When Egyptian B2B e-commerce platform Cartona last raised funds in 2022, global and local investors were keen to invest in African startups that solve supply chain and operational challenges for retailers and suppliers in the fast-moving consumer goods (FMCG) industry.
Two years on, investors are no longer so enthusiastic as the business models of asset-light and asset-rich startups across the continent are coming under pressure, leading to exits, closures, cuts and mergers.
But Cartona, which according to founder and CEO Mahmoud Talaat is “very close to being fully EBITDA profitable,” has now managed to raise $8.1 million ($5.6 million in equity and $2.5 million in debt) in a Series A extension from new and existing investors.
The round was led by Egyptian venture capital firm Algebra Ventures, bringing Cartona's total Series A funding to $20.1 million. Series A I lead investors Silicon Badia and SANAD Fund for MSMEs also participated, while Camel Ventures and Global Corp provided the debt portion.
Talaat told TechCrunch that the four-year-old e-commerce platform has raised a significant amount of cash.
“We now have double the amount of capital that we raised,” he said. The funds will be used to expand market share in Egypt by strengthening its FMCG and HORECA (hotels, restaurants, cafes/catering) businesses, which it launched more than a year ago. Cartona may also consider expanding into other regional markets, including Saudi Arabia, and developing other product lines in Egypt, he added.
Developing new fields with an asset-light model
Cartona was initially launched as an asset-light B2B platform connecting FMCG suppliers and wholesalers with retailers, and the common criticism at the time was that an asset-light model would make it difficult to retain customers and essentially compete with asset-heavy B2B e-commerce platforms that had more control over technology and the supply chain.
Cartona and Nigeria’s Omnibiz has pretty much dispelled that notion.
In an interview with TechCrunch, Talaat said Cartona spent its first two years focusing on improving its technology, user experience and fulfillment rates to reach service levels comparable to asset-focused models, enabling it to raise capital in 2022.
B2B e-commerce companies have since focused on improving their unit economics in an industry where volumes are high but it's often hard to turn each order into a profit. Talaat said progress on that front over the past two years has made Cartona attractive to investors, especially as the Egyptian pound has weakened against the dollar.
Not surprisingly, Cartona's asset-light model has been a factor in its efforts to improve profitability, with Talaat explaining that Egypt's informal market has a significant network of suppliers, wholesalers and distributors that it doesn't need to eliminate or compete with, but rather can make more efficient with the technological tools offered by its B2B e-commerce platform.
“Our original mission was to support and strengthen these partners, not compete with them. We focused on technology, embedded financing and other compelling product enhancements and capabilities that we developed, while they had strengths in operations, purchasing and inventory sales,” Talaat said. “They already had great pricing and experience, and could deliver very quickly and locally to their clients. Because we partnered with these suppliers, we were able to not only scale and grow into the largest marketplace connecting all these suppliers in one place, but also build a solid reputation.”
According to Talaat, more than 30-40 percent of Cartona's partner supplier sales are now made through the platform.
If the platform offers significant benefits to suppliers, they will actively support its growth. Similar success can be replicated in other industries.
Take for example Cartona's expansion into hotels, restaurants and cafes, where they leverage synergies between their FMCG and restaurant supply bases, as there is an overlap in many of the items required for these businesses, such as fresh meat, poultry, fish and vegetables.
“We will look at the supply base and see what will work. For example, we already have cosmetics on the marketplace, so maybe we can add pharmacies that sell cosmetics as well as medicines,” added Talaat, who founded Kartona with CTO Mahmoud Abdel Fattah.
The business is growing
Cartona's annual gross merchandise volume (GMV) is expected to be around 10 billion Egyptian pounds ($210 million), up from 2.3 billion Egyptian pounds ($120 million) in 2022.
Interestingly, while the HORECA division, which launched last year, accounts for only a small portion of Cartona's business (about 7% of the company's total annual distribution volume), its blended take rate and average order value from more than 3,000 customers is double what the platform receives from its FMCG customers. Talaat expects the division to account for 15% of the startup's GMV by the end of the year.
More than 180,000 retailers across both industries (60,000+ in 2022) manage over 40,000 SKUs on Cartona. Taking orders from 4,500 suppliers across 17 cities in Egypt, these retailers manage their inventory and working capital through cash or credit orders.
Initially, Cultona used equity to facilitate retail traders' credit orders because its local currency debt portfolio did not have maturities. But as the platform has grown, it has secured local currency financing, which now accounts for more than 90% of its portfolio, with only 10% coming from equity, Talaat explained on the conference call. Embedded financing now accounts for more than 20% of Cultona's GMV, up from just 2-3% in 2022. As Cultona's trading volumes increasingly include credit transactions, the use of local currency facilities is expected to expand in tandem with the growth of the platform.
“The asset-light nature of the company's model creates a scalable infrastructure that can quickly adapt to enter new and adjacent markets. Cartona is also a driving force for financial inclusion in the retail sector as more small retailers take advantage of inventory financing options,” Omar Kashaba, general partner at Algebra Ventures, said in a statement.
A challenging market but big opportunities
Egypt is home to more than 400,000 stores and thousands of international and domestic brands, with the sector growing by 8% annually. According to reports, the overall retail market is worth $120 billion, with the food and beverage market worth $70 billion.
Venture capital has driven the digitization of the country's markets, stimulating growth and competition among companies such as Cartona, the now-defunct Capiter, and MaxAB, which is currently in merger talks with Wasoko. Despite millions of dollars in funding and the existence of similar companies across Africa, they have only just scratched the surface, failing to create significant value for supply chain stakeholders or the investors who back them.
But Talaat believes it's only a matter of time before this changes.
“All businesses combined are only a small part of the market, and the majority of it is still offline. I would say we cover only around 2-4% of the total market. We know the market is huge, but our real competition remains offline transactions between businesses, wholesalers and retailers,” says Talaat. The enlightenment and adoption of B2B e-commerce is still in its early stages. It is and will continue to grow as we add real value to retailers and suppliers, but it will take time given the size of the market.”
