Aggregators sitting on the throne of Africa’s e-commerce supply chains: What lessons can we learn?

From the November 2024 edition of Supply Chain Management Review.

November 2024

Another year, and another successful NextGen Supply Chain Conference. I’m just back from our annual NextGen conference in Chicago—this was my second conference since joining Peerless Media in 2023—and it was an…

Browse this issue archive.

Access your online digital edition.

Download a PDF file of the November 2024 issue.

African consumers continue to buy more than 70% of their food, beverages, and personal care products from the continent’s 2.5 million small, traditional retailers. These highly fragmented, independent shops, often referred to as “mom-and-pop” stores, significantly contribute to the continent’s commercial activity. Small grocery stores, known as bakkal in Egypt, hanout in Tunisia and Morocco, and duka in Kenya, have demonstrated resilience by providing the proximity, flexibility, and convenient operating hours needed to serve their communities as studied by Boston Consulting Group (BCG). The traditional retail sector, estimated to represent 40% of Africa’s GDP, remains largely informal and has seen little systemic change for decades. Traditionally, these retailers have operated with limited access to formal financial services or digital infrastructure, relying on cash transactions and informal networks. This landscape has given rise to a new breed of online B2B intermediaries.

The Financial Times 2022 inaugural report on Africa’s Fastest Growing Companies ranked Wasoko, an online B2B marketplace, formerly known as Sokowatch, as the number-one ranked company in the African market. Operating across several countries, including Côte d’Ivoire, Kenya, Sénégal, Tanzania, Rwanda, and Uganda, Wasoko emerges as a transformative force in the B2B informal retail sector in Africa. The Kenyan firm stands out with the highest compound annual growth in revenues from 2017 to 2020, and successfully secured $125 million in a Series B funding round in 2022. The recent merger between Wasoko and MaxAB, an Egyptian-based B2B e-commerce firm, marked a significant milestone in Africa’s digital retail landscape. It was hailed as “the largest tech merger in Africa.” A press release explained that the force behind Wasoko and MaxAB’s market leadership lies not only in their B2B e-commerce offerings, but also in their ability to offer aggregated services related to payment solutions, merchant financing and proprietary logistics operations.

About MaxAB

MaxAB, launched in 2018, is an Egypt-based B2B e-commerce platform aimed at revolutionizing the informal retail supply chain in the Middle East and North Africa (MENA). It was created to bridge the gap between small retailers and suppliers by offering a digital platform that streamlined procurement processes. Traditionally, small grocery stores in Egypt and Morocco faced challenges accessing goods due to fragmented supply chains and unreliable delivery networks. MaxAB tackled these issues by connecting local merchants directly with wholesalers and manufacturers, improving efficiency, and lowering costs.

The company leveraged technology to create economies of scale, aggregating demand from thousands of small stores and offering a wide range of goods, from food and beverages to household items through its supplier network. Retailers and grocery stores benefited from next-day delivery and competitive prices, while MaxAB used the aggregated data to optimize supply chains and offer insights into purchasing trends, inventory, and logistics. This data-driven approach made it easier
for suppliers to meet demand and for retailers to manage stock.

MaxAB’s ambitions extended beyond logistics. The company ventured into fintech, providing digital payment solutions and linkages to credit services to small business customers. This point was emphasized by Belal El-Megharbel, co-founder of MaxAB, who noted that “the traditional grocer is not tied down to a particular product offering.” He further suggested that “these small shops are the engines of their communities, and it would be a mistake to overlook their role and potential in providing essential services.”

The 2023 MaxAB merger with Wasoko created a new entity, Maxoko. This merger combined the strengths of both companies, expanding their reach across eight African nations. Maxoko was projected to generate $500 million in revenue, serving over 450,000 merchants and 65 million consumers. The merger solidified MaxAB’s legacy as a key player in reshaping Africa’s informal retail sector.

With more than $100 million raised in under five years, what insights can be drawn from MaxAB’s rapid growth? How did its position as a B2B e-commerce platform enable it to overcome market fragmentation and capitalize on strategic opportunities? In what ways did aggregation serve as a catalyst for MaxAB’s success, and how did it help unite fragmented supply chains and retailers?

Fragmentation vs. aggregation in supply chain management: A critical examination

In an earlier edition of Supply Chain Management Review (Melnyk, S.A., Little, N., and Levy, L. K., 2024, “Balanced supply chain management: Setting the stage”) the authors explained the theory and practice of supply chain management to be more like a pendulum, swinging back and forth in response to the latest business developments, and that what was needed is a more measured, multifaceted approach to our field. We support this view and add that the perpetual dynamics of fragmentation and aggregation can act as a helpful guide.

