There is always a sense of pride, excitement and relief when a startup in the Middle East exits for a high valuation; pride for the hardworking entrepreneurs looking to make a difference, excitement for the impact it will have on the wider ecosystem and relief for advocates of entrepreneurship whose voices and efforts are validated with such deals.

The latest startup to stir such excitement is UAE-based InstaShop, which was acquired by Germany’s Delivery Hero last week in a deal worth $360 million, making it one of the largest exits in the region to date.  

Significant exits are typically valued at $100 million and above. In the past decade since Yahoo’s acquisition of Maktoob for $164 million in 2009 we have seen a handful, notably Dubizzle (acquired by Naspers for $400 million), Talabat (acquired by Rocket Internet for $170 million), Souq (acquired by Amazon for $680 million) and of course Careem, which was acquired by Uber for a staggering $3.1 billion last year.

There were high expectations for more exits this year and more unicorns to emerge, but the pandemic has brought economies to a standstill. Uncertainty remains and to see a success story like this amid the decimation caused by the coronavirus, sends a heartening message to other entrepreneurs and the wider business community that success, even in troubling times is still possible.

Foreign investment validates the regional ecosystem as a place worthy of investment, it highlights the Middle East as a place capable of nurturing talent, embracing technology and whose startups can compete, scale and create value.  This exit, like others before it, will have a ripple effect on the ecosystem, likely to encourage more to embrace entrepreneurship and in InstaShop’s case specifically, it highlights the growing potential of the e-grocery segment in the region.

E-GROCERY BOOM

Delivery Hero has been keen on expanding its presence in the Middle East and North Africa (Mena). Prior to its foray into the Asian market, Mena accounted for more than half of its revenues. Its brands in the Middle East, which includes Talabat (Egypt’s Otlob has now been rebranded under Talabat), Carriage, Hungerstation, Yemeksepeti in Turkey, comprised 34 per cent of its revenues in the first half of this year. Delivery Hero’s Mena revenues increased by almost 20 per cent to EUR368.1 million in H1 2020, compared to EUR308.2million in the same period in 2019. Orders also grew by 11.8 per cent, driven by the expansion of its own delivery services. The region is clearly of great importance to the German company and its acquisition of InstaShop, which was founded in 2015 in Dubai and operates across the UAE, Qatar, Bahrain, Egypt and Lebanon, gives an indication of where it expects future growth lies.

Last year, the e-grocery segment accounted for about 1 per cent of all e-commerce in Mena. While e-grocery startups had emerged in the major cities, basket sizes were still small, ordering was infrequent and trust was low. People preferred to see and touch their groceries before buying them.

With lockdown restrictions during the height of the coronavirus, consumers had little option than to order their groceries online. People also began to cook more and make use of the extra time at home while attempting to spend less. E-grocery therefore became the biggest beneficiary in the e-commerce sector and the startups were able to amass customers when giants like Carrefour struggled to deliver goods on time. 

Data from RedSeer suggests that by the end of March 2020, e-grocery order volumes in Mena had risen by 300 per cent when compared to February. In the UAE and Saudi Arabia alone, e-grocery accounted for 6 per cent of the $7.5 billion online retail market ($450,000,000) pre-lockdown, by the end of March, the e-commerce market had grown to $11 billion and e-grocery accounted for 27 per cent of that at almost $3 billion in those two countries alone. Maintaining these newly-converted customers in the long run has now become a priority as lockdown measures are lifted.

“People shifted to online purchasing because of indicators from the World Health Organisation to try to stay at home. I think a big amount of these new users who are trying e-grocery will stick to the convenience of it moving on,” Cosmin Manea, founding partner and general manager of InstaShop told Wamda in April. 

At the time of the lockdown, InstaShop recorded a spike of 70 per cent in app downloads. The company’s daily rate of orders increased by 53 per cent while the average basket value saw a 71 per cent increase. In its latest statement the company claimed to have generated “approximately $300 million gross merchandise volume (GMV) on a Q2 2020 annualised basis, up circa 330 per cent year-on-year, and a positive EBITDA margin”.

For InstaShop, this is the beginning of a new chapter, it will continue to operate as an independent brand seeking to expand and launch into new markets. For Delivery Hero, it is further entrenching its dominance in the Mena foodtech space and this acquisition is an indication that it will likely cast its expansion net wider across the sector. Earlier this year it acquired Germany-based cloud kitchens company Honest Food and it already owns a majority stake in Dubai-based Sweetheart Kitchens and so its next focus will likely be the cloud kitchen sector in Mena, which has seen rapid growth over the course of this past year.