The GCC region is one of the fastest-growing e-commerce markets in the world according to a report from Dubai’s CommerCity, with online sales set to treble by 2022. US-based consultancy firm AT Kearney predicts the region’s e-commerce sector will grow from $29 billion this year to $50 billion by 2025. While the sector continues to see higher adoption of online shopping among consumers, for UAE-based e-commerce enabler Opontia, which acquires e-commerce brands and helps them grow, the sector still has a long way to go.
“The e-commerce industry in the region is slightly less mature than it is in the US and Europe and Southeast Asia, but it's growing much faster,” says Philip Johnston, co-founder of Opontia. "For example, Noon only has an assortment of two million products across both UAE and KSA. Whereas Lazada, for example in Malaysia, had 15 million products at the end of 2018. So I think we're still three or four years behind many other marketplaces [and] many other markets in terms of e-commerce.”
In the past, the B2C e-commerce sector attracted the bulk of VC investment, but with increased digitisation across the Middle East and the GCC region, the startups in the e-commerce “enablement” sector have quickly gained a strong foothold and have become an attractive investment destination. Of the $182 million invested in e-commerce startups in the first half of this year, $73 million of that was directed at the e-commerce enablers according to the Wamda Research Lab.
Opontia works by acquiring e-commerce brands “that have a defensible product-fit market and make decent profit margins”. Through its proprietary channels, Opontia enables them to expand globally and thus provides them with an exit opportunity to sell their businesses.
"There are many entrepreneurs who are passionate about their products and then, with no fault of their own, they reach a ceiling of how far they can go; this is where we come in," says Johston.
These entrepreneurs typically amass a loyal customer base, build up a strong brand and enjoy a steady income. But growth for these types of businesses can stagnate due to constraints on their working capital and inexperience in growing their operations. And that is where Opontia steps in, acquiring the business and providing the founders an opportunity to participate in the growth of their brand. Opontia typically looks to acquire profitable e-commerce businesses with over $10,000 in monthly revenues and helps them scale across the Middle East, Africa and Eastern Europe.
Both Johnston and his co-founder Manfred Meyer have extensive experience in the sector. Johnston worked in e-commerce strategy, private equity and post-merger integration at consultancy firm McKinsey in Dubai while Meyer worked as the chief marketplace officer of Southeast Asia-based e-commerce giant Lazada.
Through their work, both founders took cognisance of similar business models including that of Germany’s Razor Group, the US’ Branded Group which claims to “take Amazon brands to the next level” and Thrasio, which recently raised $750 million. These companies primarily target brands that sell on marketplaces like Amazon. According to Amazon, there are 6.2 million third-party sellers on its platform, of which 1.5 million are active. So far this year, 373,000 new sellers have joined the Amazon Marketplace, hoping to get a slice of the estimated $300 billion generated by third-party sellers.
“We heard about the business model and found it successful elsewhere,” says Johston. But none of these major brands have sufficient exposure in the Middle East and North Africa, which is why the pair decided to launch Opontia in March 2021.
Just three months after launch, they managed to close a $20 million debt and equity Seed round to acquire e-commerce businesses. The round attracted investment from Global Founders Capital, Presight Capital, Raed Ventures and Kingsway Capital as well as notable angel investors including Razor Group’s CEO Tushar Ahluwalia and Jonathan Doerr, co-founder of Jumia and the former CEO of Pakistan’s Daraz.
While e-commerce has enjoyed substantial growth since the pandemic, success is not guaranteed. Over the past year alone, several e-commerce startups failed and shut down their operations including UAE-based the Modist, one of the first casualties of the pandemic and Sprii, which shut down after failing to raise investment. The sector still carries risk, brands typically require vast marketing budgets while traversing the challenges of cash on delivery and cross-border trade regulations in the Middle East. In a bid to avoid making risky investments, Opontia focuses on businesses that are already profitable.
“We're not like a VC fund, which is betting on future success, we only buy businesses that have already been successful,” says Johnston who told Wamda that Opontia is currently in the process of acquiring a couple of e-commerce platforms. The company is also planning to open offices in Istanbul and Cairo, as well as in some more cities across Africa.