How we will use the $10 million raised – Onyekachi Izukanne, CEO TradeDepot

Onyekachi Izukanne is the Co-founder & CEO of TradeDepot. He is an entrepreneur with 17 years’ experience in technology and consulting. He has over 11 years in management consulting, specialising in consumer products, energy and financial services.

Prior to TradeDepot, Onyekachi co-founded C2G Consulting, a technology consulting practice that he bootstrapped to become the leading SAP Partner in West Africa by 2013.

TradeDepot is a distributor and retail aggregator that was launched in 2016 with a mission to consolidate Nigeria’s fragmented informal retail supply chain, by connecting the world’s top consumer goods manufacturers to retailers in Africa. TradeDepot’s technology was built to accommodate the varying needs of its customers. It currently has about 60,000 micro retailers in its network.

TradeDepot could have gone into other segments, why is the company passionate about solving issues in the retail distribution sector?

Our focus is distribution, which is a very feasible problem because to purchase whatever item we need, distribution is necessary in getting it from the maker to us. Whether it is a shirt, food, or digital item, there needs to be distribution.

Now especially, the biggest commercially used case you could make for distribution is the movement of consumables, personal care items and other essential supplies. Items that are fast-moving, due to the high velocity of their usage, require frequent replenishment. This creates the biggest challenge as far as distribution is concerned.

If you look at a typical distribution outlet, which is a retail store, the majority of what you will find them selling are fast-moving consumer goods. So, it wasn’t so much for us a choice of should we do FMCG or other things; we need to build reliable distribution, and if you are building a reliable distribution, the biggest thing that we’ll need to move through that pipe will be fast-moving consumer goods.

Our current network is currently nothing compared to the number of micro retailers in the company, and this is one of the key drivers for growth. It is important to understand that the market where we operate has over 1.5 million stores, and this shows that we are still very early in the business, and I think there is some relevance if you are a distribution platform, with more footprint in this segment.

If you are a manufacturer and there are 1.5 million retail outlets across the country that consumers in Nigeria patronize, and you are looking for which distribution platform to work with, the more of that 1.5 million outlets base you can get from a distribution platform, the more relevant that platform is to you, and that is what’s guiding us.

We realize that to be essential to manufacturers, there needs to be an aggressive focus on expanding our footprint. Another thing is that the business makes more sense from an economic standpoint, as profitability gets better if you can increase the density of your supply base.

Despite the potentials for growth, what can you say have been major challenges of the company in reaching retailers, with the retail sector highly fragmented and 98% of players in the industry operating in the informal sector?

We show up where the people are. There are more convenient and cost-effective ways of trying to reach customers—through digital channels and so on—but to the extent that the target customer is not available on those channels, effectiveness will be quite low.

So many times, we had to get out with actual field operatives, going store to store, to interact with them and have them understand the value proposition.

Another thing is that the value proposition has to be simple and also make sense. These people are informal, yet they are a bunch of very resilient entrepreneurs who have built their businesses with almost zero help from anybody, and they are not looking for a “savior.” If you show up, you really must have a value proposition that makes immediate sense, for them to even contemplate changing what they have been doing that has worked on some level for them, to explore this new direction.

I would say reaching where they are and having a simple value proposition that makes sense has been key things that worked. There is a lot of work that must be done in figuring out better ways of doing what we are doing faster, and that’s the work we would continue to do.

The obstacles to our business remain those things you would expect, like resistance to change, inadequate infrastructure, etc., which we constantly figure out how to navigate.

You obtained financing of $10 million in July 2020. What will the company invest it in?

Technology is the primary thing that we are investing in to drive better economics. The distribution industry has been around for a while. However, we are betting on the opportunities for technology and innovation to change the way distribution happens.

We are investing significantly in leveraging technology to drive optimization, using data and tech which tell us where to focus. They also guide us on which store we need to onboard. They play an important role in determining how we deploy logistics assets like vans and other vehicles, and how to get the best utilization for those assets because these are the things that have the most direct impact on your variable cost.

The other thing is optimizing your margin and having the right consumer insight, in using an effective mix of cost and margin optimization strategy to plan for supply and demand; this plays a very important role in helping you optimize your inventory holding cost.

It also helps optimize promotions that you are passing on to your retailers. We believe that we win when we are able to use data and technology to really help us optimize these key costs of doing what it is that we do.

We are also actively investing in expanding our footprint and kicking off operations in more states across the country. We have also invested significantly in the lending programme which we kicked off last year, and are still running a pilot for. These are the key things that will identify our value proposition, attract more retailers, and make this whole thing work better for the retail store owners.

How many states has the company been able to cover, and what will the company be doing to reach out to more states?

