Size of addressable market
Because of this vagueness in value proposition and a limited number of convincing reasons why this method for buying fruits should be adopted, I arbitrarily estimate that they can create a space worth 10 – 20% of the current fruit market. 10% of the fruit market is still an astounding $180M.
The company’s operational/delivery strategy is an interesting aspect of this business because it is generally more difficult to execute than a regular E-Commerce company because the goods are perishable. To partially solve this problem, they ask their customers on what day they want the fruits delivered. With this tactic in place, they can buy fruits in the right bulk, and then re-distribute in the fulfilment centres closest to where they are going to be delivered.
Another interesting strategy could be to locally source for fruits and then deliver. This strategy is being successfully implemented by the likes of Supermart.ng; where they—and I’m not sure of this exact detail, but it only makes sense—do a sort of software sync of the brick and mortar supermarket’s inventory; to understand where to source for goods when a user orders from the internet. The problem with this strategy for GingerBox is that the majority of distributed fruit sellers don’t and won’t use inventory software.
The other interesting thing about delivery of fruits to businesses is that if these customers want to consume this fruits at work (many of them will want to) then GingerBox must deliver all fruits before 12 noon (before lunch) each day. Because of this, delivery cannot be optimised. They will need twice the usual number of delivery people. Hacking this might be difficult; and I haven’t thought of a solution (for the public).
So the question now is: how scalable is this business? How easy will it be? The only part of this business that can naturally scale with ease is the website. Still, that I can view your website in Calabar doesn’t mean you can serve me there. So when you think about scalability, is that fact that the website can scale make the totality of the business scalable? No. To serve Calabar they need to put infrastructure in Calabar: fruits, warehouses and delivery trucks and bikes. They need sales people or advertisement localized to Calabar. Even more damning, they need to be well vested in each locality within the state to make their before 12 in the afternoon delivery deadline work (delivery men and warehouses with already packaged fruit basket).
This however is not impossible to pull off. In fact, the company pulling this off can go on to set them apart from the bunch and give them a useful competitive advantage. Nevertheless, this scalability issue will open them up to competition. But not just from another big player, but from a multitude of small players who—if this model becomes accepted—will move to serve their localities. They’ll also be able to do it better because they’ll have more focus and will be able to build better relationships with customers. I see this shaving 50 – 75% off the market share GingerBox’s new space created.
Great Tech Company?
So let’s get this straight. GingerBox is not a tech company. It’s not even really an internet company. As I show in their customer attraction strategy, they need people on the ground to secure sales at first (sales executives), and then while the internet has helped, this sort of business will have easily survived in a non-internet world (they need distribution centres very close to every locality because goods are perishable).
Scaling this business will also be very difficult. Nevertheless it’s not impossible. With great focus, this model can be made to work. The big drag is that despite how much work is put into this, it will never benefit from the economies of scale or centralization. There’s no inherent technology holding this company; or providing an edge that can allow it to be more profitable in % margins as it scales larger or as it serves more users. Net margins will stay at between 5 – 10 % forever and barrier to entry are basically intellectual (who else knows how to build this business this way?)
A reason why this might not matter—that it takes great people to execute this model is that—small business owners, without the kind of ambition that the founders of GingerBox have can easily serve their localities this model before GingerBox themselves reach there.
From an investment point of view, I believe it can easily return x3 of a million dollar investment in 3 years. I estimate that for the company to reach $90M in revenue it will need an investment of $12 – $18M. If the investors can get 30% of the company at that price, then in 3 years, its investment would be worth between $36 – $54M, if the company is sold at 20 times earnings (assuming earnings is up to 10% of revenue).
It’s not as great an investment as a ‘tech’ investment should be, but it’s certainly not the worst.
Nigerian startups raised $377m in 2019, more than twice what they did in 2018. Find out more when you download the full report.