Competition 101: Jumia Food v Glovo
Almost anywhere you look in the world, competition seems to be the natural order of things. Competition underpins Darwin’s theory of evolution which simply says that the winning genes of a member of a species who has for example adapted to live in a new environment are passed on to future generations to ensure the survival of the species in that new environment. This is called natural selection and it is the reason why humans in places like Europe with less sun than Africa have light skin — an evolution that according to science helps them produce vitamin D despite their limited exposure to the sun’s ultraviolet rays.
Nevertheless, biology isn’t the only discipline where competition is recognized as a cold truth. Even economics agree that competition is integral to the functioning of society. According to economics, there are finite resources in the world as well as infinite human desires. How is this conundrum resolved? — competition. You may have unlimited wants but those wants have to compete for your limited resources — this is true both on an individual microeconomic level and on a country-wide macroeconomic level. Whether you are an individual, a business or a country, logically speaking, you have to satisfy your immediate needs before thinking about spending money on things you want but can live without. This is called opportunity cost and what it means is that if it ever comes down to it you would trade your phone for some food, that’s if you are logical.
One thing is clear, whether it is in the field of biology or economics, the endgame of competition is innovation. Innovation, adaptation, evolution, survival, advancement, whatever you call it, that’s the ultimate goal of any competition. The innovator or evolved comes out on top while those who aren’t able to innovate or evolve are the losers. Recently, Jumia Food, the food delivery arm of the Pan-African e-commerce giant, Jumia, announced its exit from Nigeria, Africa’s second-largest online food delivery market worth about 2 billion dollars as of 2023. Jumia Food is also exiting other considerable online food delivery markets in Africa like Kenya, Morocco, Tunisia, Uganda, Ivory Coast and Algeria.
This development at Jumia is a result of a cutting down to size undertaken by the new CEO, Francis Dufay, who since he got elected in November 2022 has gotten rid of a fifth of the staff at Jumia to boost profitability. The company famously known as Africa’s Amazon has been in operation for 12 years but still struggles to declare profit. Despite cost-cutting measures employed in 2022, the company’s loss stood at 237 million dollars, a 4.8 per cent rise from the previous year, 2021.
Nevertheless, it came as a surprise to many including myself when Jumia announced the folding of Jumia Food because of economic viability reasons. For context’s sake it is important to mention that Jumia Food as of the second quarter of 2023 made up a tenth of Jumia’s gross merchandise volume, that’s the total amount of sales Jumia made. Also, according to TechCrunch, Jumia Food was the fastest-growing category on Jumia and the second-largest category in terms of sheer volume. This leaves one wondering why Jumia would kill what appears to be a golden goose.
In an interview with TechCrunch, Francis Dufay, Jumia’s CEO placed some of the blame on Jumia Food’s competitors which most notable among them in Nigeria is Glovo, a Spain-based delivery service company backed by Delivery Hero, a German multinational online food delivery company. According to what Jumia’s CEO told TechCrunch, Glovo, Jumia Food’s main rival engaged in predatory pricing. Now that’s some heavy allegations of unfair competition.
Predatory pricing is when a business reduces the price of its product below its production cost thereby running at a loss to blow its competition which is unable to compete with the unreasonably low prices out of the market. In the short run, the low prices benefit the consumers of the product, but, in the long run, when the predatory business has taken the market share of its dead competitor, it engages in price gouging to recoup the losses it made earlier. Price gouging is a practice common in monopolistic markets where a business increases prices unreasonably given the absence of competition.
More specifically, what Jumia’s CEO referred to as predatory pricing was the 30 per cent off deals and free deliveries offered by Glovo to its customers like yours truly. Unashamed, I can say that I milked those deals with my numerous orders this year for veggie fried rice and chicken from Sweet Sensation on Glovo. It saved me a lot of money especially given the times we find ourselves in Nigeria.
Truth be told, I used to be a Jumia Foodie till I was bought over by Glovo’s business ethics. Whether Jumia believes it or not, cost isn’t the only consideration customers make when using a product. Glovo got into Nigeria in 2021 but like most customers, I was stuck on the more familiar Jumia Food despite the longer delivery time, bad manners of some of the riders and the rubbish customer service available on the Jumia Food app. Despite all these inconveniences, in 2022 I still resisted decamping to Glovo even with the juicy 30 per cent off deals and free deliveries offered by Glovo, the underdog at the time.
Nevertheless, in 2023, while I was schooling at the Nigerian Law School, Victoria Island, a place where time is scarce, I, a Jumia Food longtime customer was broken by Jumia’s poor business ethics. On that fateful evening, I ordered food from Chicken Republic on Jumia Food and I was notified by Jumia that I would receive the order within 45 minutes. As I expected, the 45-minute estimated time passed and no food had arrived. I gave the usual extra 15 minutes before I tried reaching customer service who were of absolutely no use whatsoever to me that evening. An hour later, I was informed on the Jumia Food app that the order I had waited 2 hours for was cancelled.
