Logistics start-up leverages numbers to bridge cost gap for small traders
Real Sources Africa CEO Felix Chege during an interview at his office in Syokimau.
What you need to know:
- Felix Chege says he approached several banks with his business idea and market projections, but most were hesitant to fund him.
- He finally did manage to secure a loan of Sh32 million which enabled him to buy his first truck.
From a young age, Felix Chege, 25, knew without a doubt what he wanted to become later on in life – an entrepreneur who would build his fortune by creating value.
Even in college, while his peers were still busy trying to figure out what they wanted to do after graduation, Chege had already registered a company, which he used to transact business. He would, for instance, often visit the school website in search of advertised tenders for the supply of items such as laptops, books, among other educational material.
His deliberate effort enabled him to secure some of these tenders, but as he would later come to realise, getting items with the specifications listed and at a profitable margin was not going to be easy.
If he were to source these items at a profitable margin, he would have to look to the export market, but sourcing from this market involved too many processes which, for a start-up, were cumbersome.
During discussions with suppliers that had been in the game longer, he realised that this was a common problem which cut across board for most start-ups. It was at this point that he decided he needed to come up with a solution that would address supply chain costs for small and medium enterprises.
“The biggest cost tied to a product is the cost of transport, which in some cases translates to almost 40 per cent of the cost of the product because of levies. If you can reduce this by just a small amount, then the margins will significantly increase,” noted Chege during an interview with Powering SMEs.
In 2019, he therefore decided to launch Real Sources Africa, a business to business logistics company which sought to supply raw materials to small manufacturers and finished products to retailers at an affordable price.
“A 90kg bag of maize in Zambia goes for about Sh2, 000, while the same goes for Sh6, 000 in Kenya. That means getting a bag of maize from a miller in Zambia is cheaper, but not many logistics companies would be willing to deliver raw materials all the way from Zambia at the price that small manufacturers can afford,” notes Chege.
To bridge this gap and still realise a profit, Chege decided that they would build a rapport with as many stakeholders along the supply chain as possible, so that whenever they made a trip, they would serve several clients at the same time. They would also capitalise on return trips to offload the cost.
Real Sources Africa CEO Felix Chege during an interview at his office in Syokimau.
“Apart from this, we also decided we would use our own fleet of trucks and only engage third party transporters in the event that all our trucks were occupied, making it easier to manage the business,” he adds.
Chege says he approached several banks with his business idea and market projections, but most were hesitant to fund him, mostly because of his age. He finally did manage to secure a loan of Sh32 million which enabled him to buy his first truck.
He would supply locally mostly, but over time, Chege’s business grew significantly. Now with a fleet of 19 trucks, the business supplies a variety of products to East and Central Africa. It employs a total of 25 in-house staff including drivers and the management, and several others along the value chain.
After making an order, clients are required to deposit payment in an escrow account, and only until the transaction is complete do all parties, including them as the transporters, get paid.
Their approach has enabled them to get a loyal following, but the business still faces a number of challenges which Chege says are slowing their growth. Key among these is Africa’s poor infrastructure.
“Some of the raw materials we transport across Africa’s countries come from the most remote, most undeveloped parts of Africa. Even as we speak, we have a trailer that has just broken down in Malawi and needs fixing, but the only place to get those spare parts is in Kenya,” says Chege.
He adds that being a young entrepreneur, the age card is also a challenge, which at times makes clients or would-be investors hesitate to do business with him, he, however, notes that this changes as soon as he delivers beyond expectation.
He hopes to grow his fleet to 50 by 2023, and serve more parts of Africa. To achieve this efficiently, Chege explains that the company is also looking to develop an online marketplace where customers can search for products they need, and if these are available, place an order for delivery. The platform will also be useful to exporting SMEs.
“The Covid-19 pandemic has accelerated the process of digital transformation. The growth of digital economy in Africa is unlocking new pathways for rapid economic growth, innovation, job creation and access to services. Based on this, we are, in the next few weeks, launching an e-commerce platform to bring Africa together.”
