In 2019, it seems almost any consumer good can be delivered to your door in Lebanon through a quick phone call, WhatsApp, or click online. E-commerce has been available in Lebanon since at least 2000, when the Buy Lebanese website went live in November that year. In the MENA region, the e-commerce market reached $8.3 billion in 2017, with an average annual growth rate of 25 percent over the preceding three years. Yet, the vast majority—over 87 percent—of that market is accounted for by the GCC (the UAE and Saudi Arabia in particular) and Egypt, with the Lebanese market seemingly resistant to the move online.
Quantifying the size of the e-commerce market in Lebanon is difficult. To Executive’s knowledge there have been no Lebanon-specific studies on the sector, and little done by way of research of e-commerce in the MENA region as a whole. One study “E-commerce in MENA: Opportunity Beyond the Hype,” a joint effort from Google and global management consultancy Bain and Company sought to address this gap in February this year; with a 2019 Wamda report “Online grocery retail in MENA,” following in March and relying heavily on the formers research (cited earlier). The takeaway from both reports is that e-commerce in MENA has a high growth potential—Bains and Company estimates a potential growth of 3.5 times by 2022, to reach a total market size of $28.5 billion—yet is still stymied by regional specifics.
Most challenging for delivery app operators and the business of B2C e-commerce in the region has been the persistent desire of MENA consumers to pay with cash on delivery (COD) versus the use of cashless payment modes that are nowadays the standard in economies from China to the United States and many countries in between, thanks to providers from from Alipay to Amazon. Around 62 percent of MENA online shoppers favor COD compared to less than 5 percent in the UK and France. COD “leads to higher return rates and failed deliveries, and it adds pressure to working capital requirements while limiting delivery options to logistics companies that accept this form of payment,” according to the Bain and Company report. A second challenge is the slow move online of small- and medium-sized enterprises (SMEs), which account for 95 percent of companies in Lebanon, above the regional average of 90 percent—think the local dekeneh, whose delivery is reliant on explaining directions via phone or sharing a pin on WhatsApp.
The shop at the corner
Of all the e-commerce segments, the e-groceries market is the most underpenetrated—accounting for less than 1 percent of the e-commerce space in the GCC and Egypt according to the Bain and Company report—and as such, the room for growth is significant. The Wamda report estimates that this segment could see growth rates above 100 percent year-on-year for at least the next couple of years, while Bain and Company is slightly more conservative at almost 90 percent.
Entrepreneurs in this space are banking on that rapid growth. In Lebanon, new marketplace grocery and fast-moving consumer goods
(FMCGs) delivery apps have appeared in the past couple of years: Toters in 2017, MrGrocer in February 2018, Markit in April 2018, and InstaShop later that year (a regional expansion, it was launched in the UAE in 2015). Executive spoke with representatives of the latter three—Toters did not respond to requests for an interview—to gauge how successful these apps have been in convincing store owners and customers alike to embrace e-groceries via apps.
Markit, InstaShop, and MrGrocer operate with similar business models. As their primary revenue stream all take a small percentage of the invoice from in-app purchases; this cost is on the owners or operators of the store, not the customer, who will pay the same price on the app as they would have dealing with the store directly. As a secondary revenue stream, some sell or are experimenting with selling space to FMCG brands to advertise on the app. None operate their own delivery fleets; they rely on those employed by the stores available on their apps and leave all logistical matters to them. MrGrocer and InstaShop also charge a delivery or service fee of around $1, while Omar Osman, co-founder of MrGrocer, tells Executive that they began to look into how to market customer data to supermarkets to create an additional revenue stream, but this idea is still in the pipeline.
All three partner with chain supermarkets as well as the smaller local stores within their area of coverage. Apps’ pitch to stores centers on potential for increased traffic via the digital realm and an additional selling channel. Abi Nader says the difference between the informal system is that Markit allows a store to track things more easily, such as delivery times, monitoring, and geographical spread. Once partnered with a store, its products are scanned into a system by an employee of the app, which allows customers to add them into a digital basket. Markit currently partners with eight stores and is finalizing contracts with others. MrGrocer has around 20 stores on its app and is expanding to areas outside Beirut with an additional 20 to 30 contracts soon, and the more-established InstaShop has 60 to 70 partner stores in Lebanon.
