Why E-Commerce Companies Need to Work with Convenience Stores to Grow in Southeast Asia
E-commerce companies in Southeast Asia increasingly team up with convenience and minimarket operators in a bid to capture growth beyond the urban and tech-savvy online buyers.
Online retailers and marketplaces such as Singapore-based Lazada Group have enabled products delivery and returns, as well as payment, at minimarket and convenience stores such as 7-Eleven and Indomaret in Malaysia, Thailand, and Indonesia. While such concept is already prevalent among online buyers in developed markets like the U.S. or China, the trend only recently caught on in the region as Internet penetration and buying power increases.
The strategy has boosted e-commerce giant Amazon.com Inc.’s business in the U.S., and with Amazon reportedly eyeing the region for their next expansion plan, analysts predict that the number of online and offline retails tie-ups is only going to grow in the future.
E-commerce spending in Southeast Asia, home to 600 million people, is estimated to reach nearly $88 billion by 2025, up from $5.5 billion in 2015, according to a report by Google and Singapore’s state investment firm Temasek Holdings Pte. Ltd. Despite its vast potential, most countries in the region still lack the infrastructure that supports the online commerce craze such as a strong logistics network and stable Internet connection, mainly in rural areas. This is where minimarket chains can step in to help as they typically operates many 24 hour-stores in close proximity to most shoppers’ homes, analysts said.
“One of the difficulties for delivery direct to home is ensuring that it can be done successfully, if there is no one at home at the time of delivery this can add significant cost or client dissatisfaction,” said Peter Gale, managing director of retailer services for Southeast Asia at research house Nielsen Holdings Plc. “By delivering to a ‘convenient’ outlet, it ensures the process can be successful and still offer convenience to the shopper.”
Brick and mortar retails have helped Lazada Group, backed by China’s e-commerce giant Alibaba Group Holding Ltd., to grow its business in the six countries in Southeast Asia where it operates, says chief executive Maximilian Bittner.
Convenience, minimarkets, and supermarkets “help us widen the options that we offer to our customers and make online shopping at Lazada even more convenient for them,” Mr. Bittner said. Increased customers loyalty can translate to a growing and sustainable business, Mr. Bittner said.
In recent years, Lazada has enabled over-the-counter payment at Tesco Lotus, Big C, and 7-Eleven stores in Thailand, as well as at Indomaret in Indonesia. It also partners with Malaysia’s BOXiT, which operates parcel locker services in 7-Eleven outlets there that allows customers to collect their parcels any time of the day. In Vietnam, it taps the country’s post office agency to allow customers to return products and get cash refunds at every post office branches in the country.
The effort is “the first step towards monetizing on the growing propensity for Malaysians to shop online,” says Kuala Lumpur-listed 7-Eleven Malaysia Holdings Bhd. chief executive Gary Brown. He said that the company, which operates over 2,000 stores across Malaysia, is looking to tap “more big names” in e-commerce for the service.
The company follows the step of 7-Eleven chain in North America, a subsidiary of Tokyo-based Seven & i Holdings Co., which in 2015 expanded its locker services to 200 stores in the U.S and Canada.
Indonesia’s e-commerce firm Tokopedia, funded by Softbank Group and Sequoia Capital, helped kickstart the transformation of major minimarket operators Indomaret and Alfamart into payment centers that cater to dozens of local online marketplaces. Combined, both companies operate over 26,000 stores across the nation.
“We realize minimarket is the new channel that we should really focus on,” says William Tanuwijaya, chief executive of Tokopedia. “On the top of this, it [also] creates a new business model” for minimarket operators. Customers are charged 2,500 rupiah in transaction fee, which later goes for convenience store operators.
Indeed, convenience and minimarket operators have reaped the benefit of teaming up with once-rival e-commerce companies.
Indomaret last year facilitated over 6.5 million transaction for more than 60 e-commerce companies, the company said.
“The impulse buying [from the service] has been positive for the overall sale at Indomaret,” says Wiwiek Yusuf, marketing director at PT Indomarco Prismatama which operates Indomaret.
By facilitating payment for online orders through clerks, Indomaret also hopes to tap the roughly 60% of Indonesia’s 250 million people who were unbanked but wanted to buy goods from the Internet.
The service attracted customers like Rizki Agustin, 22 year-old senior college student who lives in Medan, some 800 miles from Jakarta. Mr. Agustin is a regular visitor to an Indomaret store near his house, where he typically pays for women footwear he ordered from sellers in Jakarta through Tokopedia. He would later resell them to earn extra income.
“I visit often that I personally knows the two clerks there,” Mr. Agustin said. “It’s easier and faster to pay through Indomaret.”
In Malaysia, 7-Eleven will receive a combination of rent and transaction fees from its parcel locker service, Mr. Brown said without disclosing the fees.
Meanwhile, online fashion retailer Zalora said 98% of its customer returns go through 7-Eleven Thailand last year. CP All Plc., 7-Eleven franchise holder in Thailand, declined to comment for this story.
“7–11 is, by far, the largest convenience chain in Thailand with over 9,000 stores so it really made sense to partner with them as there is usually a store nearby to a customer’s office or home,” says Sinsupot Charoenkultawat, communication director for Zalora Thailand. He didn’t disclose how Zalora make money from this service.
Neither 7-Eleven Malaysia or Indomaret disclosed revenue earned from their e-commerce related services. Zalora and Lazada didn’t mention how they make money from their cooperation with convenience operators. Tokopedia said that it doesn’t receive transaction fee from each payment made through minimarkets.
To expand the scope and types of these services, both convenience chains and e-commerce companies said that technology remains the biggest barrier as countries like Thailand and Indonesia still need to strengthen their infrastructure to support the booming digital economy.
“We still need to have a decent network condition to continue to serve as a payment point,” Mr. Yusuf of Indomaret said. “Indonesia’s vast topography offers potential and challenges to develop a good network infrastructure.”
“Enabling customers to pay cash at convenience stores for their orders makes a lot of sense,” Mr. Charoenkultawat of Zalora Thailand said. “However, there are some steep tech barriers to overcome to implement this, especially with organizations the size of 7-Eleven.”
Still, analysts said that e-commerce companies in Southeast Asia are better off with convenience operators on their side. The number of minimarket and convenience stores in the region will continue to grow more than 10% annually from over 225,000 stores currently, research firm Nielsen said. With consumers increasingly living ‘on-the go’ lifestyles and rising traffic congestion in many cities, “we only see this trend likely to continue in the coming years,” Nielsen’s Mr. Gale said.
Resty is former tech correspondent with the Wall Street Journal in Southeast Asia, based in Jakarta. Contact her on Twitter @restyworo