 Supply chain management is increasingly shaped by two opposing dynamics: fragmentation and aggregation. On the one hand, customer-centric approaches drive fragmentation, where supply chains are disaggregated to meet specific customer demands and enhance responsiveness. On the other hand, aggregation seeks to consolidate resources, processes, and information to achieve efficiencies, lower transaction costs, and leverage economies of scale and scope. Understanding the trade-offs between these two strategies is essential for strategic supply chain management.

Fragmentation: Enhancing flexibility and responsiveness

The push toward customer-centric supply chains is evident in recent Supply Chain Management Review articles (Bolumole, Y., Grawe, S. J., Caltagirone, J., and Daugherty, P. J. “It’s time to adopt a customer-centric attitude” in 2021). Customers today seek shorter lead times, a broader variety of products, and access to multiple channels for acquiring products. While the growing demand for tailored and convenient solutions is essential for enhancing customer satisfaction, this shift has often led to increased fragmentation.

Discussed by Janjevic, M. (“Customer-centric supply chains by design” in 2023), as businesses strive to offer customized, fast, and reliable services, the scope of design efforts in supply chains shifts from cost-based optimization to responsiveness-focused configurations. By positioning inventory closer to key markets, supply chains succeed in reducing lead times and improving service levels. However, this customer-centric approach often undermines economies of scale and heightens operational inefficiencies.

Aggregation: Promoting economies of scale and scope

Aggregation strategies leverage economies of scale by combining or grouping similar resources or items to streamline operations and reduce transaction costs. In global procurement, intermediaries bring together transactions from numerous small suppliers, easing the relationship management burden for buyers while achieving economies of scale. Similarly, manufacturers often outsource warehousing and transportation needs to third-party logistics providers (3PLs), who can offer cost reductions through consolidated order processing and logistics.

Aggregation strategies also leverage economies of scope. Retailers typically employ demand aggregation by offering diverse product selections, creating a one-stop shopping experience for consumers in their stores. Larger retail stores can provide a wider variety of products from multiple manufacturers, enhancing their ability to meet varied consumer needs. By stocking goods from numerous suppliers, these stores maximize customer convenience and increase foot traffic.

As supply chains evolve, the ongoing tension between fragmentation and aggregation strategies underscores the need for supply chain managers to make informed decisions that balance responsiveness with efficiency. This creates a perpetual transition between the economies and diseconomies of scale and scope (see Figure 1). Supply chain managers must navigate the complexity of these transitions, carefully questioning when to fragment and when to aggregate.

 

Intermediaries as natural aggregators: Streamlining for efficiency

B2B intermediaries play a vital role in modern markets acting as natural aggregators, simplifying the flow of goods, information, and money. By bringing together multiple sellers and buyers, they consolidate supply and demand, creating economies of scale in terms of reduced costs, and enhanced market efficiency. At the same time, they offer economies of scope through a broader selection of products and optimized logistics.

E-commerce technologies fundamentally altered the dynamics of B2B intermediaries through the rise of network externalities—where the value of a product or service increases with the number of users. With B2B platform business models leveraging economies of network, and serving as critical information hubs, e-commerce intermediaries are able to gather and analyze data on consumer behavior and market trends, offering a feedback loop to suppliers and enabling them to adjust offerings and consumers to enjoy personalized experiences. B2B intermediaries can also build trust by offering additional services, handling payment processing, quality assurance, and dispute resolution, reducing transaction risks in fragmented or emerging markets, thereby fostering reliability and transparency as they promote smoother transactions.

The combined economies of scale, scope, and network offer reinforcing mechanisms that spiral upward, strengthening the B2B value proposition (Figure 2). Intermediaries sit at the throne of the supply chain, benefiting from these spiraling dynamics. However, they must play their role wisely, carefully layering aggregation efficiencies and reinforcing mechanisms to move in the right capacities.

 

Applying these reinforcing dynamics to MaxAB’s short five years of success.

• MaxAB first began in 2018 as a B2B e-commerce company, offering a wide variety of goods—economies of scope—to Egyptian grocery stores and merchants. This was reinforced by economies of network, where more merchants using their platform attracted more suppliers, which in turn led to distribution economies of scale—increased operational size resulted in more efficient distribution through higher warehouse and transportation utilization.
• MaxAB then introduced data analytics services, providing research and real-time information—economies of scope—to its expanded supplier base. This was further supported by economies of scale, as better utilization of technology and human capital investments reduced costs, driving greater supplier adoption. This, in turn, reinforced more economies of scope, leading to more merchants on the platform and enhanced data analytics—economies of network.
• Building on this momentum, MaxAB introduced digital payment solutions to its customer base—economies of scope—which was again reinforced by economies of network. As the customer base grew, better data led to increased supplier participation.
• MaxAB also launched a new service in 2022 enabling retailers to deliver B2C e-commerce shipments for B2C e-commerce platforms. This is an example of economies of scale of a strong efficient distribution network offering economies of scope to their customers—the retailers in this case.
• Last year MaxAB pursued African expansion—economies of scale—with plans to leverage economies of scope by introducing a wider variety of African commodities and competitive pricing to its growing customer base.

