Following its success with food and grocery delivery, Nigerian eCommerce startup Chowdeck will now turn its sights to advertising as it hopes to unlock a revenue stream.
Users may have seen ads from crypto startup Yellow Card or messages encouraging them to stream songs from musicians like Ayra Starr or ShineTTW in the past six months.
With margins in the grocery delivery space thin and dwindling purchasing power across Nigeria, revenue opportunities for the three-year-old startup may be hard to come by. But with more than 500,000 users, the revenue potential from serving ads is immense and ties into a growing global phenomenon.
McKinsey predicts that retail media networks could be responsible for up to $100 billion in ad spending by 2026, with companies like Amazon leading the way.
It’s not just going to be another revenue stream, but an immensely profitable one. It predicts that profit margins could fall between 50% and 70%. Boston Consulting Group is even more optimistic, suggesting margins could go up to 90%.
Businesses that have invested in this product line are already seeing great results. Last year, Amazon made $46.9 billion from advertising, Walmart made $3.4 billion, and Instacart made $871 million. Although these companies primarily operate in the United States, they paint a picture of what could be for Chowdeck.
Why it makes sense for Chowdeck
Beyond the opportunity to unlock a hugely profitable revenue stream, a few factors make this a great move for the startup.
Unlike social media platforms, where user engagement can be passive and distractions are rife, Chowdeck's platform attracts users with a specific purchase intent — it has expanded its product category to include groceries and medication. This means that users are already in a buying mindset, making them more receptive to ads that are relevant and timely.
The company also possesses a wealth of first-party data, which is highly valuable in the advertising world. This information includes shopping behaviours, preferences, and purchasing patterns, allowing for the delivery of hyper-targeted ads.
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By leveraging this rich dataset, Chowdeck can offer advertisers the ability to reach niche audiences with pinpoint accuracy, significantly enhancing the effectiveness of their campaigns.
But it’s not just Chowdeck that could benefit from this move. By offering advertising options, Chowdeck provides merchants with new avenues to reach their target audiences. This can lead to increased sales and customer engagement for these merchants, which, in turn, strengthens Chowdeck’s value proposition for its partners.
Moreover, an ad product can serve as a differentiator in a crowded market, at least until competitors decide if they too want to play ball.
In a space where customer acquisition and retention are critical, the ability to offer merchants added value through targeted advertising can make Chowdeck a more attractive platform compared to competitors who do not have such capabilities.
Still, there are challenges to overcome
Despite the clear advantages, there are challenges and risks associated with introducing an ad product.
One major concern is maintaining a positive user experience. Users visit Chowdeck primarily for grocery shopping, and inundating them with excessive or irrelevant ads could diminish their satisfaction with the platform. Chowdeck must strike a careful balance, ensuring that ads do not overshadow the primary shopping experience.
To mitigate these risks, Chowdeck will need to focus on ad relevance and frequency. Implementing sophisticated algorithms that utilise their extensive user data will be key to delivering ads that feel organic and beneficial to the consumer’s shopping journey.
Additionally, continual iteration based on user feedback will be crucial for refining the ad experience and ensuring it meets customer expectations.
Speaking of sophisticated algorithms, developing a successful advertising platform is a complex endeavour that requires new technological and organisational capabilities.
Chowdeck will likely need to hire senior talent experienced in digital advertising to lead this new venture. Building new algorithms for ad delivery and measurement may also necessitate the recruitment of skilled engineers and data scientists.
Meanwhile, maintaining robust location targeting features and strict data privacy compliance are critical components that Chowdeck must integrate into its ad product to ensure reliability and user trust.
Timing and market dynamics also play a significant role in the potential success of Chowdeck’s ad product. It’s already benefiting from launching when Nigerians were comfortable with making online purchases and could capitalise on that to drive the success of this product.
“If merchants or other advertisers come to your platform without generating value, it's challenging to scale,” Princewill Akuma, a digital marketer, explains. “However, focusing on what they can control would be prioritising user experience; it is still primarily a food delivery app first, with robust location targeting abilities, fraud prevention, and strict compliance with data privacy to avoid unnecessary legal issues,” he adds.
Chowdeck’s ad forays could turn out to be a game-changer, but caution would be needed. Statista reports that eCommerce spending on food and beverages, its primary product offerings, declined by 6.5% and 10%, respectively, in 2023.
Akuma, however, believes it has what it takes to succeed, with success tied to its ability to incorporate customer feedback into subsequent iterations of the product.
“If they are already testing it, they have what it takes to succeed,” he concludes.
