Pakistan-born Kanwal Sarfraz, who got her postgraduate education from Cambridge, says she didn’t need much convincing to join Rocket
E-commerce battles in the Middle East, like in other parts of the world, are heating up significantly. Rocket Internet-backed Wadi raised $67 million in February with its chief rival Souq announcing a mammoth $200 million round just a few weeks after. The majority of the region, in particular the wealthier Gulf states, has a fairly stable political climate, lots of consumers with significant disposable cash, and none of the logistical challenges that burden places like India and Southeast Asia.
All in all it’s a market ready to be seized.
Leading the charge for Rocket Internet is Kanwal Sarfraz, co-founder of Wadi. In true Rocket Internet style, she’s a former management consultant. She worked with McKinsey in Dubai before taking up the new role.
Pakistan-born Kanwal, who got her postgraduate education from Cambridge, says she didn’t need much convincing to join Rocket.
“There’s a real opportunity, but it relies on execution,” she says of the Middle East.
Rocket seems to be avoiding its usual spray-and-pray approach.
“It’s up to us to ensure that we deliver, which makes it more of a personal challenge. Plus, you don’t get a lot of opportunities to build a company at scale and I really like the fact that we can potentially touch millions of lives.”
Wadi, which is similar to Rocket’s Lazada store for Southeast Asia, launched in March 2015 and already offers an assortment of over 150,000 products. It’s open to shoppers in Saudi Arabia and the UAE, and expects to unlock more markets in the near future.
Finding new customers
Kanwa takes pains to elaborate how the e-commerce startup has tried to remain extremely lean in an effort to draw out a roadmap to profitability from day one.
“The truth is in some ways we have had a lot of learning from other [Rocket Internet] ventures. We have taken measures to ensure costs do not get out of hand and are happy to base resources in other parts of the world if quality is not affected,” she explains.
Kanwal says Wadi employs a small team out of Egypt to assist with things like content and translation. Her focus on restricting costs means Rocket is likely avoiding its characteristic spray-and-pray approach, where it enters a market and bombards it with advertisements to bring in more and more customers, regardless of price.
“It’s not just about acquiring customers, we want to make sure they come back. If they don’t, we won’t become profitable.”
Kanwal takes care of strategy, cross-functional projects, and support functions like HR, finance, business intelligence, and investor relations. She says that the recent round of investment has only “increased the pressure on the team,” but believes investors are in line with projections and the effort to remain nimble and hungry.
Oil thins out
The colossal funding rounds for both Wadi and Souq are impressive, but they’re the first real signs of investor confidence in Arab markets. The relatively lower focus on the digital economy is partly due to the region’s historical dependence on oil and associated industries. However, as oil prices remain low, policymakers are waking up to the fact that they’ll need to diversify their economies if they wish to keep growing.
The UAE – and Dubai in particular – is well-positioned to spearhead this change. Long known as an oasis of stability in a tumultuous region, its economy is primarily service-oriented and hardly dependent on oil revenues.
Kanwal says there are a lot of factors that indicate tech companies have a rosy future ahead.
“The average spend per consumer is higher” – compared to India and Southeast Asia, she means – “and that translates into a relatively higher basket size. If you look around [the Middle East], the offline build up isn’t that high. There aren’t many alternatives to flashy malls so consumers are willing to spend on alternative channels. There’s a lot of opportunity.”
She shrugs off the possibility of a price war between Wadi and Souq.
She says Wadi has been growing by double-digits every month since inception, but refrains from discussing specific figures. Her estimate for the e-commerce market in the UAE is that people will be spending approximately US$40 billion per year by the end of the decade.
But there are challenges too. Despite impeccable infrastructure and logistics, Kanwal explains it’s almost impossible to deliver goods directly to customer homes. Everything is sent to a P.O. box address instead. Furthermore, the vendors on Wadi need to be trained to help them address the unique challenges of e-commerce. Historically they’ve only shipped bulk orders to offline retailers, and while they’re eager to add new revenue channels, they lack the nimbleness displayed by e-commerce merchants across Asia.
That’s partly the reason Wadi still functions as a sort of “managed marketplace.” Until vendors are up to speed with updating inventory levels, pricing, and fulfillment, Kanwal’s team will continue to work with them very closely so that the customer experience is not affected. The goal is to transition to an open marketplace where anyone can buy and sell goods on the site.
Long road ahead
Kanwal shrugs off the possibility of a price war between Wadi and Souq given the fact that both are very well-funded. She says such a scenario will ultimately hurt both companies as margins remain wafer-thin and neither venture would want to keep sustaining a loss.
“Contrary to what people think, Souq and Wadi aren’t arch-rivals, in my opinion. There’s plenty of room for both to keep growing. Souq’s funding round is certainly a validation of the market, and I hope we aren’t dragged into a price war,” she adds.
That means we might not see the ferocious competition that we’ve become accustomed to in markets like India, where Amazon battles an array of homegrown e-commerce titans. The subtle hint here is that consumers in the Middle East aren’t as price conscious as in many other countries, willing to pay a slight premium for an impeccable experience and assured product quality.
Kanwal says that almost half of the store’s revenue comes from mobile, with consumers most interested in electronics, perfumes, and watches.
“If our performance goes according to predictions then a few months down the lane we would be able to gain more interest from investors,” she adds.
This post was originally published on Tech in Asia.