Retail in Indonesia: Single brands and the convergence of offline and online

By Francisco Widjojo, Edric Widjojo and Kimberly Gunawan

Retail, as we know, is the sale of goods through at least one distribution channel. Traditionally this has been done fully offline. However, with tech becoming a more ubiquitous feature in our lives the concept of retail has dramatically evolved. With the term ‘retail’ now being an umbrella term comprising many different concepts, we will be exploring the future of retail in Indonesia through a multi-part series — from dissecting single-branded retail, tearing down the direct-to-consumer (D2C) model, and analysing the multi-branded retail approach. Today’s focus will be on single-branded retail in Indonesia and answering the question, ‘Is the future of single-branded retail in Indonesia a pure offline or online play, or perhaps a mix of both?’

Snapshot of retail landscape in Indonesia

There is a growing trend in Indonesia of VCs backing single-branded home-grown Indonesian retail brands, whether that be in fashion (Brodo, Saturdays) or F&B (Kopi Kenangan, Fore Coffee, Mangkok Ku, Goola, Lemonilo). According to research compiled by Amvesindo (Indonesian Venture Capital and Startup Association), despite the COVID-19 pandemic by Q3 2020 Indonesian startups secured US$1.9 billion of funding, with the retail sector being the fourth leading sector for funding.[1]

Snapshot of retail landscape overseas

As we see it, Indonesia is following in the footsteps of more developed Asian nations such as China when it comes to the evolution of retail. Single brands in China have rapidly come to embrace ‘new retail’ concepts — that is, when offline and digital experiences converge into one. Brands that are known for adopting traditional brick and mortar formats have followed this path when penetrating China. Within the F&B industry there’s Starbucks with its Reserve Roastery using AI to create new immersive customer experiences.[2] In beauty, L’Oréal has its ‘magic mirror’ that allows users to virtually test different types of makeup through a screen.[3]

Consumers in China trying the ‘magic mirror’. Source: Tech Wire Asia

Indonesia and China: Consumer parallels

The rise of single-branded retail and its adoption of new retail concepts in China can be attributed to several reasons. First, the retail sector is the dominant sector in China with 56.02% of GDP stemming from private consumption in 2019.[4] The rise and proliferation of China’s BAT (Baidu, Alibaba, Tencent) tech giants has also brought about the digitalisation of many facets of life in China. China’s BAT have created a vibrant ecosystem amongst Chinese consumers making many of their products such as Alipay and WeChat a ubiquitous part of life in China, including how brands interact with their consumers.

Sure, Indonesia isn’t on the same level as China when it comes to technological advancement. But some market similarities can be found. Indonesia is a consumer-driven economy with 68.3% of its GDP in 2020 accounting for private consumption — higher than that of China.[5] Indonesia is also becoming a growing hub of home-grown tech decacorns/unicorns whose products are also becoming a ubiquitous part of life in the world’s largest archipelago. Ask any Indonesian on the street and you will find the mobile apps of Gojek, Tokopedia, Traveloka, Bukalapak and OVO on their smart devices.

Indonesia’s single-branded retail play: Offline, online and a mix of both

So should Indonesia’s single branded retail startups follow China’s footsteps in adopting a mix of both offline and online? We believe, yes, at least when it comes to successfully penetrating Indonesia’s major cities.

The 3 key reasons for this lies in distribution channel choice, brand exposure, and customer experience.

Historically, when it comes to distribution channel choice retail brands have always sold their products through offline channels. The onset of Indonesian and Southeast Asian e-commerce giants such as Tokopedia, Bukalapak and Shopee, though, has meant that upcoming retail brands do now have the option to adopt pure online plays to penetrate the archipelago. But what does the data say about the Indonesian consumer’s preference of distribution channel? Have Indonesian consumers expressed a dramatic shift in channel preference since the COVID-19 pandemic? One could easily assume so but the data shows otherwise. Before the pandemic, approximately 85% of Indonesian consumers preferred to shop for their basic necessities, fashion, and beauty products offline, with the remaining 15% preferring online channels.[6] Since the pandemic, however, these numbers have shifted only 5% in favour of online channels for each respective category.

Dissecting brand exposure, Indonesian consumers according to Nielsen have become more impulsive when it comes to purchasing personal care products and more experimental when purchasing food compared to Indonesian consumers of the past.[7] In effect, offline channels serve as an additional channel for brands to establish brand presence. Whether that be to capture impulsive buyers who have not been exposed to the brand or those consumers who have been exposed to the brand but need that slight push to buy the product. Take Lemonilo as an example, an Indonesian Series B health food brand startup backed by Sequoia Capital India. Lemonilo has established a strong presence online with its heavy marketing and online stores yet also has an offline distribution channel through supermarket chains in Indonesia’s major cities.[8]

Speaking for customer experience, data suggests that 61% of Indonesian consumers surveyed have made a physical purchase after a physical trial.[9] This is not to mention that Indonesian millennials and Gen Z, who form 62.98% of the total Indonesian population, prefer engaging in a customer experience with a brand before buying its product.[10] Physical trials and the most engaging of customer experiences can only be done offline. And with their importance in converting engagement into sales one cannot underscore the importance of offline channels. Our very own portfolio company Hypefast, a Southeast Asian D2C brand aggregator, is the perfect example of this. Hypefast has recently launched an offline store in South Jakarta named ‘Buiboo’ for its D2C retail brands that sell maternity and childrenswear apparel.[11] The move was done to provide customers an opportunity to try on the brands’ apparel and for customers to physically engage with the brands. The offline complements and elevates the online in Indonesia — and we believe this is the superior model for retail brands and startups in Indonesia for at least the next foreseeable future.

Buiboo, the first offline store of Hypefast. Source: Liputan6

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