Those behind these apps that Executive spoke with have no illusions about replacing in-store shopping, dealing directly with local shops, or using bigger chains’ online portals for delivery any time soon. Their growth strategy is two-pronged: on the customer side it is to attract those who usually shop in-store, while on the business side it is to convince smaller local shops to digitize their inventory, opening up their access to more customers. “We’re not competing with them, we’re making use of them,” Osman says. “There’s a new channel of business.”
On competing with informal markets—like Mahfouz, a shop in Geitawi that can have wine and vegetables on the doorstep in 15 minutes and charges no delivery fee—and formalized systems—such as Spinneys and Carrefour’s online delivery services—those Executive spoke with cited several factors they believe give them the competitive edge. Having a digitized basket eliminates the back and forth between the customer and their local stores to determine what items are available, something which costs both time and—in Lebanon especially—valuable phone credit.
For competition with larger supermarkets, these nascent companies all seem to agree that the variety of options on their apps; the lower minimum basket size—sometimes as low as LL5,000 ($3.33) compared to the LL100,000 ($66.66) required of Spinneys; and the 30-45 minute delivery period compared with longer wait times—Spinneys’ customers can only schedule deliveries within three hour increments, and Carrefour’s website shows a LL5,000 delivery charge and a two to five business day wait for non-perishable groceries—make their apps an attractive option for those looking to have a few items or a week’s worth of groceries delivered.
Though refusing to share figures, those Executive spoke with all reported growth in the first year or two of operations. In its four years of operation, InstaShop has expanded to five other markets, including Lebanon. Instashop’s CEO John Tsioris says that home delivery culture, a similar language and product assortment, and a mature and diverse supermarket industry made Lebanon attractive to expand into. By his estimate, Lebanon is “on a strong growth trajectory that will allow it to achieve growth of three times, year on year.” Markit’s day-to-day orders expanded so rapidly that since operations began their orders have increased by 5,600 percent, bearing in mind the small market size.
The entrepreneurs behind these apps are confident that they will see more growth in the future. Their average purchasers’ demographics are millennials between 25 to 40. Both Tsioris and Osman tell Executive that they believe use of grocery-delivery apps will increase in line with the collective purchasing power of this demographic. Osman adds that while millennials may be the early adopters, it is not impossible that other demographics will take to the idea in the future. “Look at Facebook,” he says. “No one would’ve guessed five years ago that our parents would be on it.”
But this sought for growth is not without challenges. Grocery delivery entrepreneurs need to tackle customer awareness, technology adoption, logistics, and competition from other market segments. Markit’s Sara Abi Nader tells Executive that one of the issues they have faced is that when they introduced a tablet and online interface to some stores, the employees were reluctant to use them, preferring to take orders via pen and paper as usual. Malek Fatte, country director of InstaShop, noted logistical challenges in Lebanon compared to Dubai. Where in Dubai, roads are well-built and flat, the mountainous terrain and old roads in Lebanon make it difficult for delivery drivers on motorcycles to reach the customer. In mountainous areas, shops rely more heavily on vans for delivery that are more expensive because of the added fuel costs, especially when transporting products that must be kept cold.
Competition from within
Given the small market size and the few players within it, those Executive spoke with do not see much scope for competing amongst themselves as of yet. Osman says he believes it is too early to consider the others as competition. He tells Executive that now is the time to raise awareness and having multiple apps in the market will help that goal.
As demand increases, so will competition between these apps and any newcomers on the scene. Already, all three have identified ways that set them apart from their potential competitors. For example, Markit is looking to operate in underserved geographical areas and tries to offer a variety of products through their partners, rather than signing multiple stores that provide largely overlapping services, says Abi Nader.
Given their recent entry to the market, it is too early to analyze these companies’ performance so far, though all reported continuously increasing daily sales since launch and high retention rates ranging from Markit’s 32 to InstaShop’s 80 percent; perhaps a reflection on the latter’s experience in the field. Increased awareness, followed by demand, seems to be what all of them need for their young businesses to survive—at least in a healthy business environment. Recent worries over a potential shortage of dollars in the country needed for physical payments may make these types of services less appealing in the short term to potential customers preoccupied with hoarding dollars. Despite these threatening factors, e-grocery has high potential for growth, and entrepreneurs are optimistic that it will carve its place within the growing e-commerce market.