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    How Egyptian Online Grocery Startup Breadfast Doubled Its Revenue and Turned Profitable Despite Currency Depreciation

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    Egypt has devalued its currency four times since 2022, but one startup seems to have found a way to beat this turmoil in the country’s economic landscape: Breadfast, the Y Combinator-backed fresh bread and grocery delivery platform. The company, which operates a fully vertically integrated supply chain delivering more than 5,000 stock-keeping units (SKUs) on-demand in under 60 minutes across Egypt, doubled its revenue in USD terms in the 2023 fiscal year compared to the previous year, despite a devalued local currency, as disclosed in a 2023 annual report by one of Breadfast’s investors, VNG Global.

    Breadfast, whose last publicly disclosed funding round was the $26 million Series A round concluded in November 2021, with major investors such as Vostok New Ventures and Endure Capital participating, has also raised additional capital last year through an undisclosed extension of its series B round.

    By December 2023, the company had 28 fulfillment points in four cities in Egypt, and all but one are profitable. The company delivers 500k orders a month to approximately 150k active users. One of Breadfast’s investors, VNG Global, values its 9.0% investment in Breadfast at USD 23.1 million, based on a forward-looking EV/Revenue model as of December 31, 2023.

    Breadfast’s selection includes a range of freshly baked bread, fruits, vegetables, eggs, dairy, meat, and poultry, alongside a range of CPG staples designed to serve a household’s daily and weekly grocery needs.

    A graduate of medical engineering, former staff at Vodafone Egypt, and formerly a co-founder of Egyptian Streets, founder Mustafa Amin established Breadfast in 2017 alongside his colleagues Abdullah Nofal and Mohamed Habib.

    Breadfast orders are usually delivered after submitting the delivery request, and the company’s customers benefit from its services through an application that allows products to be delivered every day in the governorates of Cairo, Giza, Mansoura, and Alexandria.

    In preparing baked goods, BreadFast relies on its own factory that supplies it with its daily products, through which vegetable and fruit products are packed, in addition to meat and poultry products.

    Below are a few reasons why Breadfast may have surpassed expectations to deliver returns to investors:

    A Committed Team

    After founder Mustafa Amin failed four times, one of the most reasonable things to do was to review his previous founding teams. And this is where some of the problems from his previous startups emanated from. Consequently, Amin highlights the importance of building a committed team. He emphasizes the need for a team that shares the vision and is committed to its growth. Amin cautions against rushing to assemble a top-tier team solely to impress investors, stressing the importance of gradually building a strong foundation and relying on bootstrapping in the initial stages.

    “People who have never built companies before, when it comes to teams — because liquidity is there — they start with a Ferrari team,” Amin tells Mikal Khoso of Emergent magazine.

    “You cannot start with the Ferrari team from day one. Believe me, you have to believe in your vision first and see it growing day after day before you onboard the Ferrari team. The Ferrari team has to come at the right time. If you’re starting with the Ferrari team to impress investors, the founding team should be the foundation of the Ferrari team. But they shouldn’t be the smartest guys who are going to lead the company’s future… I see lots of great founders today when they start the company, they only focus on having the best teams in town. I don’t think this is the right approach. What will make the company sustainable and scalable is seeing your vision growing day after day and bootstrapping at the beginning.,” he adds.

    Previously co-founders at their startup MarginUX, co-founders Abdallah Nofal and Muhammad S. Habib left the startup to co-found Breadfast with Amin in 2017. Amin describes Muhammad as the first customer experience agent in the company and Abdullah as the first coder in the company.

    A Business Model and Monetization Strategy That Worked

    For Amin, rather than simply acting as a middleman connecting consumers with nearby bakeries, the company opted to bake its bread, pioneering what Amin calls a “B2C native supply chain” approach. This decision required the founders to immerse themselves in the operations, with Amin himself taking on the role of the first driver.

    “The first thought for the business model was — ‘hey guys, we’re going to build Uber for Bread.’ There are lots of bakery shops around us in Cairo and it’s very easy to build the stack just to be able to connect the consumers to the nearest bakery shop, and then we can handle the logistics,” Amin recalls. “But I stopped and said ‘no, we are not going to build Uber for bread. We are going to bake the bread ourselves.’ ‘Guys, rule number one in emerging markets: reliability does not exist.’ We had to go and start it from scratch. Believe it or not, but globally, Breadfast is one of the first companies in the world to start what’s called B2C native supply chain. The first six months with the company we had to learn how to bake. We were only three crazy guys trying to learn how to bake bread.”

    Amin admits this approach of ‘bread baking’ didn’t sit right with investors at first due to the asset-heavy nature of the business, but he insists that owning the supply chain is essential for long-term sustainability in the grocery category.

