Bring on the competition, says Takealot about Amazon

Liesl Smerdon started Curl Chemistry in Cape Town in July 2016 specifically for people wanting to go back to their natural hair without using mountains of chemicals. Her products, she says, are vegan and contain only natural ingredients, such as coconut oil, castor oil and avocado oil. 

Smerdon, like many South Africans who started their businesses from home, struggled to find a route to the market. So in 2019 she linked up with local online delivery service Takealot — and now she sells about half her products through the platform. 

“Sales on our website have been slow recently, so Takealot has been sustaining my business,” she tells the FM. “People are saving, even trying not to spend that R65 for courier fees.” 

Joining the platform wasn’t easy — the volumes of paperwork needed to sign up with Takealot meant Smerdon nearly decided against the move — but in the end, she found it worthwhile.

“The initial onboarding is overwhelming and time-consuming, but [Takealot’s beauty representative] helped me get all our products listed online, and from there it’s been upwards and onwards. I should have done it long ago,” she says.

It’s a model used frequently by large online retail giants such as Amazon — but locally, it’s only starting to catch on now.

It’s an illustration of how Takealot is slowly becoming a behemoth of local retail, thanks partly to Covid and partly to these sorts of new ideas. Last September, for example, Takealot began delivering shopping for Pick n Pay — and that’s also flown.

This kind of success hasn’t gone unnoticed by South Africa’s regulators, however. 

The Competition Commission is due in April to release its recommendations on the digital marketplace, which will directly affect online retailers such as Takealot and Uber Eats and digital advertisers such as Google and Facebook.

This scrutiny was inevitable, as e-commerce is one of the few business areas of the country still pumping. Data from tech research firm World Wide Worx and Mastercard shows that the local online retail market reached R55bn last year — a 35% year-on-year increase.

But if the Competition Commission gets its way, people like Smerdon wouldn’t be able to use Takealot in the way she has.

The commission’s provisional report found a conflict of interest in cases where Takealot operates a marketplace for third-party sellers while also selling its own products. The competition watchdog argues that the use of “preferential display promotions” and unfair access to third-party data about successful products gives it an unfair advantage.

If the Competition Commission report changes South Africa’s online retail landscape, small businesses and retail platforms like Takealot could suffer

—  WHAT IT MEANS:

Needless to say, Takealot CEO Mamongae Mahlare disagrees with much of this.

Her company isn’t stifling competition but rather helping small companies thrive and create jobs, she says. She is singing pretty much from the same hymn book as President Cyril Ramaphosa did in his comments about his vision of digital economic transformation.

Mahlare says: “How do we make sure we have an environment that enables the adoption of e-commerce? It saves people time and transport money. That’s really what should be front and centre when it comes to the Competition Commission and output — does it help to achieve these goals?”

Certainly, Takealot has a thriving business: it lists just under 2-million items on its website, and delivers almost everywhere, rural areas and townships included.

Mahlare says Takealot has facilitated the creation of 33,000 jobs over the past decade.

There are now about 8,000 small businesses trading on the platform, though their position could become a lot more precarious owing to the Competition Commission probe.

The growth rate of the retail platform isn’t bad for a new business in a new industry — particularly considering that Mahlare herself is hardly a veteran of online retail. Before she took up this position, she was CEO of Illovo Sugar, and she’s actually an engineer by training. 

She has an MBA from Harvard Business School and spent a number of years working for South African Breweries, in the Appletiser business initially and later as the marketing director for the brewery in Mozambique.

But if Mahlare thought that swapping the ailing sugar business for e-commerce would be a walk in the park, it’s been anything but: not only has the Competition Commission come calling, but Takealot is also preparing for the arrival in the country of the world’s biggest retailer, Amazon.

Amazon was meant to open its doors in Cape Town in February, but a spat over its new head office, as well as a round of global retrenchments, have put this plan on ice, probably until later this year.

Mahlare, however, says the prospect of competition doesn’t scare her.

“We’ve always said we welcome Amazon’s arrival. We appreciate that as a big player it’s going to have an effect on this market,” she says. But Amazon will just be “another one of those players that will come into an environment that is already competitive”.

She adds: “Our sellers can sell what they wish to, we compete with well-established traditional retail businesses and on Mr D there are multiple restaurants that can list and compete every day.”

Which is something swiftly being found out by the likes of Takealot parent Naspers, which paid top dollar for Delivery Hero, among other food delivery services. 

Still, while e-commerce has grown spectacularly, the sector is not (yet) pulling in the kind of profits you might expect.

Takealot consists of three businesses: the eponymous online retailer, clothing retailer Superbalist, and food delivery service Mr D. Superbalist and Mr D aren’t yet profitable, though Mahlare expects them to turn into the black in the next two years.

Takealot’s latest financial results showed its revenue moved up by 13%. This is far slower than recent years: between 2019 and 2021 Takealot grew over six-monthly periods by between 25% and 63%. 

Overall, Takealot made a net loss of $13m for the six months to September 2022, a much deeper loss than the $2m of the year before. Besides the investment in Superbalist and Mr D, Takealot attributed the fall in profitability to higher fuel surcharges, investments in new warehouses and discounted inventory clearance. 

The value of its merchandise reflects this trend: it grew 72% in 2021 (while lockdowns were still spurring home deliveries) but this slowed to 15% in the most recent six-month period. 

But Mahlare expects growth rates over the next few years to be higher than in 2022 — “there is still capacity for faster growth”.

One bright spot for Takealot is that load-shedding has not affected it in the way it has hampered the traditional retailers, she says. If anything, it has helped the business.

“The terrible stage 6 [load-shedding] has only really been in the past few months. People have to adapt to the fact that there is an alternative, and we are the alternative. We have to continue to make sure we drive that awareness and that we create the opportunity to fulfil customers’ requirements 24/7, 365 days a year,” she says. 

We’ve always said we welcome [Amazon’s] arrival. We appreciate that as a big player it’s going to have an effect on this market 

—  Mamongae Mahlare

Which is true — but load-shedding has hurt the business in other ways: consumer confidence is way down, and the loss of jobs from businesses that have folded means there are fewer potential shoppers with money to burn. 

Takealot itself isn’t planning to cull jobs as a lot of global tech titans have done, including Amazon. This is partly, Mahlare says, because Takealot didn’t hire as manically as others during Covid.

“When others were going all out and hiring bucket loads of employees, we were a lot more measured … being more prudent, being more deliberate and making sure that [we] made those decisions quite carefully,” she says. “[So] we didn’t make the same decisions as they did.”

Mahlare points out that Amazon employs more than 1.5-million people, so the 18,000 retrenchments it announced are marginal in the company’s wider business. 

“It does indicate we need to be a lot more prudent, that we are going to be facing a [tight] 12 to 24 months, at least globally … You have to be aggressive and fast in certain areas, [not] in others, and make sure you calibrate your approach accordingly,” she says.

But the retailer can’t afford to step on the brakes too hard. As it is, e-commerce has a brighter future than most other industries. The World Wide Worx survey predicts that the sector will grow 25% in 2023 — meaning that online retail will exceed 5% of total retail sales in South Africa for the first time. 

So if Takealot is a barometer of South African retail trends, what is the biggest seller?

According to Mahlare, it’s appliances and electronics — and the air fryer has proved to be the new zeitgeist retail product. 

On Black Friday alone, Takealot sold 5,000 air fryers, and, by the Tuesday after that, enough air fryers had been sold to kit out every home in Ermelo.

If only there were enough electricity in South African homes to power those air fryers as often as the owners want them to.