If global trends are anything to go by, then I’d predict that Kenya’s Courier & Delivery business is up next for the digital disruption.
Presently in Kenya we have come to associate this with negative implications such as large-scale layoffs, as has been the case for most of last year and this year across many of Kenya’s traditional businesses. From media, banking, retail, transport & many more industries. Across the board, this has been as a result of dwindling business fortunes often due to a wave of technologically innovative disruptive forces in the industry, necessitating cost cutting measures as a first step to survival in many organizations.
Yet for Kenya’s Courier & Delivery business this digital disruption, I believe, is not all doom & gloom. It means three things; increasing opportunities for new entrants, increasing business volumes with a direct increase in revenues for innovative companies & increased probability for cannibalization or insolvency of traditionally dominant, non-adaptive players.
Effects of Shifting Consumer habits with Market Shift from B2B to B2C
As reported by the Financial Times, the UK Market in 2014 despite a 14% growth in ecommerce, the Logistics sector saw an over 20% increase in insolvencies of a record over 200 companies, with the traditional courier model under threat. This was primarily caused by, shifting consumer habits driven by ecommerce and increasing competition.
With increasing capacity in the highly competitive sector, logistics companies engaged in “kamikaze pricing” driving prices down to unsustainable levels as companies were forced to reduce fees to compete for customers.
Without hindsight to the changing customer preferences of; transparency of service pricing model (cost), quality of delivery packaging, transparency of the delivery process (Online tracking), shorter delivery timelines (speed) and payment methods (cash on delivery). Route & Resource planning too are pivotal to the process & cost, due to entry into residential areas from the more familiar commercial locations.
For a long time in Kenya B2B business transactions have been the major drivers of this sector. Therefore the pricing model of having blanket rates for deliveries based on zoning was used across the grid and commonly accepted. Also there was not too much pressure on delivery time, with most players having a next day delivery or 24hours timeline.
However, with the advent of the increasing mobile & internet penetration coupled with Kenya’s high upsurge of mobile payments, online consumer spending has now become the second driver of this sector. This trend both locally & internationally coupled with newer delivery models is proving to be very disruptive.
As was the case in the UK, Kenyan companies are now facing a similar dilemma. Don’t get me wrong; the future looks bright for the courier industry, with the number of parcels sent each year estimated to grow. Now more than ever, investing in a courier company could provide excellent returns with predictions that long term growth will continue to be strong.
What with the increasingly gridlocked city that is Nairobi; earning it a top five spot on cities with worst traffic congestion according to Numbeo.com Traffic Index for 2017. Kenyans the ever entrepreneurial people we are, have to get things done. This has led to a thriving budding errand business industry.
Mainly these are just courier companies with motorcycle riders. As motor cycles are the only ways to maneuver the crazy traffic jams. With many individuals & small businesses opting to pay to have these companies run simple errands such as collection & banking of cheques, inter-office transfer of documents, delivery of parcels & shopping among others.
Winning Formula for Courier & Delivery Companies
What remains constant is that the profitability of individual companies is driven by reliability, price, services, and quality.
The Kenyan consumer though is too highly discerning. What is happening now is this largely young crowd with increasingly defined tastes are demanding to get & understand the value of a service for their money.
These shifting customer preferences demand a total rethink to how courier companies have traditionally gone about their operations. With most coming in due to E-Commerce, for the Last mile delivery which is the final leg of the supply chain. The moment a customer finally receives their order. You need to realize it is generally the most expensive, least efficient, and most problematic part of the overall delivery process.
It demands a heavy investment in technology to; automate processes in order to handle the increasing volumes at speed as well as incorporate a more dynamic feedback structure to ensure frequent updates to customers on their parcel delivery progress and complaints handling.
As I previously highlighted on the need for partnerships in my earlier insight on the Kenyan retail industry here, I will reiterate this for Kenyan Courier industry investors too. The best approach to win may be in strategic acquisitions or partnerships, invest in your internal capacity, but also team up with an existing technology company that already has the expertise and resources such as analytic and cloud computing capacity, rather than trying to build your own.
Just last week, this has seen Tuskys partner with Jumia as their approach to E-Commerce. What a coincidence that in the same week, Warren Buffett’s Berkshire Hathaway Inc. Shrunk their Stake in Wal-Mart citing Amazon’s big force had already disrupted plenty of people and it would disrupt more, but that’s a story for another day.
Otherwise, re-inventing the wheel you will learn is a costly endeavor, which may grind your business to a halt. Although doing nothing all the same will lead to a similar result. Hopefully Kenyan courier & delivery companies will be keen to avoid borrowing a leaf from their local taxi counterparts, who were too late to read the signs of the impact ride hailing mobile technology to their business.