Most food in African countries comes from under-capitalised small farmers and is sold in the informal sector. Kenyans spend over 50% of their disposable income compared to 10% spent by Americans. Twiga Foods is using digital processes to change things. Russell Southwood spoke to its CEO and co-founder Peter Njonjo about what the company has planned.
Since launch in Nairobi in 2014, Twiga has been building Kenya's only end-to-end distribution for fresh and processed food, sourcing from more than 17,000 producers and delivering 3 times a week on average to over 8,000 retailers. Twiga's digital platform and logistics network links retailers with farmers and food manufacturers, presenting a convenient and reliable alternative to the current inefficient and expensive farm/factory-to-market processes.
At the end of October, It raised US$23.75 million in a Series B equity round led by Goldman Sachs with participation from existing investors including the International Finance Corporation, TLcom Capital and Creadev. An additional $6 million in debt was raised from OPIC and Alpha Mundi.
Its CEO and Co-Founder Peter Njonjo is an accountant by profession and worked for Coca Cola for 21 years so is not your typical young African entrepreneur. But his time with Coca Cola clearly gives him extremely key logistical experience for Twiga Foods.
The idea for the company has an interesting element of happenstance:"It was a series of pivots. The business was not always well-defined. Co-founder Grant and I share a passion for country music. I was looking to do something in the restaurant business and I was raising money. We had a common consultant and we started to look at the agri-value chain for exports".
"There's a huge export market for bananas and we thought we could just put up a shed and a notice saying we're buying bananas. That's when we started to discover the problems that existed in agriculture. We pivoted to the opportunity to sell locally. We'd already spent a lot of money. The more we looked, the more we saw that there were loads of inefficiencies in the market and that led us to what you can see today".
In order to prove the proposition and to ensure it could deliver efficiencies, it has had to own a fairly high level of physical assets - like trucks - for a start-up company: "The challenge in markets in Africa is that you have to build the IP and the enabling environment. The latter is very hard for start-ups to do. We own most of our trucks and assets but now we're better known, we can lighten our balance sheet and that's the pivot we're involved in now. We want to move to be a more asset-light company".
The engagement of "blue chip" investors like Goldman Sachs and the IFC has begun to change the attitude of the banks to the company:"Banks are like blisters. They show up when all the work is done."
Its current market is Nairobi which as a fresh foods market is estimated to be worth US$2 billion annually with a further U$4-5 million in processed foods on top of that:"At present it's all very fragmented but Nairobi is very sizeable. We see the model having legs in other markets. I used to live in Lagos and the challenges are the same across all cities.
In Sub-Saharan Africa today consumers are spending 50% of their disposable income on food. That's the same amount as Americans were spending 100 years ago. Now the percentage spent on food in the USA is down to 10%:"This frees up resources to spend in other sectors. We have not benefitted from the commercial production of food".
One of the causes is fragmented, informal retail sector. 90% of food retailing in Kenya is in the informal sector and 98% 98% in Nigeria. South Africa is the exception at 60% but outside of SA, it's nearly always 80-90%:"In some markets it's about bananas but in others it's about cassava. The food basket is different but the problem is the same".
So how does Twiga improve the productivity of smallholder farmers?:"As we start formalizing the supply side, farmers can formalize production. There's no investment in growing food because the market is so fragmented. What we do creates an ecosystem of small and medium size farmers who can go to the bank and get credit based on what they sell us".
"They can use that credit for investing in irrigation systems. Some farmers are moving to irrigation and are better able to use their land despite climate change. They are getting 3-4 times the yield than they were before. They're also finding new ways of producing food. It leads to better capitalized and better skilled farmers".
The planned expansion is likely to be in Francophone West Africa. Njono is attracted by the combination of low inflation and stable currencies:"We want to be very diligent. There are 14 cities so we want to work out which ones might we go to. We want to mitigate our risk. We're working through that and building a team to get into that space. We're doing the tech stack in French and English and I have good relationships on the ground". The expansion is likely to happen in Q3/4 next year.
"The key thing for us as a company is transitioning from being a tech-enabled company to being a tech-led company. In most ecosystems what's lacking is the frictionless movement of goods. We want to do that without a huge investment in physical assets. It would have a huge impact. You can do good business and make a massive impact, generate reach and empower people".