Marginal Cost vs. Bullish Run: Can Temu Crack Africa’s E-commerce Code?

By Wale Ameen

For years, Africa has wrestled with the complexities of e-commerce. Despite the potential of a young, tech-savvy population, burgeoning internet penetration, and a growing appetite for online shopping, the road to profitability has been fraught with challenges. Even big players like Naspers and Rocket Internet have struggled to establish a sustainable foothold, often forced to retreat or scale down their operations.

The failure of many e-commerce ventures to balance the high cost of operations with
marginal revenue has left the space littered with cautionary tales. The question now is:
Can Temu crack this code even in the face of the daunting operating landscape as it
launches in Nigeria?

For context, Nigeria is Africa’s biggest market and also holds the highest number of most startups that have shut down. A report by Startupgraveyard revealed that of the 53 startups across seven African countries that shut down between 2013 and 2024, 47% of these were from Nigeria.

The Jumia Conundrum: A Battle for Profitability
Jumia, Africa’s most visible e-commerce player, serves as a case study for the industry’s difficulties. Despite its frontline role and considerable brand recognition, Jumia has faced an uphill battle to achieve profitability. The company has experimented with various strategies, including marketplace models and logistics services, but has yet to crack the code for sustained success.

The Big Fallouts
While Jumia continues to stand and struggle, many others have not been so lucky. In 2018, ecommerce brands Efritin and OLX closed. In 2019, DealDey, a favourite e-commerce platform among Nigerians that offered discounted goods and services, shut down after it raised $6 million, as it could not withstand the logistical challenges and cost of operations in Nigeria. In 2021, MallforAfrica, a Nigerian-owned platform that enables Nigerians to shop globally, closed shop. In 2023, Jumia Food, one of the verticals of Jumia Technologies, stopped operations.

The underlying challenges are systemic: logistics inefficiencies, poor infrastructure, and a fragmented supply chain make it incredibly expensive to fulfil customer orders. The cost of delivery alone often outweighs the profit margin on goods sold, leaving companies like Jumia in a precarious position.

The Chinese Approach: Lessons from Opay
Chinese companies are renowned for their aggressive market-entry strategies. From OPay’s blitz into Nigeria with offerings like ORide and OFood to Temu’s ambitious foray, these firms often enter markets with significant financial war chests, deploying extensive advertising, deep discounts, and appealing incentives. However, the success of such ventures has been mixed. OPay, for example, scaled back its operations to focus solely on payments after the failure of its other verticals. I recall writing a piece on the demise of ORide on Exclusive Africa.

The question now is: Can Temu, a new entrant in Nigeria’s e-commerce market, overcome the same challenges and succeed where others have faltered?

What is Temu’s strategy?
Temu, owned by Chinese e-commerce giant PDD Holdings, has adopted a unique approach that sets it apart from competitors like Jumia. Instead of a marketplace model, where the platform acts as a middleman between sellers and buyers, Temu employs a direct-from-manufacturer model. This approach allows it to bypass intermediaries, offering lower prices and ensuring quality control.

However, this model has its trade-offs. Most of the goods sold on Temu are
manufactured outside Nigeria, which means that the operation will place significant
pressure on Nigeria’s foreign exchange (FX) reserves. While customers benefit from
affordable products, the national economy gains little, as local manufacturing and
supply chains remain underutilised.

Nigeria’s E-commerce Potential: Opportunities and Constraints
Nigeria’s e-commerce market, currently valued at $8.53 billion in 2024, is projected to grow to $14.92 billion by 2029. Online retail spending has also surged to $13 billion annually, with forecasts suggesting it could reach $75 billion by 2025. Nearly half of Nigeria’s population is connected to the internet, signalling a ripe environment for e-commerce growth.

Yet, this optimistic outlook belies a harsh reality: Nigeria, nay Africa, has an infrastructure problem. Nigeria’s infrastructure is woefully inadequate. Poor road networks, unreliable electricity, and limited logistics capabilities inflate the cost of doing business, making it challenging for e-commerce platforms to scale profitably.

Until these systemic issues are addressed, e-commerce will remain a risky venture,
regardless of a company’s strategy or financial backing. Brands like Amazon have
excelled as they rode on the efficiency of America’s reliable postal services.

Temu’s Competitive Landscape: Beyond Jumia
Temu’s real competition isn’t limited to Jumia or other established e-commerce
players. Its direct-from-manufacturer model pits it against informal and semi-formal
trade channels that dominate Nigeria’s retail landscape. Open markets, neighbourhood
shops, and informal vendors continue to thrive because they operate with minimal
overhead and cater directly to local consumer needs.

Moreover, Temu must contend with rising consumer expectations in terms of delivery speed, product quality, and customer service. While it may attract initial attention through low prices and possibly overtake Jumia, sustaining that interest will require navigating Nigeria’s logistical and infrastructural hurdles effectively.

Conclusion: A Path Forward?
Temu’s entry into Nigeria’s e-commerce market represents both an opportunity and a challenge. Its innovative model has the potential to disrupt the status quo, but long-term success will depend on its ability to address systemic issues like high delivery costs and infrastructure inefficiencies. Moreover, its reliance on imported goods raises
questions about its broader economic impact.

As Temu embarks on its Nigerian journey, the question remains: will it adapt its
bullish, cost-driven strategy to the realities of Africa’s complex e-commerce
landscape, or will it follow the same path as its predecessors, leaving behind a trail of
unmet potential? Only time will tell, but one thing is certain—Nigeria’s e-commerce
market is not for the faint-hearted.