There are key markets across the country that we are either exploring or getting active in. Our goal is to ultimately have coverage across the major commercial centres in the country, both in the North East and in the West; this is our strategy. This year, we expect to cover at least 10 states and keep expanding into more of the commercial centres in the country.

I noticed the company uses a full suite approach in its distribution strategy, as it looks at the products which the retailers want, down to inventory control, warehousing, distribution and financing to the retailers, with key costs coming from this approach, compared to a fragmented approach which leverages on other distributor aggregators in the industry, what is the rationale for this?

There are scenarios in which it makes sense to work with other distributors, so we partner with them sometimes when we find out that our offerings are complementary. For instance, we have a stellar programme in which tier 1 distributors of FMCG work with us to provide inventory that will then help drive our distribution, and we also have a platform that allows distributors drive payment and collections at the retail stores.

The key is always about finding the levels to which the services are complementary.

There are also certain sides of the value chain that we are keying into and gaining control over, just to the extent that it is important to do so to guarantee service level. When we engage a store, there are certain promises that we make; we identify what they need, promise them what they will get and the timeframe when they will get it. In line with the promises that we make, the focus will always be to ensure as much control of the process as is required to enable us ensure that these promises are fulfilled.

What has been the impact of the COVID-19 pandemic across segments?

The biggest impact was in the relative performance of the categories, and this was as a result of the change in consumer behavior, as food items became bigger contributors to the basket versus other categories.

Overall, we identified that, across the retail sector, the pandemic led to an increase in store owners exploring alternative channels of reaching, acquiring and servicing customers, especially online and social media. For TradeDepot, services increased by 500%, with a 300% increase in transaction value and volume on the back of the pandemic.

Consumer buying patterns shifted slightly towards more food items, with growth in purchase of food and essentials as opposed to other categories. Our data revealed that there was a 10% increase in the overall contribution of food items to the distribution volumes, compared with 2019.

In the beer and drinks category, the lockdown affected the ability of manufacturers and distributors to sell to bars, restaurants and clubs, which usually account for about 60% of the bulk of their sales; however, many shifted their attention to Mom-and-Pop stores, and retail outlets to cushion the impact.

We also found suppliers of electrical appliances doing more volumes than they did previously. Suppliers in the home building-related sector like the manufacturers and so on had a decent year compared to previous years. We observed that some restaurants that embraced home delivery earlier tended to have a decent year as well.

What is the impact of this dramatic shift on TradeDepot and its services as a player in the retail industry?

On the demand for TradeDepot services, there was a positive impact. In the heat of the lockdown for instance, when you couldn’t go to the market or get on the road because there was no movement, probably you had the option of reaching out to TradeDepot through our ShopTopUp platform where you could get what you needed.

Based on this, we saw relatively higher demand than normal. We were able to drive more volume than we typically did. However, we weren’t able to drive enough volume to meet demand, as some of the health situations occasioned by the COVID-19 pandemic affected our supply chain.

What is the company doing in terms of creating value for your customers and retailers in your network?

I won’t be able to answer in as much details as I would have wanted to because there are a couple of things that we are yet to formally announce; however, on the high level, our commitment is to figure out ways to help these SME retailers.

It starts with the more commercial thing we can do to help them provide access to inventories as well as provide access to credit. It goes to supporting services that we realize are useful to them which include providing them training and access to knowledge around the things that they do. We have this town hall event which happens twice a month, where we gather virtually or physically with social distancing rules and guidelines observed with the retail store owners, talk through their challenges, hold trainings and help them understand how we can help them run their businesses better.

We have seen that these sessions also help them to become more financially smart about how they manage their cash flows. However, we are looking beyond this because we have seen other ways that we can help not just them, but their dependents, and other things that we are working on which in due time we would be announcing.

What are your thoughts on the things that are expected to change in 2021?

I think the consideration is what behavior we will revert to when Covid-19 doesn’t look as much of a threat as it currently does; we are probably not talking about 2021, because there is nothing to suggest that 2021 will be remarkably different from 2020 in that respect.

We expect, at least for the first half of the year, a lot of similarities with what last year looked like—just from a general pandemic consciousness and behavior. In terms of habits of consumers, we envisage a situation of “caution fatigue” in which people are less inclined to take the precautions that they took last year.

We should know that there are habits which we have adopted because they have made us more effective. I will use a general example: people do more virtual meetings today than they did this time last year; it has become way more normal for estates to have their meetings on zoom, and for people to work from home versus going to the office and getting into traffic, we have figured out how to make that work.

If we didn’t have to stay at home, probably we would be going out more, but that doesn’t mean we are throwing away benefits. On their own, there are benefits we have gained by not having to be in traffic four hours every day or just leaving the house and budgeting an hour before and after every meeting. These benefits won’t disappear when the pandemic ends.