Gorillas, Growth and Groceries…
Indonesia’s eCommerce Landscape.
My son is 11, he loves to play MineCraft. It is an iPad version of Lego. Both MineCraft and Lego start with a clean pristine emptiness. Then comes the first block, a second, … until you have a building, a street, a city.
Indonesia’s eCommerce landscape was a pristine emptiness just over 5 years ago. Then the first wave the start-ups were born claiming their piece of the empty landscape. These were Tokopedia, TokoBagus, BukaLapak, Kaskus and Nurbaya.
Together these pioneers struggled with the Indonesian clutter of online payment systems, with BCA bank in the lead. They also struggled with order fulfilment.. Do we work with OJEK (motorbike) services? Or go for the professionals like JNE, that can deliver from Aceh to Papua? These pioneers patched together the supply chain. But none of them are making serious revenues, so far.
After these pioneers, starts the second wave of development. The “Bulé”, foreigners, step into the market. Tokopedia got a $100 mlm investment from blue chip investors Sequoia Capital and SoftBank (Oct.2014). OLX has taken over TokoBagus.com. Rocket Internet stepped in to launch Lazada Indonesia. Shopify and Groupon are also active in Indonesia, albeit with mixed success.
This second eCommerce wave is not only foreign. The Indonesian retailer Matahari, part of the large Indonesian Lippo Group, will also be launching their MatahariMall.com with a huge $500m injection of capital (Feb.2015). This, the largest investment so far, was a surprise, because they havent launched the platform. They will be launching … soon.
At the same time I know that there are two foreign Gorilla’s are at the borders….
Alibaba has met with the pioneers to discuss the long term plans. Alibaba considers Indonesia to be its 2nd largest eCommerce market in the world after China. They will let the Indonesian players fight it out among themselves, they will let them invest in growing their databases of products and customers. Also they will let them invest in educating the market on what eCommerce is, how it works, and that it is safe. Especially this last step is a major challenge in Indonesia, where people are very reluctant to pay online. They prefer COD — Cash on Delivery. This market making process will cost a couple of billion USD to achieve. When ready, Alibaba will make the local pioneers an offer they can’t refuse: ‘sell your companies to us, or compete against us’.
Another Gorilla at the borders of the Archipelago is Goldman Sachs. Goldman is the “Praying Mantis” of the financial sector. The female Praying Mantis will eat the male after she got what she wanted… Goldman has visited several players in Indonesia over the last months. They are probably scouting for their clients. But their view is different to Alibaba. They are eyeing up the payment gateway business, which will be important to the eCommerce business. Also Goldman is keeping a watch-out for peer-to-peer lending sites and fintech startups. These could be come important sources of finance to the eCommerce platform suppliers and buyers.
This market which is still young, is heading to some form of consolidation and a large dose of foreign control. Unless two players succeed: MatahariMall and Nurbaya.
Nurbaya has taken a completely different strategy to the rest. It is seeking out the offline-retailers and is offering them a simple storefront and space for a limited number of fast moving products. These products are then sold via Facebook, via onigi.com and via the other eCommerce sites like Tokopedia. They bring offline SMEs online, it is an “O2O” strategy.
The approach is different, because it does not compete with offline-retailers, but helps them generate extra sales. Andy Sjarif says, “Nurbaya retailers on average generate 20% more sales via their online channel”. Nurbaya is strengthening the SME retailers.
All the other sites are gradually cannibalising the offline grocery stores and retailers. In fact in the West high street retailers are suffering badly from the wave of eCommerce. eCommerce is having a greater social impact on grocery stores and retailers, than the well documented WalMart.
It will still take a while though, for eComm to negatively impact the Indonesian grocery stores and Warungs.
Firstly, the Archipelago counts 55 million small and medium sized enterprises (SMEs), yet only half a percent has some kind of online presence.
Secondly, Indonesians a reluctant to use online and mobile systems to make payments. But more practically, it is easier for most Indonesians to get the goods they need around the corner than online.
Indonesia is not straightforward. The irony is that Indonesia may be the fourth largest population on Facebook and Twitter, but most of the nation’s users have never heard of the ‘internet’.
Back to my son, playing Minecraft on his iPad, he far prefers a well filled landscape with many small buildings, than an empty landscape dominated by only 2 big monolithic buildings.
Thierry Sanders
CEO
MEKAR
www.mekar.id
A Sampoerna Initiative
