Heyfood, a food delivery service based in Ibadan and supported by Y Combinator, is set to expand to Abuja and Benin, strategically avoiding the highly competitive Lagos market. The company is optimistic that this expansion will lead to a substantial boost in revenue. Co-founders Taiwo Akinropo and Demilade Odetara are currently seeking additional funding to support the growth and anticipate concluding talks soon. Since its founding three years ago, Heyfood has secured undisclosed investments from Y Combinator, Voltron Capital, GoodWater Capital, and Ventures Platform.
Despite the challenges of the food delivery sector, the startup is in a positive cash flow position. With profit margins between 10% and 15%, and a monthly gross merchandise value (GMV) ranging from ₦150 million to ₦400 million, the company is performing well. Akinropo noted that in the past year, the company has increased its GMV by five times, with the goal of achieving 15 times that growth.
A key focus for Heyfood is efficiency. The company prides itself on its capital utilization, stating that it operates on the local naira it generates and has managed to avoid operational losses. This focus on efficiency is driving continued interest in the food and grocery delivery industry, even after the departure of competitors such as Jumia Food and Bolt Food in late 2023.
Heyfood’s strategy involves charging a commission on goods sold and delivery fees, and it claims to have over 1,000 listed vendors and around 50,000 active customers monthly. Unlike many competitors, the company chose not to enter Lagos, Nigeria’s commercial hub, but instead targeted Ibadan as its starting point, and will continue to sidestep Lagos for its next phase of expansion.
Expanding into cities like Abuja and Benin offers Heyfood a more affordable approach to gaining market share. While Lagos is crowded with food delivery companies competing fiercely for customers through heavy discounts and exclusive deals, Akinropo explained that Heyfood’s approach focuses on offering a good experience with modest discounts. The company keeps its customer acquisition costs low, avoiding large-scale promotions and offering discounts of 5-10%, in contrast to the 30-35% discounts often seen in Lagos.
Ibadan has proven to be an ideal market for Heyfood, with a growing middle class that includes remote workers earning as much as $5,000. Many of these workers relocated from Lagos to enjoy a quieter lifestyle, contributing to Heyfood’s success. This is part of the reason why exclusive partnerships, such as Chowdeck’s recent deal with Chicken Republic, did not affect Heyfood’s business significantly.
Similar to the strategy used by American delivery service DoorDash, Heyfood aims to capture market share in smaller cities before expanding into larger ones. Akinropo recognizes this as a slow process but believes it is essential for long-term success. He pointed out that DoorDash wasn’t the dominant player in its market until years after its launch.
Heyfood’s success in Ibadan can also be attributed to its innovative approach of using store agents. These agents help local restaurants manage orders and deliveries, compensating for the challenges of low digital literacy and the lack of proper order management systems in smaller businesses. This model has been highly successful, and Heyfood plans to replicate it in other cities with a focus on local eateries rather than large chains.
One of the company’s biggest challenges is retaining its delivery drivers. Akinropo acknowledged that drivers are more likely to switch to competitors offering higher wages or bonuses. In response, Heyfood offers additional benefits like a healthcare fund, birthday celebrations, and meals to keep drivers happy. The company is also considering financing electric vehicles for its drivers as a solution to rising fuel costs and to maintain profit margins.
Heyfood’s journey from its early days to its current success has been marked by significant milestones. Akinropo recalled a time when he and Odetara had to encourage their first customers to place orders to reach their daily goal. Now, with their sights set on further expansion, they look forward to continued growth and the future of the company.
