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Twiga Foods: Case of wrong business model or just misplaced confidence?

Enterprise
 Twiga Foods Chief Executive Peter Njonjo. [Courtesy]

Perhaps out of public demand, and the half-truths being spewed on Twitter, Twiga Foods Chief Executive Peter Njonjo saw it fit to set the record straight.

At a press briefing in Nairobi last week, Mr Njonjo dispelled rumours that the agri-tech firm Twiga Foods is on the verge of going under amid the latest round of layoffs of more than 200 employees. It is the second layoff in just under a year amid declining purchasing power among its customers and a slowdown in venture capital funding.

According to Njonjo, the business environment has changed, and the current struggles are not unique to Twiga, with many startups feeling the pinch.

But for a firm that has raised well over Sh20 billion in funding, it begs the question: Was it overconfident about its entry into the market or did it use a wrong business model?

Twiga aggregates demand and streamlines logistics in the distribution of farm produce such as fruits and vegetables to small-scale vendors in city estates.

This helps make products more affordable and increases sales for vendors.

The firm serves about 33,000 vendors monthly with an average of seven orders per week per vendor.

Besides Nairobi, it also operates in Uasin Gishu, Embu, Meru, Kirinyaga, Machakos, Nakuru, and Kiambu counties. The e-commerce platform, which has raised a total of $157.1 million (Sh22.6 billion) in funding over 18 rounds, insists the sustained layoffs are part of plans to optimise its operations and bolster operational efficiency.

Twiga's current struggles have put into sharp focus the firm's business model, which Mr Njonjo says is not the problem.

"For the model to be viable, you will need to vertically integrate and own a critical part of the products you distribute," he said in the question and answer session. "That is why Twiga got into farming and distributing its own brands of flour, tomatoes and other products."

He said this allows the company to generate sustainable margins and scale profitability. He believes Twiga is on the path to becoming a profitable business-to-business (B2B) business globally.

Last-mile delivery

Twiga launched in 2014 as an e-commerce business to connect farmers of fresh produce with the best prices in the market. Its main product then, and even now, is bananas.

Like any other business, as it grew, it expanded to more than just fresh produce or the linkage of farmers to the best prices.

 Twiga Chief Executive Peter Njonjo (centre) at a press briefing in Nairobi on August 25, 2023. [David Gichuru, Standard]

The app sells more than just fresh produce and has lately expanded into items like diapers and cooking oil. Such items are also sold to retailers by other platforms possibly who have perfected sourcing or have the muscle for last-mile delivery. Then the firm went into farming and even ventured into the government-sponsored Galana Kulalu irrigation project in Tana River County.

Mr Njonjo says Twiga invested in the project, producing onions and tomatoes on a 2,000-acre farm for the local market.

So successful was this commercial project that they were invited to share a Privately Initiated Investment Proposal under the Public Private Partnership Act by the government on the Galana Kulalu Food Security Project.

"Galana Kulalu is geared towards maize production, which is a primary commodity that falls outside Twiga's strategy. This led to Twiga giving up its rights in the Galana Kulalu Food Security Project to Selu Ltd, who have invested and developed the concession to the State," said Mr Njonjo.

He said Twiga's focus is now on onions and tomatoes and the firm still supplies fresh fruits and vegetables sourced from small-scale farmers.

"Our bananas come from Meru, Murang'a and Tharaka Nithi counties," said Mr Njonjo, adding that their potatoes come from Nyandarua County.

"The company cannot meet the banana demand and runs out of stock in minutes."

They also source carrots and watermelons as well as seasonal fruits like oranges and avocadoes.

A hard fact to comprehend, however, is how Twiga got into the current financial mess despite raising close to Sh23 billion in the last decade.

Mr Njonjo breaks it down, explaining that the firm invested heavily in a (banana) ripening facility, which is the largest in Africa, providing market access to 6,000 farmers in the last financial year.

Twiga, he said, also invested in a distribution centre at the Tatu City Industrial Park with the capacity to handle six million kilos of goods a day.

"It can feed a significant part of Nairobi delivering to the doorstep of every kiosk," said Mr Njonjo. "We have served 75,000 customers in the last financial year, saving them a fortune in trips to the market and last-mile logistics costs."

Single harvest

The money also went to a farm in Taita Taveta County, which he said is optimised to produce 300,000kgs of onions and tomatoes in a single harvest.

There is also Some Yetu, a platform where retailers can place their orders and Soko Loan, which has lent Sh3.2 billion to over 33,000 customers since its launch.

"Our non-performing loans are among the lowest in the market on unsecured mobile lending at two per cent vs 10 per cent as a market average," said Mr Njonjo.

Mr Njonjo said when operating optimally, the firm has the potential to transform Kenya's food industry situation. During the Covid period, he said, the company's revenue grew six-fold.

Mr Njonjo noted that 50 per cent of fresh produce is wasted before it gets to the consumers' tables.

"Twiga is solving that problem through commercial farming and eliminating waste in production to as low as two per cent with sustainable margins of +30 per cent," he said.

He insisted that the company is not closing down but transforming its operations in Nairobi, Thika and Machakos for last-mile distribution.

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