Rethinking supply chain management: Should we still follow the goods?

MaxAB’s strategic directions over the past five years highlight the need for a broader focus in supply chain management. Traditional models that center solely on product flows are increasingly insufficient. Modern supply chains demand equal emphasis on information and financial flows alongside product movement. In today’s e-commerce landscape, value creation hinges on efficiently managing information and financial transactions, not just physical goods. E-commerce managers are now focusing on reducing search costs and expanding payment options to deliver comprehensive solutions that cater to diverse customer needs and foster loyalty.

Emerging models reveal that the interplay between product, information, and financial flows is essential for understanding contemporary supply chain innovations. This shift necessitates a re-evaluation of strategies, suggesting that prioritizing information and financial flows may better reflect today’s business dynamics. New business models are being developed by decoupling these three flows, requiring a more nuanced understanding of how they interact. Prioritizing information or financial flows over product flows might offer a clearer explanation of today’s supply chain innovations and business models.

The supply chain strategic chessboard

Managers can benefit from analyzing the interactions between economies of scale, scope, and network with the flows of product, information, and finance (Figure 3). A helpful exercise that managers can go through is to cross-path the reinforcing dynamics of economies and diseconomies of scale, scope, and network, with the three flows to shed light on the competitive landscape facing companies in the present and future. This strategic approach can inform decisions on investment directions and strategic partnerships like in the case of MaxAb and Wasoko.

 

Final takeaways

Look for fragmentation across the three supply chain flows. Supply chain managers traditionally focus on product flows. However, in today’s e-commerce-driven landscape, value creation extends beyond the physical movement of goods. To stay competitive, you must recognize and address fragmentation across all three flows of the supply chain—products, information, and money. Instead of viewing the industry solely through the lens of logistics and distribution, consider what additional services you can offer related to information management and financial transactions. Online B2B platforms consider themselves foremost as technology companies, offering a wider array of services that go beyond distribution.

Consider aggregation both forward and backward. Intermediaries in e-commerce add value by reducing search costs and offering a comprehensive, one-stop solution that serves both customers and suppliers. For small retail customers, intermediaries aggregate a diverse range of product quality, quantities, pricing options, and flexible payment services. On the supplier side, intermediaries can offer valuable data analytics, insights, and real-time information that enhance the suppliers’ ability to make informed decisions, helping them optimize inventory and pricing strategies. By aggregating forward and backward, companies reduce redundancy, streamline operations, and offer competitive pricing, ultimately enhancing satisfaction and fostering loyalty.

Identify your position on the matrix and reinforce strategically. The integration of e-commerce platforms with payment and data services creates feedback loops that improve overall efficiency. Successful e-commerce businesses often progress by focusing on either scope or scale first, before expanding deliberately in both directions. For example, companies like MaxAB initially aggregated a wide range of products (scope) and quickly built scale. Timing the expansion of scope and scale is crucial for brand development. Reinforcing this growth with targeted actions—such as offering exclusive promotions or expanding payment options—can solidify customer loyalty and further grow the network. The key is to understand where you are in this process and make strategic, deliberate moves to reinforce and expand your position.

Partner for scale, scope, and network expansion. To achieve the fastest growth in both scale and scope, it is critical to form strategic partnerships. Identify networks that will not only broaden your customer and supplier base but also enhance the value proposition of your business. These partnerships should be purposefully designed to maximize growth, allowing for a rapid expansion in both the breadth of offerings (scope) and the size of the network (scale).

The merger of Wasoko and MaxAB illustrates how intermediaries can transform fragmented supply chains, driving economies of scale, scope, and network in ways that create lasting value.

By intelligently balancing aggregation and fragmentation, businesses can optimize supply chains for both efficiency and flexibility. As digital intermediaries like Maxoko continue to reshape the African e-commerce landscape, the lessons they offer extend far beyond the continent, providing a roadmap for companies seeking to navigate increasingly complex and interconnected supply chains. Embracing strategic aggregation, while remaining responsive to local needs, is a critical success factor for supply chains of the future.

About the author

Sherwat Elwan Ibrahim, Ph.D., is associate professor of operations/supply chain management at the American University in Cairo School of Business, and chair of the UN Global Compact PRME Africa.  She can be reached at [email protected].

SC
MR