Nigerian consumers, who are among the poorest in the world, are miserable as they are increasingly forced to pay more for food, travel or comfort in their homes due to rising food prices. food, fuel prices and poor electricity supply.
Just last week, inflation in Nigeria Pink to 18.6% in June 2022, according to the Consumer Price Index (CPI) from the National Bureau of Statistics (NBS). This inflation, the highest since 2017, is fueled by the high cost of diesel and gasoline, rising food prices and the Russian-Ukrainian war which has pushed up the prices of imported foodstuffs such as wheat. But it’s not just consumers who are crumbling under the weight of the high cost of living, the businesses that serve them are also struggling to stay afloat during this period.
In the middle of it all is an Abeokuta-based online food delivery startup, To eat. EatUp, which started operations in 2020, serves students and working millennials and the fast-growing middle class in Ogun State, South West Nigeria, who are looking to lead a practice outside Lagos, the center of economic activities in the country.
Speaking to TechCabal, co-founder and CEO of EatUp, Abiodun Biobakusaid EatUp was founded with the goal of providing the city’s rising middle class with easy access to quality food and helping restaurants circumvent the physical restraints that limit the number of on-site consumers that they can accommodate.
EatUp partners with restaurants to enable it to deliver food to its consumers from their favorite restaurants in the shortest possible time, and in beautiful packaging. “We claim to deliver happiness in new boxes, and that’s what we’ve done so far,” Biobaku said.
But that has been increasingly difficult to achieve, Biobaku told TechCabal, as inflation has forced the startup to increase its day-to-day operating costs without corresponding growth in profits. “We’ve seen inflation rise 14% to its current position right now, and believe me, that’s taken a toll on our day-to-day operating costs. We manage day-to-day operating costs, and over the past 30 months we’ve seen them increase by an average of 20%,” the CEO told TechCabal.
Rising costs eat away at revenue
Biobaku said that as an online food delivery company, it always has to be online to receive delivery from its website and different social media channels and websites, and even that is no longer easy. as its ISP partners have also increased their prices to withstand the devastating inflation.
Biobaku explained that rising inflation is hurting EatUp’s revenue, primarily because partner restaurants are cutting their food rations in order to increase their own profit margin, forcing customers to find cheaper alternatives. “We used to have regular customers or users who ate at least 3 times a day for breakfast, lunch and dinner, but now we have seen a reduction in the frequency of orders”, a- he declared.
It also costs EatUp more to buy bikes for its riders, pay for data, packaging and branding, and get fuel for its riders, all essential parts of its food delivery operations.
While coping with this, he also witnessed a drop in the number of orders placed by each of his customers. “We currently boast an 80% return rate for our over 16,000 customers, but the frequency with which they buy is reduced. At each point where there is an increase in inflation rates, the purchasing power of each user decreases.
As EatUp seeks funding, they are wary of the value of the amount they are seeking as equipment prices and its burn rate are constantly increasing, so they will need to be “creative” to reduce operating costs, said Biobaku.
The daily running costs of EatUp’s office have skyrocketed. It spends more on fuel to provide constant power to its customer experience team who must stay online to receive orders and monitor delivery to customers.
Earlier in March, the Nigerian power grid collapsed twice, depriving thousands of businesses of electricity. At the same time, businesses have had to scramble to source gasoline due to fuel shortageand when they did, it was at a higher price.
EatUp is one of thousands of businesses nationwide whose operating costs have skyrocketed in recent months due to fuel hikes and poor power.
Working class Nigerians in various cities have had to scramble to find petrol for their cars before they can get to work. For those who do not have a car and depend on public transport, a 100% increase in transportation costs means they have to shell out more money from their wages to get to work. EatUp employees were not spared, and Biobaku said many started arriving late to the office while spending more money to get to the office. This, coupled with the rising cost of goods and services at the time, made their net income much lower, and Biobaku noted that this decrease in welfare affected the startup’s productivity. At the same time, the startup’s delivery drivers have complained about increased fuel costs.
In a bid to survive devastating inflation and rising fuel prices that month, the food delivery startup had to mark up its delivery charges by 20%, from ₦500 to ₦600. The startup has also partnered with fuel suppliers to buy fuel at a discount and distribute it to its fleet of 15 bikes. But it was only a palliative.
“In March, we were well over our spending budget for the month and this has never happened to us in the 30 months of running this business,” Biobaku lamented.
“Our solution to creating accessible food for our consumers is under threat,” Biobaku said.
After speaking with its riders who were clamoring for the startup to take action in light of the latest fuel hike and rising cost of spare parts, the startup decided to raise its delivery charges again, this time by $8. .33% to ₦650. “This is the reality of all Nigerian businesses. You can’t have a stable price rate for so long,” Biobaku said.
To boost its chances of survival, the startup turned to rigorous cost-cutting and the development of new lucrative avenues. He has cut costs by buying spare parts directly from manufacturers to bypass cost-raising middlemen and by running strict office hours that see him open his office only when in use and turn off the lights immediately. His lucrative new business involves creating paid advertisements for restaurant partners and initiating the collection of service fees from them.
But Biobaku doesn’t think his startup is out of the woods yet; he thinks he must be prepared for the economic difficulties that continue to plague the country. “One of the challenges we are currently facing is that we will be producing new products in the near future. We need to consider imbalances in the economy as these unforeseen circumstances threaten to kill products before we even introduce them.