Case study: Agri Investor takes a look at Toters, a Lebanese last mile delivery start-up that has grown to have its own grocery dark stores and is now adding financial services. The IFC is among a host of notable backers.
The struggles of the food delivery industry following the pandemic-fuelled rush to convenience services is an extraordinary tale of boom and bust – one that played out in a dizzyingly short space of time.
The ‘e-grocery’ category, which comprises online stores and the last-mile delivery start-ups that sprung up to deliver their products, raised $5.1 billion in 2020, according to AgFunder data.
In 2021 – the year of SPACs, silly money chasing silly deals and the last year of cheap bank credit – the segment raised an eyebrow-raising $19 billion, as agtech as a whole raised an incredible $53 billion, up from $27.7 billion in 2020.
The about face of 2022 was just as staggering, as agtech fundraising almost halved to close the year at $30 billion, while egrocery fundraising dropped 73 percent to come crashing back down to earth at $5.1 billion – the same figure raised in 2020.
Within these numbers are the stories of companies such as Buyk, Bother, Fridge No More and Zero Grocery, all of which have collapsed. Meanwhile, others such as Fancy, Dija, Postmates, Grubhub and numerous others have been acquired by larger and more mature incumbents such as Uber, Gopuff and DoorDash.
As this bruising story has played out, the phenomenon of the ‘super app’ has continued to take hold in the Middle East, Africa and Asia, where the likes of Alibaba, WeChat and many others have bolted on various services to their core offering to act as an online one-stop-shop for ecommerce, transport, groceries, financial services, communication services, and much more.
One such start-up is Lebanon’s Toters, which was founded in 2017 as an on-demand delivery service for Starbucks and Pinkberry drinks.
The company then partnered with numerous restaurants, which then led to fulfilment partnerships with grocery providers as it layered up its service offering.
“As the aggregation became bigger and the value proposition got better, our mission slowly became about making it easy for customers to get anything – we went from hustling to get them Starbucks to making it easy for them to get anything they wanted or needed,” Toters cofounder and CEO Tamim Khalfa tells Agri Investor.
One of the first things to acknowledge about Toters is the unique geographies in which it operates. Lebanon, the start-up’s home market and its headquarters, is in the grip of a financial crisis that has been running since 2019.
The crisis has led to the collapse of the Lebanese pound and the nation’s financial system, as government debt as a percentage of GDP rose to 350 percent in 2022. The situation has made card transactions almost non-existent, meaning the country is now a cash-based economy in which US dollars continue to be legal tender.
Things aren’t much more straight forward in the start-up’s second market, Iraq. Following the US-led invasion in 2003, the nation’s financial system has limped towards re-establishing itself but its population remains largely unbanked, is also cash-based and is struggling to wean itself off US dollars for everyday goods.
Though incredibly challenging, these unique circumstances also present opportunities that Toters has been able to use to its advantage, such as a massively underserved consumer market, cheap labour for its courier fleet and the lack of established multinational corporations.
A big part of giving customers access to the wide range of goods and services Toters now offers has been the 4,000-plus partnerships the start-up has signed with local restaurants, grocery stores, electronics providers, pharmacies and drycleaners, among numerous other goods and service providers.
“In both countries, ‘organized retail’ is still in its infancy and is not dominated by a few tier one players – the bulk of the retail market is still a very heterogeneous landscape”
Dominique Locher, Toters angel investor
The start-up launched Toters Fresh at the end of 2019, which is its dark grocery store operation that houses its own inventory and offers 15-minute delivery. The venture was borne out of customer dissatisfaction with some third-party grocery providers on the app, some of which would not periodically update their inventory, which could lead to a “suboptimal” customer experience, says Khalfa.
“On many of the orders we deliver, we get the higher margins from the inventory that we buy ourselves. The extra savings that we pass on to customers is definitely a value proposition that makes customers want to shop from us but it’s not just the savings, it’s also very convenient.”
“People are not just replacing a corner shop visit with us – some of them are replacing their main supermarket trip by buying from us because we also offer fresh produce and meat.”
