Why startups are targeting traditional trade in Indonesia and how they are reshaping the retail landscape

Indonesia has become a hotbed for startups, and a regional hub for venture capitalists and accelerators. The island nation has the most unicorns in Southeast Asia, and companies such as Grab and Gojek have become household names. It has a large and growing population of 270 million, and accounts for 40 percent of Southeast Asia’s total population. 

With high mobile penetration, social media has become embedded in Indonesian society, and it has the fourth-highest Facebook, and fifth-highest Twitter user base in the world. It is estimated that 63 percent of the population are using smartphones.

The country has become an attractive prospect for regional startups looking to expand, and similar to India, a growing number of startups have been targeting the country’s informal market, looking to digitise Indonesia’s traders and supply chains. 

Why are startups targeting traditional trade in Indonesia? 

Indonesia’s retail economy remains mostly traditional, with many intermediaries driving up prices. Modern convenience store chains such as Alfamart and Indomaret have been expanding rapidly, but informal traders such as mom-and-pop stores, kiosks, and food carts contribute close to 70% of total retail sales. In the capital Jakarta, 60,000 informal street food carts provide cheap meals to hungry consumers on the go, and there are an estimated four million warung or neighbourhood retailers in the country. 

Many informal retailers employ limited technology, and in many cases don’t even have an email account. Warungs have yet to digitise their businesses, and most traders still rely on large notebooks or pieces of paper, to log transactions and keep track of short-term customer credit. They have limited cash flow and purchasing power, and as they trade mostly in cash, have no financial footprint and receive limited support from financial institutions. 

Only 55 percent of Indonesia’s population is connected to the Internet, and about 10 percent of Indonesians regularly shop online. But with a growing number of internet-enabled smartphones, online shopping holds great potential. However, most shoppers continue to shop at their local neighbourhood store, and warung’s large footprint and close working relationships with customers, make them an ideal pick-up point for online shoppers. 

Online payments remain one of the biggest obstacles for ecommerce players in Indonesia — a country where only about 4% of the population had a credit card in 2017. Cash is still king, and low credit card penetration means that many shoppers often have to pay offline for purchases. This creates a barrier for ecommerce growth, but also opens the door for an online-to-offline (O2O) strategy focused on warung. But e-wallet usage has been growing rapidly in the past two years, and startups such as GOPAY, OVO, Dana, and LinkAja, are expanding their footprint in the country. 

Logistics challenges

Indonesia’s more than 17,000 islands, also provide some unique logistics challenges for startups and ecommerce players in the informal retail space. The logistics market remains highly fragmented, and shippers often have to work with a variety of carriers and providers — driving up costs and making supply chains more complex and harder to manage. In tier-two and tier-three cities, shipping costs could add up to 40% on the total purchase amount. However a number of startups such as Shipper, Logisly, Waresix, and Kargo, are targeting logistics, and looking to remove some of the barriers for mass ecommerce adoption.

Who are some of the players in the informal retail market?

Bukalapak, one of Indonesia’s most popular shopping apps, and has been making an aggressive push towards micro-retailers. The startup enables shops to order goods from its platform — cutting out middlemen and reducing costs. To win over more customers, Bukalapak is adopting an online-to-offline (O2O) approach — recruiting warungs to become O2O agents. Shoppers without internet access — or who don’t feel comfortable making purchases online — visit their local agent or warung, place an order, and pay for it in cash. Stores earn a commission for each order.  Buyers can pay with Akulaku and Kredivo, both platforms which allow for instalment payments and without the need of a credit card. Bulalapak also teamed up with P2P lending startups Amartha, Modalku, and PohonDana to provide loans, and Investree’s BukaModal, to offer credit to online sellers that achieve a certain sales target. They also provide mutual funds and a gold investment marketplace with BukaEmas. 

GrabKios is a digital app from Grab that empowers warung to become more organised and help them grow their business. GrabKios partners can order products via an app, sell digital products such as mobile top-ups, provide bill payments, offer money transfers to any bank, register grab drivers for a commission, and offer gold saving for customers. Grab is also launching a new service in collaboration with its logistics partner Porter, where customers can deliver packages through GrabKios. The company is introducing micro-insurance, and customers can purchase health, life, education, and accident insurance plans through GrabKios partners.The startup also plans to provide access to capital and financial services to help warungs scale their business. 

GudangAda is focusing on Indonesia’s B2B supply chain, and the company has created a B2B ecommerce platform in Indonesia — connecting wholesalers directly to retailers. It plans to transform the fragmented retail environment and empower FMCG supply chain intermediaries, rather than replacing them.The startup ensures faster inventory turns, improved price visibility, and provides a wider selection of goods. It aims to cut transaction and operational costs for both wholesalers and the retailers, and offers access to data analytics for manufacturers, and inventory management tools for retailers.

Warung Pintar is on a mission to digitise street vendors and warung. The Indonesian startup helps revamp their stores with a bright yellow designed kiosk, and connects them with technology that includes a digital point-of-sale system, free Wi-Fi, and LCD screen. The company also provides power bank chargers — essentially for ride-hailing Go-Jek and Grab drivers who hang around kiosks for a battery charge and a meal. The startup has also launched a B2B ecommerce platform for warung. 

KitaBeli is leveraging Indonesia’s love fair with social networks. The social ecommerce platform enables consumers to buy essential FMCG goods in a group or within their social circle. The platform allows users to connect with their friends — form a group — and receive discounts for bulk purchases. It sells fast-moving consumer goods (FMCG) and other household items, and currently sources products directly from wholesalers.

Chilibeli is another community-based social ecommerce startup  — connecting farmers, suppliers, and consumers through its network of agents or sellers. Agents, or mitras, are mostly housewives, and can create their own community in the app — sell to their friends — and earn and commission and income. The startup delivers the goods to the agents, who are responsible for last-mile delivery.

BukuWarung is looking to digitise the country’s micro and small businesses, and launched a bookkeeping app that allows traders to record financial transactions and accept payments online. The app saves store owners time, and helps them keep track of short-term credit provided to customers. It improves transparency and efficiency, and helps them grow their business.

Image credit: Warung Pintar

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