In a surprising turn of events, Globoone of the leading food delivery platforms in Ghana, has announced its decision to cease operations in Ghana.
This move, ready to take effect on 10 May 2024, has been attributed to profitability issues that have plagued the company’s performance in the Ghanaian market.
Glovo’s journey to Ghana began in 2021 with high hopes and significant investment, aiming to capitalize on the country’s growing population and internet penetration. However, despite initial optimism and expansion efforts, the company has faced challenges that have hindered its growth and sustainability in the region.
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Profitability concerns are not new to the delivery service industry, especially in emerging markets where competition is fierce and operating costs can be high.
Glovo’s departure echoes a similar move Jumia Foodwhich also closed its operations in Ghana in 2023 after its parent company decided to focus on physical stores.
Possible reasons for departure
Macroeconomic Conditions
In 2022, Glovo invested €3.5 million to help expand its operations in Ghana. Last year, the Ghanaian to Euro exchange rate was about $1 to GHC 6.9. The following year, when Glovo announced its investment, the euro’s currency soared $1 to GHC 8.9. The next year, 2023, it went up again 12.6
Essentially, Glovo’s €3.5 million investment which was approx GHC 31 million But with higher costs in 2022, operating expenses rose, depleting its investments at a rapid pace.
Inflation rates soared to decade highs 50% which increased food and other costs, putting further pressure on the company’s operating costs.
High taxes
Rising taxes due to macroeconomic conditions and Ghana’s application to the IMF program could also have contributed to Glovo’s sudden exit.
In 2021, Ghana added one 1% COVID-19 levy in all goods and services. In 2022, the Parliament of Ghana voted Electronic Contribution which initially levied a levy of 1.5%. on transferring funds between mobile money accounts. Finally, the government increased the VAT rate from 12.5% to 15%.
The country’s revenue authority has also launched an aggressive campaign to collect taxes from businesses to meet tax collection targets.
These factors could have accelerated Glovo’s exit as the cost of doing business increased, further delaying the company’s near-term profitability potential.
Impact and Outlook
Glovo reportedly had a contract about 400 businesses in Accra, providing a convenient service to deliver goods from pharmacies, restaurants, food stalls and grocery stores to customers’ doorsteps.
The company’s exit raises questions about the viability of delivery service platforms in emerging markets such as Ghana. It also opens up discussions about the strategies companies must implement to successfully navigate the complexities of such markets.
As Glovo redirects its focus to other markets, it leaves a gap in the local delivery ecosystem in Ghana, presenting both challenges and opportunities for existing and potential players in the industry.
Glovo’s departure from Ghana serves as a case study in the importance of thoroughness market analysis, adaptive business models, and responsiveness in the dynamic economic landscapes of emerging markets.
It also brings about the infrastructure debate food delivery to emerging markets. A topic that should probably be explored in another article.
As stakeholders in Ghana’s delivery sector assess the implications of Glovo’s exit, it is clear that innovation, local market understanding and sustainable business practices will be key factors in determining the success of future ventures in this sector.
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