is a big market, but we have a very small business there with a different brand name. It was a bit of an accident of history, as one of our shareholders put it. And Tunisia is a very small, addressable market with pretty bad macroeconomics at the moment. So in the end, we don't have unlimited, endless resources, so we had to focus on something. And we believe with the nine markets we have, we already have amazing runway for growth without going to new markets or anything.
I mean, just to take an example, if we're successful in up-country Nigeria, which is 200 million people, it will make up for the loss of these two markets in a matter of weeks, so there's already so much demand we can tap in our existing markets without adding one cent of fixed costs. We really need to focus on what we have today. When we get to double-digit growth, very strong core business, and we're really safe on that front, we'll be happy to look at opportunities, but it's not the discussion for the coming quarter.
Got it. Got it. Okay.
And adding to that, this company has gone in too many directions in the past, so I'm really careful not doing the same.
Yeah. Yeah. No, absolutely. So, okay. Let's talk about orders. Obviously, you've started kind of pointing to a modest acceleration or whatever. And certainly, you've now been in a better spot from a working capital perspective, stocking up for the holidays, all that stuff. What's kind of a growth formula that we should think about here? And I know it's hard because there's not a lot of specificity in the guidance, and I get that there's visibility issues there as well, but how should we think about that?
So bottom line, we're definitely looking to accelerate into double digits. Of course. I think so. A brilliant analyst wrote in his report recently that the company had to double in size, pretty much. So this only happens with double digits, and that's definitely the goal. We will know later in 2025 whether we're able to grow 10%, 20%, or 30% per year. We will know our—I mean, we'll learn about our cruise speeds very soon, right? But now we're at the end of the phase. We've restructured all the fundamentals. Growth is not—I mean, it's coming from fundamentals, nothing short-term, better supply, more relevant marketing, expansion to new consumer pools. And it's all coming together now. We'll know very soon how fast we can actually grow, what the acceleration trends, and we'll get the answer in the coming quarters.
Got it. I wonder who that analyst was. So anyways, I guess one other point too, just on the supply, back to the supply. And talk about - and I don't know if you can maybe give an example or two out of your China-sourced supply where you can actually pass on some of those savings. Can you talk about that? And can that be sort of a meaningful driver from an order perspective?
Yeah. So absolutely. So there's no question that China is the right place for manufacturing for Africa. In terms of price points, there's no challenge. What we've done in the past years is that we've massively improved, I mean, we've grown our suppliers base from China. We've improved the experience for them, and we're growing the volumes we're getting from them. To give you an example, I mean, one of our top-selling items would be a pair of sneakers from China, no brand. We're very careful with counterfeit, so we ask for no brand name at all, period. White label, $5 for sneakers, right? I mean, if you're our average consumer in Africa, you're making $150 a month. You have $25 of disposable income. So buying sneakers is like a strategic investment. It's like you or I buying, I don't know, a fridge.
And so we have to be very cheap, and we get them from the Chinese suppliers by cutting lots of middlemen in the process. We have direct relationship with them. So the $5 sneakers is a big hit, right? And we'd sell like thousands and thousands per month across most of our countries. So we get volumes for them. We get simple operations. We get profitability, and we can pass to the consumers lots of the savings. We're able to monetize a bit better in the process. I mean, happy to get some money along the way. So it's a win-win-win relationship for suppliers, Jumia, and customers. So the three parts of the marketplace.
Yeah. That's great. Can you maybe, just if you can, compare that? Obviously, there's competitors, national competitors, market-to-market, and that sort of thing. Is anybody at the scale where they can sort of match you on that kind of stuff or not really?
No. So when you look at competition, so I would discuss Temu, Shein, and Amazon, but when we look at local competition, we have small local players in some countries. We have a strong number two in Nigeria, but they're like six or seven times smaller than we are. So just the effect of scale, technology, and financial firepower prevents them from competing at scale with us, right? And the logistics ecosystem adding to that makes it impossible for us to compete on that front, right? We're the only ones, for example, across Africa who have built that supply chain from China. And we're the only ones, of course, who can get the scale and the volumes to Chinese vendors. So it's a flywheel. It's getting better and better as we get more volumes, better reposition. That's driving more customers and everything.
Got it. Okay. Just in terms of product mix and stuff, your AOVs have actually been up quite a bit recently. Talk about what is going on with that mix shift and maybe just give a little color on what are the big sort of product verticals you guys run in?
