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By Onyeka Akumah, Treepz Co-founder and CEO
On May 3, 2023, we made a significant announcement regarding the relaunch of our consumer app, introducing car-sharing services across Nigeria, Ghana, Uganda, and Kenya. This announcement garnered diverse reactions from the media and technology communities, with some expressing support for the innovation in Africa while others raised concerns about our business model and market size. In this post, I will share our perspective on the market and explain why we are optimistic.
Why car-sharing/rental?
We pioneered bus hailing in West Africa when we launched Treepz in September 2019 in Lagos, Nigeria. While the market for bus transportation remains significant on the continent, the fundamental principles of unit economics pose a challenge. The public transportation industry is highly price-sensitive, necessitating long-term investments in economies of scale for sustainable success. We spent $1.5 for every $1 earned, resulting in a negative gross margin of 5{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3}. Although this is not uncommon for pioneering products and services, we had to face the harsh truth: the cost of providing the service outweighed our earnings, and we were limited by time and capital.
Bus hailing served as our core business, but it was not our sole focus. Over the last year, we carefully looked at the different products we had – Daily Treepz (Intra-state Bus-Hailing), Travel Treepz (Inter-state travel with aggregated Travel Bus Companies) and Business Treepz (Vehicle Rental for corporates) to make a decision with the support of our investors and stakeholders. We looked at the option we can use to offer the best service to our customers, maintaining quality standards and keeping our margins healthy. After analyzing our offerings, we found that vehicle rental had a healthier cost structure with a 25:75 cost-to-revenue ratio. Consequently, we decided to prioritize car rental as our core business and discontinue other services. Previously, our car rental service was simply a B2B product that has served over 40 corporates/schools in the last year generating more than 70{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3} of our actual revenue. But our decision on May 3rd, 2023 was to re-launch our B2C product with this service as our single focus powered by a car-sharing model and marketplace for car rental companies (hosts).
Beyond financial considerations, we also recognized compelling trends that underscore the untapped potential of the car-sharing/rental market in Africa.
Shifting Consumer Preferences: We observed a notable shift in consumer preferences towards flexible transportation solutions. Owning a vehicle is becoming less important as people and organisations prioritize convenience, affordability, and environmental sustainability. Car sharing and rental provide an ideal alternative, catering to these evolving needs.
Market Potential: Globally, the car-rental market is expected to reach USD $121.1 Billion by the end of 2031 according to the Transparency Market Research report conducted last year. As disposable incomes rise and middle-class populations expand, more individuals and businesses seek flexible transportation options. According to a report by Grand View Research, the African car rental market alone was valued at USD 2.84 billion in 2020. The market is expected to witness a compound annual growth rate (CAGR) of 7.9{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3} from 2021 to 2028.
Evolving Mobility Landscape
Over the past decade, the mobility landscape has undergone a transformation driven by technological advancements, rapid population growth, and urbanization. In African countries such as Nigeria, Ghana, Uganda, and Kenya, public transport remains the most popular mode, collectively accounting for 62{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3} of all transportation, while private car ridership (including rented cars) stands at 31{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3}. Notably, Africa has 44 private vehicles per 1,000 people, significantly lower than the global average of 180. Public transport’s popularity can be attributed to its affordability and accessibility, making it the preferred choice for many.
[Figure 1]
Equitable and Sustainable Transport
At Treepz, we prioritize both sustainable and equitable transport, recognizing that they can coexist and reinforce each other. Sustainable transport aims to minimize environmental impacts, reduce carbon emissions, promote energy efficiency, and ensure long-term sustainability. Ride-hailing services contribute to these goals. Equitable transport, on the other hand, seeks to provide equal access to transportation options and services regardless of socioeconomic background or geographic location. Our new business model at Treepz addresses the issue of equitable access to transportation in Africa.
[Figure 2]
The New Treepz Car-Sharing Marketplace
Treepz is a car-sharing marketplace that connects car owners with individuals in need of transportation. Through our platform, owners can rent out their vehicles on an hourly, daily, weekly, and monthly basis. Users can conveniently browse, book, and unlock cars using the Treepz app. This model offers a cost-effective alternative to traditional car ownership and rental services, providing flexibility and accessibility without the burden of long-term commitments or high costs.
Treepz presents an alternative to owning a private car or renting from traditional rental companies, which can be expensive. We also complement other mobility options such as ride-hailing with our flexible rental model, particularly suitable for full-day errands and other trips. By offering a cost-effective and convenient solution, we believe we can attract price-conscious consumers who are more responsive to changes in price, thereby impacting price elasticity and expanding the addressable market of car-sharing. This mirrors the growth experienced by the ride-hailing segment as more consumers embraced these services.
Promoting Resource Efficiency and Reducing Congestion
By leveraging the sharing economy, Treepz promotes resource efficiency, reduces congestion, and minimizes environmental impact. Our platform encourages the optimal utilization of existing vehicles, contributing to a more sustainable transportation system. Additionally, it offers convenience and affordability to users, while enabling car owners to earn extra income from their underutilized vehicles. Given the limited financing penetration rate of 2{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3} in Africa’s automotive market, compared to 60-75{3e4ec73e7c148c7d746f0ef675592663885f802f3a27145c736987a15c9d45c3} in other emerging markets, Treepz’s car-sharing solution presents a compelling use case for equitable and sustainable transport on the continent.
The Perfect Balance: Convenience and Affordability
Treepz strikes the perfect balance between convenience and affordability, providing users with a wide range of vehicles to meet their specific needs. Whether it’s a short trip, a day-long excursion, or an extended rental, our platform offers flexibility and cost-effectiveness, enabling individuals (guests) to access reliable transportation without the burdensome expenses of ownership or traditional rental services.
In conclusion, we have learned from every step we have taken since the 16th of September 2019 when we launched. We have learned from the mistakes we made, we have learned from coming from the worst health crisis in our generation that affected economies negatively with COVID-19. We have chosen a path to use technology to innovate in the transportation space in Africa and we know it will be a tough one, but we are determined to continue to learn, never repeating our earlier mistakes and capitalizing on the opportunities in front of us to build a scalable and sustainable business.
Treepz is the true definition of sustainable and equitable transportation in Africa and we would be depending on the utilization of more than 26 million vehicles on the continent to power our vision.