Nigerian food-delivery startups are catching the attention of international investors who are optimistic about growing demand for restaurant food at home in Africa’s most populous country, even as soaring food inflation takes a toll.
Homegrown industry leaders Chaudek, Food Court and HeyFood, backed by startup incubator Y Combinator and Spain’s Globo, are competing to gain market share and meet the needs of a population where the average family spends about 60% of their income on food.
According to a report by market research group IMARC, Nigeria’s market is expected to more than double to $2.4 billion over the next eight years, with a compound annual growth rate of about 11 percent.
“Africa has huge potential,” Globo co-founder Sacha Michaud told the Financial Times. “Fueled by improved internet speeds and reach, we are seeing rapid growth across the continent, and particularly in Nigeria.”
The two-year-old Chowdeck announced in April that it had raised $2.5 million in seed funding from investors including California-based Y Combinator, backer of Instacart and DoorDash, and the co-founders of Bogota-based Rappi, Latin America’s largest online delivery platform.
Globo, owned by German-listed Delivery Hero, raised more than $500 million three years ago and is planning to expand into Africa from its birthplace in Spain. The company has invested more than $100 million to establish itself on the continent. It expanded into Nigeria in 2021 and has operations in six other countries.
Startups are banking on the potential size of the Nigerian market, home to a population of 200 million. Like much of Africa, Nigeria is seeing growing internet usage, especially among city dwellers, as networks improve.
But Nigeria is suffering its worst cost-of-living crisis in three decades, with inflation at nearly 34 percent and an economic downturn threatening to dent the industry’s growth prospects. Food inflation is at 40.7 percent. The local currency, the naira, has lost about 70 percent of its value against the U.S. dollar after two devaluations in the past year.
Multinational companies that had invested in Nigeria, betting on the rise of the middle class, have withdrawn from the country, and Nigeria’s economy has fallen to Africa’s third-largest from the top spot two years ago.
Bolt Food, the food delivery unit of Estonian ride-hailing service Bolt, closed its stores in the country last year, as did pioneering New York-listed e-commerce group Jumia.
Jumia “determined that its food delivery business was not suited to the current business and macroeconomic conditions” at the time, and at its peak it was able to handle just 19,000 orders a day across 11 countries, according to a person familiar with the company’s operations.
Meanwhile, in the U.S. and Europe, the big four food delivery apps have struggled to maintain rapid growth during the pandemic and have collectively lost more than $20 billion since going public, leaving many to question whether they can ever 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?”
“There’s a direct correlation between people who are employed and people ordering deliveries,” he said, adding that the business is “much harder” to build and even harder to scale.
However, Omoigui stressed that there is potential for success, especially if companies ensure delivery.
Glovo is one of several startups trying to improve on the industry’s early standards, where meals often took hours to arrive, arrived half-eaten or were completely inedible. © Snapharvest/Glovo
Glovo and Chowdeck are among the startups trying to improve on the industry’s early standards, when meals often took hours to arrive, were half-eaten or weren’t delivered at all. Both have cut wait times to about 40 minutes.
“Food delivery seems like a necessity and we couldn’t understand why more food delivery companies can’t operate in Africa,” Chaudek co-founder Femi Aluko told the Financial Times. “We heard the same stories over and over again about how traffic congestion, the behavior of delivery workers and unreliable deliveries made it impossible to do business in Nigeria.”
For Aluko, the impetus to start Chaudek came after he struggled to get cooked meals delivered quickly to his home in Lagos during the COVID-19 pandemic.
His company, which was founded in January 2022, currently makes 20,000 deliveries a day and is looking to expand beyond eight cities in Nigeria. The startup, like rival Glovo, is also branching out into delivering medicines, groceries and other items.
Chaudek co-founders: (left) Chief Technology Officer Olumide Ojo, Head of Operations Lanre Yusuf, and CEO Femi Aluko.
Other local players in the industry include food courts that collect revenue from their own ghost kitchens rather than third-party outlets. HeyFood operates mainly in the southwestern city of Ibadan and the capital, Abuja.
Y Combinator-backed SendMe delivers meat to homes and businesses in Ibadan. The company is temporarily suspending deliveries to expand its services and improve its processes, according to its website.
“One of the problems companies have in emerging markets – Nigeria is a prime example – is that trust is very low because authenticity is a very important deliverable,” Omoigie said.
“If we can figure out how to ensure reliability, we will not have customer retention issues,” he added. “The hypothesis is that Nigerians are price sensitive so they will pay a premium for reliability.”
