Bukalapak is racing to bring Indonesia’s small 3.5-minute roadside kiosks online as the e-commerce group tries to capitalize on its lead in the next battleground for Southeast Asian tech companies.
The group is one of many Indonesian tech companies battling for a share of the rapidly growing market for digitizing ‘warungs’, family-owned roadside stalls in a bid to expand their business in rural areas, an untapped market ripe for digitization. .
Warungs play a vital role in Indonesia, often serving as a gathering point for the community. Roadside kiosks are seen in major cities like the capital Jakarta, but are especially important in rural areas where supermarkets and convenience stores are still scarce.
Bukalapak, backed by Microsoft and Jack Ma’s Ant Group, offers a one-stop, one-app procurement service, enabling small, often family-owned stores to stock up on shampoos, cold drinks, cigarettes and other everyday products. Its app also allows warungs to sell digital products such as phone credits and mobile game vouchers, with Bukalapak taking a cut of the sales.
According to Navin Killa, head of telecommunications, media and internet at UBS Global Research, up to 65% of total retail sales go through such unorganized stalls in developing countries like Indonesia.
Killa said e-commerce groups need to target the market or they “can never achieve the kind of scale that global e-commerce giants have been able to achieve.”
It is estimated that Bukalapak has around 40% of the warung digitization market. But it faces increasing competition. Since entering the industry in 2016, e-commerce rivals GoTo’s Tokopedia and Sea Shopee’s e-commerce arm have joined the fray.
The sector has also attracted the interest of venture capital. Gudang Ada, Ula and BukuWarung – three start-ups that aim to bring warungs online – have raised nearly $300 million between them in 2021. Investors range from Jeff Bezos’ Bezos Expeditions, Peter Thiel’s Valar Ventures, Tencent Chinese to Victor Jacobsson, co-founder of the Swedish “buy now, pay later” group Klarna.
Bukalapak’s initial investment is already making progress. Late last year, sales of its “mitra” (partner) business surpassed its e-commerce unit for the first time on a quarterly basis. The trend accelerated in the first quarter of 2022, with the group’s mitra division grossing 471 billion rupees ($32 million), nearly double e-commerce sales in the same period and a 226% jump from compared to a year ago.
Teddy Oetomo, president of Bukalapak, put it down to the maturation of his business. “In the early days of the business, to drive traffic, a lot of the focus was on providing warungs with fast-moving branded consumers ‘from large multinationals, but now the business’ sees contributions from local brands” which allows Bukalapak to charge a higher commission, he said.
Warungs also represent an opportunity for Indonesian society to expand its financial services in a country where half of the adult population remains unbanked. Digitized warungs can provide previously inaccessible data on these kiosks, which Bukalapak can use for credit scoring and help expand its lending service, a more lucrative business than e-commerce.
Bukalapak entered financial services in January when it invested in local lender Allo Bank, becoming its second largest shareholder.
“Much of the population does not have access to credit, whether because of poor credit data or the tendency of banks to shy away from lending,” UBS’s Killa said.
“These small family shops which are the main customers of the Mitra company fall into this category. Many of them don’t have that monthly pay slip that would allow them to take out a loan, so they don’t have access to credit, and they’re the ones who need credit the most.
But Bukalapak’s push into the market has yet to help boost its share price. Shares of the company, which sealed its place as Indonesia’s largest stock exchange last year after raising $1.5 billion in August, have fallen more than 60% from its price. initial public offering.
Bukalapak isn’t the only Southeast Asian tech company whose share price has fallen in recent months. Singapore’s Grab and Sea, as well as Indonesia’s biggest tech company GoTo, all fell as recent interest rate hikes prompted investors to flee riskier corners of global financial markets.
“Making progress in the digitization warung sector certainly gives advantages to Bukalapak, but it does not guarantee victory in Indonesia’s fiercely competitive market,” said Barsali Bhattacharyya, Head of Information Team at Bukalapak. industry from the Economist Intelligence Unit.
Bhattacharyya warned that “it can be quite easy for small businesses to switch partners later if a competitor offers them better rates.”
GoTo and Sea have more money than Bukalapak. GoTo had about $1.4 billion in cash and cash equivalents before its $1.1 billion IPO in April, while Sea had $7.6 billion at the end of March. Bukalapak had $1.3 billion at the end of its first quarter this year.
“All players will need to demonstrate improved profitability in the current capital market environment. Therefore, it will be less likely to be a money-burning game in the short term,” said Jianggan Li, the firm’s managing director. Singaporean consultancy Momentum Works.
“But cash-rich players such as Sea’s Shopee will continue to invest in growth targets. Bukalapak will be under pressure to demonstrate better organizational and operational efficiency than its competitors,” Li said.