Housekeeping
The Realistic Optimist team will take a 2-week publishing break, and will be back first week of September. See you soon and enjoy today's article.
Biography:
Samer Choumar is the co-founder & CEO of z.systems, a Moroccan startup transforming the country’s traditional retail ecosystem. On the Z app, FMCG brands can open their own branded stores, and Moroccan traditional retailers can order from it. Z connects with third-party distributors to take care of deliveries.
Z closed a $1.5M seed round at the end of 2024. MNF Ventures, Witamax, CashPlus Ventures and Kalys Ventures participated in the round. Other co-founders include Meriem Benabad, Youssef Haddouch and Reda Nebri.
Prior to Z, Samer worked at BCG and was co-founder & CEO of a tech-enabled hospitality startup in Saudi Arabia. He holds an MBA from Columbia Business School.
Startups digitizing traditional retail are numerous. In Africa, one thinks of Chari, Wasoko & MaxAB (which have merged),…How is Z different?
Startups digitizing traditional corner stores have raised millions in funding, from Morocco, to Saudi, to the Philippines, to Mexico. It’s clearly a compelling vision for VCs.
Many of these startups ended up becoming digital wholesalers. The only disruption they brought was enabling retailers to order products from an app, but startups handled procurement and delivery. Often, the unit economics didn’t square. The cost of receiving, fulfilling and delivering an order was higher than the razor-thin margin startups made on that order. The problem with negative unit economics is that the more you sell, the more you lose money.
We noticed this first-hand at Z. Our founder & COO, Meriem, founded Awal in April 2022, a classic ‘digitizing retailers’ play here in Morocco. Her conclusions from Awal were two-fold.
First, it is possible to achieve high digital adoption from these retailers. They are happy to order online. Second, and the more unfortunate conclusion, is that your OPEX is higher than your margin. That was despite Awal’s efforts to reduce delivery costs as much as possible. It’s a model that’s bound to break.
Meriem also realized that once you start offering over 700 SKUs, the business becomes a quagmire to manage. You need a centralized purchasing team, warehousing operations… All things that add to your OPEX and push your already negative unit economics down even further.
How is Z an evolution of those conclusions?
Z’s answer is to delegate the complexity and the OPEX to the market.
We enable large FMCG brands (think Nestle, Unilever) to open their own digital stores on the Z app. They can customize their catalogue, adapt their pricing per geographic region, connect with fulfillment partners who take on deliveries…
Z takes care of onboarding small retailers, who then order from these digital stores. This plays into our strength: Awal proved that it could get retailers to adopt a digital solution. Today, 74% of Z’s GMV comes from retailers doing autonomous orders through the app.
RO insights: turning OPEX into revenue
To make its model work, Z is offloading its OPEX. Other adjacent startups take a different route, turning what used to be OPEX into a revenue line.
In the Philippines, GrowSari took time and money to build a distribution arm, which it then monetized. Here’s how co-founder Shiv Choudhury explains:
“We took a contrarian route, focusing on excluded sari-sari stores. This is harder and requires intense supply-chain reinvention. Ultimately, this exclusive reach gives us leverage with FMCG giants. If a FMCG player knows we’re the only ones to effectively reach certain stores, we can ask for higher margins.
[...]
The same trucks that deliver our goods can also deliver other companies’ products. Think about a small drug store chain wanting to send goods to their franchisee outlet. Our truck is already going in that direction, so we can take that store’s product as well and cut their delivery price. Tranko [ED: what that service is named] is around 5-8% of our revenue and 10% of our operating margin.”
Excerpt from GrowSari: digitizing cornerstores, originally published in The Realistic Optimist
How do FMCG brands usually sell to these small, traditional retailers?