I will start with a funny misconception about Africa. I've heard a million times, "People don't have money, so you need to sell very cheap stuff." No. I mean, we're selling right now in every country, we're probably selling 50 containers of TVs this month, right? So 50,000 pieces. People eventually have money to buy a fridge or a TV or real stuff, like real big AOV. What we need, though, is to be the cheapest within each category. We need the cheapest TV, no question. Our AOV is relatively high, around $40 over the past couple of quarters, and has been going up over the past two years, mostly because we've cleaned up the categories we're focusing on. We've decided to focus very clearly on categories that have the right economics for e-commerce and huge potential demand to be served across Africa.
So that would be electronics, phones and accessories, fashion and beauty, and home and living, including appliances. In the past, Jumia focused a lot on FMCG and staple goods, household goods that had a really, really low average item value and average basket value, huge complexity in logistics, expiry, well, pretty big costs along the way, very low margins because they were the best distributed items across the continent. And as you can imagine, the economics didn't work at all. It was pretty bad. So we moved away from those categories, and that's what you can see in the mix happening over the past year and a half. The mix is really shifting to the priority categories, which makes sense that we're focusing our efforts, and the AOV is going up as a consequence.
Got it. And sometimes, just going to the spreadsheet junkie here, these things can be sort of like a one-time step up, 12-18 months, and then they level off. Is this something you expect to kind of be more of a protracted trend?
So if we look forward, I mean, we're not guiding for a specific AOV. The AOV doesn't matter to us. We want to be the best in our five priority categories, and we know that we have the right economics in each category. So the take rate on fashion would be 20% plus, while on phones, it would be 5%. At the end of the day, after delivery, each order is profitable, and that's the only thing that matters. And we grow each category. Now, if I look at the future and if I look at where potential improvements in supply would come, right? I mean, there's so much potential from China on low AIV, so fashion, beauty accessories, electronics accessories. That could, for example, bring the AOV down going forward. But there are also other impacts from local sourcing, so it's really hard to guess.
Yeah. Yeah. More gross profit margin.
What I mean here is if you see the AOV going slightly downwards, it's not bad news. We still get the economics, and it should come with better usage anyway.
Yeah. Yeah. Let's talk kind of revenue model a bit and get to the P&L. Can you walk us through kind of take rate, like what the components are of the commission that's paid here?
So let's take some very basic items. So we're really good in appliances. So let's say we're selling a kettle for $7. It's cheap, but that's really the price range our customers are expecting for a kettle. Out of the $7, we would have $1.5 of income for Jumia. So the commission we're charging in the marketplace, some fees for storage and services, and the delivery fee paid by the customer. Out of this $1.5, about half of it would be our logistics cost. So we pay that in fulfillment costs to run the warehouse or to the 3PL delivering in whatever remote city. And we'd be left with, let's say, $0.7. That's our income after variable costs. And then with this $0.7, we need to pay for fixed costs.
Marketing, which we see as fixed, that's a bit unconventional. We do not believe we need to increase our marketing costs with the volumes at all. We can actually keep on getting more efficiencies. Then tech and G&A, understandably. If you look at our P&L even for Q4, Q3, you see that we're clearly profitable after variable costs. Gross profit minus fulfillment. You may even want to take out marketing if you like. It's clearly profitable. Every additional order is helping us to cover for the fixed costs. Now, the story for 2025 is growth and efficiency. We need to scale this company because every additional order will help us to get to free cash flow positive.
More efficiency along the way in revenue, in marketing, and in G&A as well, tech, and of course, in fulfillment costs will help us to break even faster, depending on the growth rate of growth. The story is getting a lot easier to understand, a lot clearer going forward, scaling, getting efficiencies along the way, and that will take us to break even.
Got it, and so if we think about, I think, gross profit level is kind of 13%, maybe 14%.
13% of GMV.
Yeah, something like that.
After variable costs would be around 8% of GMV, so you can do the math pretty quickly. We need about twice the GMV to cover for the negative cash flow that we have today, and there will be efficiencies along the way. We're not done cost-cutting. We're pretty good at cost-cutting, I would say, and we're never done with that. Just the fact that we moved warehouses recently will deliver efficiencies for 2025. It did not impact positively our Q3.