Dominique Locher, a Swiss angel investor and food technology entrepreneur who has been invested in Toters since 2020 and has specialized in online grocery businesses since 1998, says the fragmented nature of the Lebanese and Iraqi grocery markets play into the hands of Toters Fresh.
“In both countries, ‘organized retail’ is still in its infancy and is not dominated by a few tier one players – the bulk of the retail market is still a very heterogeneous landscape,” says Locher.
“You have thousands of mom-and-pop stores and it’s a similar retail landscape to what we experienced in Europe in the 1980s. I thought it was an amazing opportunity for an online player to basically overcome one stage of development by just moving from mom-and-pop stores and boom, straight to home delivery.”
The IFC’s ‘seal of quality’
The start-up raised an $18 million Series B round in June 2022, which was led by the IFC and became its first venture capital investment in Lebanon and Iraq.
Locher describes the IFC’s backing as a “seal of quality and a seal of trust because they’re super strict and extremely selective in their investment approaches.” The round was also backed by BY Venture Partners, Endeavor Catalyst and Merit Ventures, among others.
Part of the rationale for the IFC’s backing is its desire to support the growth of an emerging market SME that helps “unlock the digital economy in both Lebanon and Iraq,” as well as its recognition that “tech-enabled ventures have the power to unlock new pathways for resilient, sustainable economic growth,” said Hela Cheikhrouhou, the IFC’s regional vice president for the Middle East, Central Asia, Turkey, Afghanistan and Pakistan.
“When we have the right regulatory approvals, we will take that further and allow people to transfer funds to each other, pull out money, and potentially use it to pay outside the app.”
Tamim Khalfa, Toters co-founder and CEO
In the case of two cash-based economies such as Lebanon and Iraq, adding a basic financial service such as a digital account into which customers can deposit their cash can be a gamechanger, especially if that platform has already proven itself to be safe and reliable for online transactions.
This is the next prong of Toters’ offering, which has partially launched such a service and is awaiting regulatory approvals to fully roll it out.
“What we’re doing is trying to remove friction from payments so customers can add a bit of cash to their cash payment [which is deposited for them by couriers] for them to use on their next purchase,” says Khalfa.
“When we have the right regulatory approvals, we will take that further and allow people to transfer funds to each other, pull out money, and potentially use it to pay outside the app. So its creating less friction in their lives and removing the need to hold or carry a pile of cash everywhere they go.”
Given customers are able to pay in cash using both US dollars and Lebanese pounds, the latter’s collapse means couriers must routinely deposit cash payments throughout the day both from a practical and risk management perspective – $1 is currently worth 15,000 Lebanese pounds, or 1,300 Iraqi dinars.
Staying in the black
Khalfa says the business is “already there” in response to Agri Investor’s question as to when it hopes to reach profitability, adding that the focus is now on staying in the black.
“The focus now is how do we balance between the need to prove that this is a profitable business and that need to grow our existing markets without leaving growth on the table?” says Khalfa.
He declines to share any numbers around liabilities or annual revenue, but the CEO does confirm that Toters bills “hundreds of millions of US dollars per year.” He adds, “We can use the word billion if we put it in a fraction – it’s a big business now.”
The start-up has grown to have more than 700 employees, more than 80 of whom are software engineers, and has more than 500,000 active customers across Lebanon and Iraq.
Despite the addition of numerous services and goods providers, food and groceries continue to represent the majority of its transactions, confirms Khalfa.
Says Locher: “What I thought was interesting [before investing in the business] is how these two different types of food delivery, prepared meals and groceries, are complementary. They jointly increase the ‘share of plate’ you take with the same customer.
“Because restaurant food is mainly consumed in the evening, maybe a little bit over lunch, but you have the entire fleet of couriers that are idle during the day and can be used for grocery delivery. I really liked that,” says Locher.
Khalfa adds: “We replicated this model in Iraq and our business is really big in Iraq now. We’re across 10 cities in Iraq with a few more planned.”
The size of the potential prize in Iraq in vast. While Lebanon has a population of 6 million people, Iraq has a population of 43 million, 72 percent of whom are aged under 34.
If Toters can continue to build on its presence in the country and strike the coveted balance between sustainable growth and profitability, the future could be bright for the business.