Indonesian e-grocers rise to the challenge

INDONESIA is home to 250 million people and every one of them would need groceries in one form or another. It’s no wonder that e-grocers proliferated in the hopes of cashing in on the huge market potential.

However, Alibaba acquired Singapore’s leading e-grocer RedMart earlier this month through Lazada and markets are now wondering whether Indonesia’s e-grocers are also struggling to meet investor expectations.

What is the situation actually like in Indonesia?

Go-Mart, the e-grocery arm of local leader Go-Jek told Digital News Asia (DNA) that the service has grown exponentially like all other Go-Jek services.

“We believe that this trend will continue to grow along with our expansion to other top-tier cities across Indonesia,” said its chief marketing officer Piotr Jakubowski.

He added that currently Go-Mart operates in five cities including Greater Jakarta, Bandung, Bali, Makassar, and Surabaya. It partners with over 500 retailers and has more than 6,000 branches across the country.

When asked about future challenges and targets however, Piotr declined to comment.

Another player in the market is HappyFresh. Founded in 2014, it was launched in Kuala Lumpur and Jakarta in March 2015. HappyFresh raised US$12 million in September last year and more than US$12 million again in August this year.

In an interview with The Jakarta Post, its Indonesian managing director Johan Antlov explained that grocery shopping is much more complicated when it comes to e-commerce.

“Our segment is about weekly shopping… We have intricate issues to consider such as preserving produce freshness, separating halal meat or keeping frozen goods that way as they make their journey to customers,” he said.

He explained that combining online and offline strategies as well as talking to communities and educating the market was essential for the business to better understand its customers’ habits and to making the shopping experience better.

As of publishing time, HappyFresh had not replied to DNA’s inquiries regarding its outlook on the industry and the Indonesian market versus other Southeast Asian markets.

Yet another e-commerce player Alfacart believes that being owned by brick and mortar retail giant PT Sumber Alfaria Trijaya (Alfamart Group) gives them a special edge.

“We are an e-commerce company. We have fashion, we have electronics and many other goods. However, thanks to Alfamart, people associate us with groceries, and that has been the first online experience for many of our current customers,” Alfacart chief executive officer Catherine Hindra Sutjahjo told DNA.

She added that the e-grocer segment is seeing impressive growth as many customers also use its online to offline channel, ordering groceries online and picking them up at any one of the 8,000 Alfamart stores across the country.

“Around 84% of Alfacart’s customers around Jakarta and 90% of customers outside of Jakarta actually pick up their online orders at an Alfamart store.”

“It is definitely a growing industry. As long as you can keep the price competitive, have stock available, and offer easy pickup and delivery options, I think it is a matter of time before people get used to shopping online for their daily needs,” she said.

Alfacart recently launched a new campaign for its customers. They will be allowed to take home an electronics appliance for free, but have to commit to purchasing groceries at Alfacart for the next 12 months.

Under this campaign, Alfacart will offer 12 instalment-based shopping packages, ranging from Rp3.6 million (US$269.40) to Rp12 million (US$898). Each package contains 12 shopping vouchers and one electronic appliance. A customer’s credit card will be pre-charged and a regular monthly deduction made, whether or not the vouchers are used. The customer will be able to go home with the appliance immediately and since the vouchers will be paid for anyway, they will certainly utilise them.

“This is to create stickiness, and help the customer acquisition process. If the programme works, we will create more of them in the future,” she said.

A mix of online and offline strategies

According to a report from retail analysis firm IGD Research, there are four drivers of e-grocers across Asia: demographic shifts including urbanisation; the rise of the middle class in China, India, and Indonesia; mobile and internet penetration, as well as improving logistics infrastructure; and the entry of more players into this space.

While Indonesia may have almost all the drivers needed for e-grocers to flourish, infrastructure and maturity are a challenge.

“There is hope in Indonesia, especially for the bigger cities, that the middle income group will grow. However, e-commerce players need to be extremely creative in maintaining good profit margins. The prices at least need to be the same as those of their retail partner,” one industry observer told DNA.

The key to winning the e-grocer market is for players to have a brand well known for groceries, offer pick up points and have a good network across the country.

“There is a great need to educate the market and that does not come cheap. They can do this while waiting for better infrastructure to help ease the cost of logistics. Remember, e-grocers rely on how fresh their goods are when delivered to customers.

“The players are struggling yes, and that’s no different from other players across the e-commerce platform. However, I believe that when they can incorporate education, online and offline with good partnerships with brick and mortar retailers, these players will be OK,” said an industry observer who requested anonymity.

Shirley Zhu, programme director for IGD Singapore wrote in the company’s publication that pure e-grocer players are usually faster at picking up and delivering. However, their product range is limited as the nature of their relationship with suppliers is not that strong. Meanwhile, brick and mortar retailers that go online have the last-mile advantage of a huge store network that can be used for orders pick-ups or deliveries.

IGD forecasts that Asia’s online grocery market will be worth US$180 billion by 2020.

Attesting to the challenges e-grocers face, one customer, who just happens to be Donald Wihardja, managing partner of Convergence Ventures says that the industry believes that HappyFresh is having a challenging time with their margins.

“I was under the impression that HappyFresh is struggling with their margins as I experienced this myself; where their online prices are higher than in the stores, which I guess is to make some extra margin on top of their delivery and handling fee,” he said.

He pointed out that with e-groceries, price matters. While people will pay for delivery, they will think twice if the goods are more expensive than at the retail stores.

“I shop online for groceries because I buy in bulk, and carrying is painful. However, I will not shop if the prices are higher. I personally spend around US$524 – US$749 (Rp7 to Rp10 million) each month on groceries,” he shared.

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Omni-channel online players

According to an internal survey by Snapcart, an Indonesian shopping reward startup, 61% of Indonesian customers said that discounts and promotions were the main draw to shopping online, 37% liked the variety of payment methods e-grocery platforms provide and 37% liked the convenience.

Snapcart also found that most online grocery shoppers chose omni-channel online players such as Alfacart and Klik Indomaret, owned by retail giant PT Indomarco Prismatama (Indomaret).

“Omni-channel retailers are proving to be a favourite with 12% using Alfaonline (before it was re-branded to Alfacart) and 11.5% using Klik Indomaret. These preferences show how big the role of familiarity is, in customer choices,” the survey concluded.

The report also highlighted the fact that e-grocers will not kill brick and mortar stores as offline grocery purchases will never be totally replaced. The value of e-grocers lies in their ability to provide services that offline grocers cannot.

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