Nigeria’s food delivery industry whets investors’ appetite

Nigeria’s food delivery start-ups are attracting attention from international investors optimistic about the growing demand in Africa’s most populous nation for restaurant fare at home even as soaring food inflation bites.

Homegrown industry leaders Chowdeck, FoodCourt and Heyfood, each backed by start-up incubator Y Combinator, as well as Spain’s Glovo, are jostling to grab market share and cater to a population whose average family spends about 60 per cent of their income on food. 

The market in Nigeria is expected to more than double to $2.4bn over the next eight years, with a compound annual growth rate of nearly 11 per cent, market research group IMARC estimates in a report.

“Africa has huge potential,” Glovo co-founder Sacha Michaud told the Financial Times. “We’re seeing the rapid growth of our business across Africa and above all Nigeria,” helped by better internet speed and reach.

Two-year-old Chowdeck in April unveiled $2.5mn in seed funding from investors including California-based Y Combinator, a backer of Instacart and DoorDash, and the co-founders of Bogotá-based Rappi, the largest online delivery platform in Latin America.

Glovo, owned by publicly traded German group Delivery Hero, three years ago raised more than half a billion dollars, with plans to expand beyond its Spanish roots into Africa. The company has invested more than $100mn to establish itself on the continent. It entered Nigeria in 2021 and operates in six other countries.

The start-ups are banking on the potential size of the Nigerian market, with its 200mn people. City dwellers in particular are increasing their internet use as the country, like much of Africa, improves its networks.

However, economic malaise threatens to hamper the industry’s growth prospects as Nigeria experiences its worst cost of living crisis in a generation, with inflation at a three-decade high of nearly 34 per cent. Food inflation is running at 40.7 per cent. The local naira currency has lost about 70 per cent of its value against the US dollar following two devaluations over the past year.

Multinational companies that invested in Nigeria, betting on a rising middle class, are retreating from the country and the economy has slipped from top spot two years ago to third in Africa today.

Bolt Food, the food delivery arm of Estonian ride-hailing service Bolt, closed shop there last year. So did Jumia, the pioneering New York-listed ecommerce group.

Jumia at the time “determined that its food delivery business is not suitable to the current operating environment and macroeconomic conditions”. The company, at the peak of its powers, could barely muster 19,000 daily orders across 11 countries, according to a person familiar with its operations.

Elsewhere, in the US and Europe, the four biggest food delivery apps have struggled to sustain a pandemic-fuelled growth spurt and have collectively lost more than $20bn since they went public. Many question their potential to turn a profit.

“Food is essential, delivery is not,” said Eghosa Omoigui, a venture capital investor at Lagos-based EchoVC. “How big is the target market for food delivery in Nigeria and how fast is that market shrinking?”

He pointed to a “direct correlation between those who are employed and those who order delivery”, adding that the business is “much harder” to build and even tougher to scale.

Omoigui, however, highlighted the potential for success, especially if companies deliver reliably.

Glovo and Chowdeck are among the start-ups striving to improve standards from the industry’s early days when meals would often take hours to arrive or would be delivered half-eaten or not at all. Both companies have cut waiting times to about 40 minutes.

“Food delivery appears to be a necessity and I couldn’t understand why more food delivery companies couldn’t work in Africa,” Femi Aluko, co-founder of Chowdeck, told the FT. “I kept hearing the same thing: it can’t work in Nigeria because of traffic, rider behaviour, dispatch not being reliable.”

For Aluko, the impetus to set up Chowdeck came after struggling during the Covid-19 pandemic to have cooked meals delivered promptly to his home in Lagos.

His company, launched in January 2022, today makes 20,000 deliveries daily and is seeking to expand beyond the eight Nigerian cities where it operates. The start-up has branched into other deliveries such as medicines and groceries, as has its rival Glovo.

Other local industry players include FoodCourt, which collects from its own ghost kitchens rather than third-party outlets. Heyfood primarily operates in the south-western city of Ibadan and the capital, Abuja.

Sendme, with backing from Y Combinator, sends meat to households and businesses in Ibadan. The company has stalled its deliveries temporarily as it expands its offering and improves its process, according to its website.

“One of the problems with businesses in emerging markets — and Nigeria certainly qualifies — is that there is such low trust because reliability is such a premium deliverable,” Omoigui said.

“If you’re able to figure out how to be reliable, you’ll never have a retention problem,” he added. “The hypothesis is that Nigerians, as price-sensitive as they are, will pay a premium for reliability.”