    “I remember when I was pitching investors at the beginning, once they heard we were baking our bread, they were like ‘what, what do you mean you’re baking your bread?’ I was like yes, we are baking our bread. ‘You mean you have equipment, is it an asset-heavy business?’ I would say Yes. Then they would say ‘Oh, I’m so sorry. We cannot invest. We only invest in asset-light models.’ Today, we feel so proud that Breadfast was one of the initiators of this trend. We believed that for a category like the grocery category, it will never be sustainable if you’re doing it in a marketplace model. It should be following the e-commerce playbook, not a marketplace. You need to own the supply chain; it should be an end-to-end supply chain game. Why was that? Because the margins are very, very thin,” he says.

    Today, the four-person bread-baking team (thanks to the additional colleague who taught them how to bake bread) employs close to a thousand staff.

    Added to its killer business model, Breadfast also employs competitive pricing mechanisms to remain competitive, including retaining an in-house pricing analyst to revise pricing decisions if necessary.

    Emphasis on Quality Customer Experience

    Amin underscores the importance of investing in customer experience to sustain the model, citing Breadfast’s high customer retention rate (more than 80%) as evidence of its success in this aspect.

    “The only way to sustain such a model is to build a good customer experience and to invest a lot in the brand you’re building. Because it’s going to be a relationship between you and the household. You need to focus on the frequency per month, on the retention, and on the quality of the customer experience you’re building,’’ Amin says.

    By prioritizing customer satisfaction and brand building, the company aims to foster lasting relationships with households.

    Less Focus on ‘Too Much’ Fundraising

    Although Amin attributed his fate at the hands of investors to luck, he is not denying that the difficulty he faced raising funds could have contributed to Breadfast’s success. Amin emphasizes a period of bootstrapping and unique learning experiences for a startup’s team. He argues that this approach has enabled the company to raise substantial funds while maintaining a prudent approach to spending, contrasting with other companies that may misallocate resources.

    “That’s why these companies (bootstrapped companies) today are able to raise lots of money. But, at the same time, they know how to spend this money. Some other companies raise lots of money and they spend it the wrong way. I see this as more of an investor decision, not only a company decision. Because if the investor decides to inject all this money and they are not sure if this team is the right team to execute and to scale the company using this funding, I think this is also a responsibility coming from the investor side. It’s not only the company side,’’ he notes.

    Hyper-localization

    To Amin, the Breadfast brand is now ingrained in the fabric of his regular Egyptian customers, thanks to a hyper-localization strategy employed by Breadfast that has worked. He recognizes the complexities of scaling a grocery dark store business in diverse markets and emphasizes the need to adapt operations to local tastes and consumer behavior, citing the company’s expansion plans in Egypt as a carefully considered endeavor built on years of learning and operational optimization.

    “The good and the challenging thing about being a grocery dark store player: this game is a very, very hyper-local game. You’re not scaling a SAAS company. You’re scaling a very, very tricky part of the daily consumption by billions of people in the world, right? Scaling Breadfast in Cairo and Giza is totally different from scaling Breadfast in Alexandria, Mansoura, or any of the cities that you were just talking about,’’ Amin says.

    “This is the nature of how to scale a company, [and more particularly, how to scale a grocery dark store]. You need to always adapt your operations to the local taste, the local sense, and the local consumer behavior. At Breadfast, we consider all of this. We don’t think scaling very fast is necessarily a good thing… You really need to understand lots and lots and lots of data points before you decide on where to expand and where not to expand. At Breadfast, we’re expanding to eight cities next year, and we are about to start doing this after four and a half years of learning. We’re just trying to learn to crack the operational model of Breadfast before we decide to scale to other cities within the same country,” he adds.

    Hence to Amin, every single market has its own learnings.

    A Business Model Built on Fast Delivery and Highly Diversified Product Portfolio

    Amin touches upon the company’s focus on faster delivery and diversification of product categories to meet varying consumer needs. With most deliveries completed in under 20 minutes and the introduction of on-demand services, Breadfast aims to provide convenience and flexibility to its customers.

    “We believe that as a household, some items need to be delivered very quickly. I mean, if you’re in the kitchen and you need a cucumber to make a salad. Of course, you need the ingredients now, right? But if you want a coffee machine, you’re not in a rush to have the coffee machine right now. It can be delivered tomorrow, the day after tomorrow, next week, or in two weeks — there’s no rush. When we started Breadfast, we began with a model called Breadfast Tomorrow. We were delivering bread at 5:00 AM in the morning. We’re the only company that’s delivering fresh bread at 5:00 AM in the morning in the world. Today we have Breadfast Now, our on-demand arm,” he says.

    In recognition of his achievements, Mustafa Amin was recently listed among the most prominent technology leaders and investors from outside Silicon Valley by RoW100 Global Tech magazine. This acknowledgment further solidifies Breadfast’s position as a notable player in the global tech landscape.

    Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert. As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard.

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