Having my orders cancelled is an experience I haven’t experienced so far on Glovo. I’m not saying Glovo is perfect, I still get the occasional 10 to 15-minute delays in food delivery, however, I could easily spot the many innovations Glovo has offered. First amongst which is the friendly user interface on the Glovo app compared to the clunky interface on Jumia. The importance of a great user interface cannot be overemphasized — it gives customers a first impression of what your business is like and whether they should go on to use your product.
Another edge that Glovo had over now-defunct Jumia Food was wonderful customer service. One time, during my several purchases this year from Sweet Sensation on Glovo, my orders were mixed up and I was given smoky jollof rice instead of my favourite veggie fried rice which I had ordered. Furious, I instantly got in contact with Glovo customer service who to my surprise was responsive and polite. The problem was resolved almost instantly and I was refunded the purchase price I had paid. In all honesty, the entire affair shocked me as I would not get this level of customer service in most Nigerian institutions fraught with bureaucracy.
Glovo had one more card up its sleeve — sustainability. The first time I saw Glovo riders on bicycles in Nigeria I was left speechless because this is what I expected in advanced cities like Amsterdam and not Lagos. Having riders cycle short destinations from restaurant to customer helps Glovo on two ends — one is that it reduces Glovo’s climate impact as bicycles do not need fossil fuels to function, and two is that it saves Glovo money given the high fuel prices in Nigeria.
But, what if the allegation from Jumia’s CEO that Glovo engaged in predatory pricing is true and not just bitter words from a clueless manager? If Jumia believes in the rightfulness of its cause, why did it not report the offensive business actions undertaken by Glovo to the Federal Competition and Consumer Protection Commission (FCCPC), the government agency responsible for regulating competition in Nigeria? Or did they also lay off their legal department in a bid to save costs?
Even with the Commission obsessing over loan apps and POS operators in Nigeria, the FCCPC must investigate predatory pricing as it is an anti-competitive practice that has the undesired effect of creating monopolies which in themselves are not a problem until they are abused to the detriment of the consumers.
Still, the FCCPC is tasked with preventing monopolies from being formed using such despicable means as predatory pricing. But, of course, if Glovo can prove that they acquired their monopoly legally, then the FFCPC cannot sanction them. How then can one legally acquire a monopoly? With fair competition, a monopoly can be acquired when a business innovates beyond its competitors thereby kicking them out of business and acquiring their market share. Glovo could rightfully argue that it brought innovations like bicycle riders, responsive customer care and promo deals — which is customary among new businesses in any given market — to the Nigerian online food delivery market.
Yet, Jumia never reported Glovo or its other competitors to the FCCPC for predatory pricing. The above back-and-forth arguments are just a figment of my imagination. How then do we test the truthfulness of the allegation by Jumia’s CEO that some firms in the Nigerian online food delivery market are running at a loss to gain market share? I guess we just have to wait and see if Glovo increases its prices to recoup the loss made while playing dirty with Jumia. The actions of Glovo in the coming year would not only be indicative of the company’s future in Nigeria but also the future of Africa’s e-commerce giant, Jumia.
Fun Takeaway
Competition law aka anti-trust law finds its root in 19th century America during a period known as the Gilded Age marked by great inequality. You can say that competition law exists to maintain a level playing field — whatever that means — because no matter what you do, the playing field can never be level. Some are going to be wealthier, some better informed, others healthier. Nevertheless, this is not to entirely overlook the significance of law in society. Law exists as a manifestation of the social contract between the state and the people. Without law, life would be nastier, shorter and more brutish than it is today. Law, more specifically anti-trust law is the reason for the historic breakdown of John D. Rockefeller’s monopolistic behemoth, Standard Oil to 43 companies. Today one of those companies has metamorphosed to be known as ExxonMobil, one of the largest oil companies in the world and a company whose 2022 profits exceeded Nigeria’s 2022 budget by 15.9 billion dollars. It’s nothing new that companies are becoming powerful, nevertheless, states still have sovereignty, for now. They employ tools like competition law to keep powerful companies in check. Over the years, the European Union known for its conservative approach to regulation has been giving big tech companies like Meta and Google a run for their money. In 2020, the United States followed suit when the Department of Justice filed a civil anti-trust case against Google for monopolizing the search and search advertising markets. Is this a fight by governments across the world to maintain the social contract as it has been for centuries? Or, an opposition by governments to the rewriting of the social contract to vest some of the state’s powers in companies thereby reducing their relevance?
