Making B2B e-commerce work in Africa: Dropstore, a South African dropshipping success
Dropstore is an online marketplace which makes it easy for clients to find products from South African suppliers. It is based on the drop-shipping business model explained below. Dropstore has nearly 3,500 merchant clients (resellers) including MSMEs.
What is the business model behind?
Drop-shipping is a retail fulfilment method where the company (the drop-shipper) does not keep the products it sells in stock. Instead, when the company sells a product, it purchases the item from a third party - usually a wholesaler or manufacturer – which are shipped directly to the reseller who then sells on the goods to consumers. Dropstore never sees or handles the product: it is an intermediate between supplier and the reseller (the final seller does not necessarily sell online). Drop-shipping is entirely B2B. Dropstore identifies manufacturers and wholesalers in South Africa (SA) or from abroad and negotiates prices and availability of stock with them.
The best-known drop-shipping company is Oberlo, a Canadian company owned by Shopify which operates around the world. However, Oberlo has not targeted the South African market which has allowed Dropstore to flourish. Dropstore has adopted the key elements of Oberlo, which are - unlimited monthly orders which allows the reseller to process as many orders as possible; automated product pricing so that the reseller can set its percentage product price markup; inventory updates which keep the inventory of the retailers synced with their suppliers; product statistics which gives the reseller a view on the popularity of products; import list which permits resellers to add products to their lists and edit, and an orders fulfilment monitoring which monitors orders fulfilled and updates orders automatically if required.
In order for SME suppliers to participate, they must be in possession of a stock of finished goods and must be based in South Africa, although Dropstore is currently expanding its supplier base outside the country, so long as purchases are in Rand. Suppliers must submit their proof of business registration/owner ID, proof of banking details, and proof of address. Suppliers are required to give a discount of a minimum of 20 percent off their normal retail prices if they are a retailing supplier. They are required to be able to ship anything from bulk to single sale items directly to the resellers, hence they must have a courier shipping account.
Resellers must have an online presence to place orders. This online presence has to be based on either Shopify or a WooCommerce Store. Other online systems are not (yet) supported by Dropstore. Dropstore provides IT advice and support to its resellers. As the reseller pays up front for the goods, no registration process is required. Dropstore offers four tiers for its resellers – they can buy up to 25 items in tier 1 (99-399 rand per month), up to 200 items in tier 2 (400-799 rand per month); up to 500 items in tier 3 (800 – 1,999 rand per month) or an unlimited number of products when paying over 1,999 rand per month.
The company does not concentrate on any specific goods sectors and covers stocks of all types of finished goods.
Any foreign suppliers with which Dropstore does business are required to deal with the customs procedures. Dropstore is therefore only involved in the internal South African Value Added tax between the supplier and the company, and the company and its clients. Overall, the vast majority of suppliers reside within South Africa.
Although Dropstore clearly has potential competition from abroad, at the moment it is serving a niche market for drop-shipping in South Africa, knows the market well and believes that it can continue to build the business.
What is its value proposition?
The key value proposition offered by Dropstore is helping to remove barriers to entry to access suppliers for startup businesses and help them to develop their online sales. Other add-ons the company proposes are below:
- The company also assists its resellers by providing web design, IT support, marketing and advice on delivery services.
- Dropstore is primarily focused on SMEs in the townships and rural areas. Its customers include some ‘Stokvels’ (invitation only clubs of twelve or more people serving as rotating credit unions or saving schemes in SA where members contribute fixed sums of money to a central fund on a weekly, fortnightly or monthly basis).
- The company has created a ‘Dropstore community’ which provides an active forum where etailers can exchange ideas and discuss concerns from a similar local perspective where they share the same economy and are faced with similar challenges.
- Because there is no inventory, there is no prepurchase of the items for sale. So long as the suppliers stock an item, Dropstore only has to choose what goods to offer and can alter these depending on the season. Dropstore markets its services to the final seller and ensures that the goods it has aggregated arrive safely with the final merchant.
- On another noteThe SME suppliers do not have to worry about marketing and promotion of their products and still reap decent profits. Some businesses have seen a major growth in sales since engaging with the Dropstore marketplace channel. Suppliers can get to resellers more easily and conveniently, and resellers can cheaply and easily source products from suppliers without the extra expense of warehousing, or raising capital for stock, or worrying about packing and shipping goods as everything is automated. They can work with multiple wholesaler suppliers at once.
Dropstore's online blog
What are the key considerations for future growth?
Dropstore sees expansion into other African countries as its future. For the time being though, Dropstore’s current strategy is to focus on South Africa since the company believes that the local market offers high potential for e-commerce.
Despite the company’s success, there are important challenges that constrain the overall operations, primarily in terms of transportation infrastructure and payments.
- First, the lack of addresses in townships and rural areas cause problems for Dropstore to ensure that its clients (the final seller) receive the goods safely. The South African postal (zip) code is only four digits, and street signs are often lacking. This makes it difficult for the delivery company, causes delays or return of shipments, and creates unnecessary extra costs.
- The second problem is cost. Delivery costs in South Africa are relatively high. Competition is slowly appearing with a wider choice of delivery companies. Despite the wide presence of the national postal operator (the SA Post Office, SAPO) throughout the country, and its position as the ecommerce hub for the SADC countries, SAPO still does not offer tracking and tracing except for the highest parcel rates, and has the reputation for being inefficient and for losing or breaking goods. There are reasons for believing that SAPO could act as a positive agent in the development of SA’s ecommerce, but this will take a coordinated policy effort.
- South African FICA and FIAS regulations provide a safeguard to buyers and sellers by ensuring that the identification and whereabouts of companies are available on record should any recourse become necessary.
- Payment systems and currency issues - Dropstore started with a partnership with Shopping Feeder, which provides a software solution for payments. This system was not a success and Dropstore is now developing its own software. Dropstore is also opening up to non-South African based suppliers from Nigeria, Kenya and Uganda, but only if goods are offered in Rand. Previously cross-border payments have been severely limited by the reluctance of PayPal to offer its services to African businesses. Dropstore believes that local payment solution provider Peach Payments may offer a solution to this problem.
Stay tuned! We have more case studies coming about B2B e-commerce businesses in Africa coming on ecomConnect in the coming weeks!