Got it, and then I think, and I do want to, we need to spend a minute on FX, of course, everyone's favorite topic, but talk about cash conversion too, because a lot of companies, right, in this space tend to, you can make a pretty direct bridge from EBITDA to free cash flow. I think it's a little bit different with you guys.
Yeah. So in our case, there are a few things below the EBITDA that are important to look at, right? It can create some misunderstanding otherwise. So between EBITDA to free cash flow, we'd have obviously CapEx, understandably, but we're really low in CapEx. So for example, last quarter, we moved four warehouses. CapEx was below $1 million. So fairly efficient on CapEx. Then you have finance costs, which are really typical of emerging markets, typical of a company reporting in USD but operating across nine markets in Africa. So in finance costs, well, typically you have your FX losses and your repatriation costs. We are repatriating cash from some markets where we generate it, and it comes with a cost. So it's important not to look just at the EBITDA, but look at the line below with finance costs. Yeah, then net loss, more relevant, actually.
The last part of the bridge would be working capital, understandably. We believe working capital is something pretty healthy for us. The fact that we've raised money recently enables us to invest in working capital. As I was saying, we want to invest on the supply side of the marketplace equation. We've been able recently, and we'll keep on doing it. We've been able recently to invest more cash in our inventory so we secure more supply, and we're able to drive higher growth and better usage from our consumers. That's what we saw recently. Cash is king in Africa. If you have working capital to invest for inventory, you get better supply, better price points, everything.
Yeah. Yeah. And then lastly, yeah, let's hit FX. It's obviously been a pretty big impact on the reported revenues. But talk about, A, just kind of how do you manage the volatility there from a supply standpoint and cost as well, both on cost of revenue as well as your headcount, how people are paid, local currency, etc., if you can address that?
So most of our customers, I mean, there's been lots of FX volatility across Africa over the past three years, as everyone knows. Our biggest country, Nigeria, has lost, I mean, the naira lost 75% of its value against the dollar in the past year and a half, to give an example. That's the kind of operating environment for us over the past three years.
Oh, we're talking about a lot. Yeah.
Yeah. That's the most dramatic example. Not all countries are that bad, don't worry. But so most of our cost base is in local currency. So it's been de-risked from a currency standpoint. We still have costs in dollars, a bit of the tech teams, our AWS contracts, for example, because there's still a bit of dollars in the cost base. We don't do hedging. We don't do trading. That's not our job. What we do is that we make sure that the cash in the country is maintained at the right level, so the bare minimum, so we're able to seize supply opportunities, but no excess. So we don't get caught in something really nasty, in a bad devaluation. So we have learned how to repatriate cash to the holding that's in Germany, which is a skill. It's different regulation across markets.
But we disclosed last year that, I mean, this year, that we had been able to repatriate amounts from some of our biggest markets. So we know how to manage that. And then, well, cash volatility has an impact on our business. The big devaluations we had in Egypt and Nigeria earlier this year made us waste a lot of time. Of course, it impacts our reported revenues, but that's, well, that's a fact. It doesn't impact the business with people, but it really makes us waste a lot of time because it massively impacts supply in our markets. So importers would stop importing, Chinese vendors would stop shipping, and we wait three months in rebuilding supply in a given market. Now, looking forward, I mean, it's really hard to predict how the Nigerian naira or the Egyptian pound are going to evolve in the coming months.
But even with a relatively strong dollar, and it looks like it's what we're getting somehow, we have a business model that's very resilient to bad weather. It's been built over the past two years. We've seen the worst of it, I believe. And we're able to operate in an environment with high inflation and local currencies floating downwards. Our fastest-growing country last year was Ghana with 48% inflation. And they were growing fastest in U.S. dollars, not cedis. So we know how to operate. Our business is built for declining purchasing power and bad supply. That's what we're solving for. So, well designed for Africa over the past years and for the coming years, most likely. But however, I'm fairly optimistic for the near future. I think the biggest devaluations, the big one-offs, are behind us. And we're actually quite comfortable with local currencies floating downwards gently.
It's not impacting supply. It's not impacting demand. It even gives us an advantage because we're able to stock up ahead of time because we have the financial firepower. So it should no longer be significant headwinds for the fundamentals of the business. It will impact reported numbers, of course, but business should be doing fine.
Got it. Cool. Well, I think we're out of time, but Francis Dufay, Jumia Technologies, thanks for being here.