Why GudangAda picked collaboration over disruption to solve one of retail’s most vexing problems

Indonesia-based B2B tech firm GudangAda is banking on an asset light model, the experience of its founder-CEO Stevensang and the powers of collaboration to digitalise traditional retail

Having raised over $35 million last year across a seed and Series A round of funding from investors like Alpha JWC Ventures, Sequoia India, Wavemaker Partners and Pavilion Capital, Indonesia-based B2B tech firm GudangAda has an ambitious goal for 2021 – a Series B round, set to close by the second quarter.

Established in 2019, GudangAda describes itself as “a B2B ecommerce platform connecting FMCG stakeholders to empower the value chain from transaction to distribution”.  It is among the wave of retail-tech startups across the region, who aim to digitalise traditional trade. The market opportunity is enormous – research from management consultancy Redseer pegs the Indonesian retail market at $377 billion of which 77% is unorganised.

However, GudangAda has a few aces up its sleeve which set it apart from firms with similar ambitions. Its founder-CEO Stevensang is a veteran of the Indonesian FMCG industry. He had extensive experience working with leading FMCG distributor PT Arta Boga Cemerlang. His last 15 years were focused specifically on technology, supply chain and digitalisation.

This gave him a ringside view to one of the most compelling challenges facing the retail business. He said, “Transporting goods to the remote and secluded parts of each island in the Indonesian archipelago is a slow and inefficient process. As a result, Indonesia has one of the highest logistics costs in the world – almost 24% of GDP – according to statistics from the World Bank.” The ecosystem is beset by the twin challenges of high operating costs and low productivity. Inefficient operations, exclusive brand distribution models, the shortage of and high turnover among salesmen, and bad debt have been some of the contributing factors.

Stevensang said, “Around 80% of FMCG and staples transactions depend on traditional retailers, especially small and medium ones. Most of them have not adopted technology, optimally. They face challenges in discovering the right products at the right time and more crucially, at the right price.” This affects the wholesaler ecosystem as well, which has adopted a mostly passive approach and shown a lack of enthusiasm for expanding its customer base or assortment. In short, a space that is ripe for technological transformation.

Which is where GudangAda steps in with a digital platform that connects wholesalers with manufacturers and retailers, providing them with higher sales volume, faster turnover, reduced operational cost and lower price, as well as transparency in transaction and documentation. The offering has found favour within the Indonesian retail universe. In just two years, GudangAda says it has signed on almost 100 per cent of the key wholesaler ecosystem in Indonesia, besides working with 300,000 merchants across the country. Stevensang attributes this success not so much to his past experience and connections, but to his firm’s business model.

Bringing digital to a non-tech savvy audience

One of the first stumbling blocks in the attempts to modernise traditional retail across the region is a reluctance among wholesalers and retailers to adopt technology. Stevensang said, “To educate merchants and teach them how to use our platform, we have over 600 people in our business development team across over 500 cities in Indonesia. Their job is to simply teach and onboard traders.” These teams help retailers plan inventory, improve the speed of transactions and land the best price for goods.

The traders’ extensive experience has been a great source of knowledge, and has powered upgrades to the GudangAda app. Stevensang said, “Because we speak the same language and I’ve been in the industry for many years, they communicate in a friendly and open manner.”

This helps zero in on pain-points. A good example is the simplified registration process for the platform – with options ranging from messaging to connections via GudangAda’s official page on social media platforms like Facebook and Instagram. Stevensang said, “These multiple touchpoints make it really easy for merchants to come onboard.”

More collaboration and less disruption

Many startups seek to reinvent the wheel on the industry they choose to operate in. GudangAda on the other hand, has opted for a more collaborative third-party model. Stevensang said, “We seek to partner with industry stakeholders to empower them instead of displacing them. We have some advantages, starting with good relationships and trust. During our two years in the market, we have built a proven track record with our users – helping to grow their business and customer base, resulting in positive word of mouth. To date, we have over 300,000 wholesaler and retailer members who are actively transacting every month.”

GudangAda connected its network of wholesalers with retailers within a five-kilometre radius. Stevensang said, “Our vision is to build a solid B2B e-commerce infrastructure with a full suite of services, including sourcing, selling, buying, warehouse, logistics and payment.”

The immediate goal is to expand across Indonesia, grow the business five-fold and land a million users by end-2021. GudangAda intends moving past its FMCG antecedents to include houseware, electrical goods, lifestyle products, stationery and more. Stevensang’s ambition is to be the largest B2B distribution network in Indonesia.

Running a tight ship

However, as numerous examples across the region have proven, the business is notoriously capital intensive. For its part, GudangAda is pursuing an asset light model. Stevensang said, “Our business model ensures high capital efficiency and very manageable expenses. This approach has been instrumental in ensuring we have a multi-year cash runway and are on track to achieving profitability. Today, the company generates diverse revenue streams from marketplace commissions to various service fees including principal distribution, logistics and more.”

The COVID-19 effect

Interestingly enough, the pandemic did not come in the way of GudangAda’s business plans. If anything, it appears to have given these plans a much-needed boost. Stevensang said, “Covid-19 drew attention to existing problems in the FMCG supply chains. Lockdowns and limited physical interactions have driven consumers online. It has encouraged retailers and wholesalers to adopt digital solutions.” The potential for growth exists, given that the government too is backing the push towards digital.

This period saw GudangAda launch a pilot logistics service to help maintain the availability of essential products in the local supply chain. This service doubled up as a part of the social initiatives launched by the company. GudangAda also distributed face masks to its partners and ran an education programme for traders to help them minimise the risk of infection, whenever they stepped out. Stevensang said, “The logistics service provided an option to our traders to reduce physical interactions in the operations space. Traders who shop through the GudangAda app, could use our logistics option for delivery which supported the needs of our partners and reinforced our commitment to safe distancing.”

Indonesia and beyond

Following the Series A funding, GudangAda expanded its reach among retailers and brand owners, and launched its logistics service. It now has almost 1,000 employees across Indonesia, with a large tech team. Grab Singapore Head of Engineering Huan Yang was hired to be CTO at GudangAda. New staffers will include experts from the consulting and e-commerce industry. The Series B funding will be deployed to strengthen the existing ecosystem including integrated logistics, marketing and payment systems. It will also finance the firm, as it incorporates a wider array of categories into its portfolio.

In the three-to-five-year horizon, Stevensang intends to take GudangAda regional – Southeast Asian countries with market situations that are similar to Indonesia such as Thailand, Malaysia, Vietnam and the Philippines will be the first ports of call.

Founding GudangAda – Stevensang’s first venture as an entrepreneur – has been rewarding in many other ways. Asked about the experience and lessons learnt, he said, “During the first two years, the focus was to build a solid foundation for the business and on getting a lot of external talent into the company. Starting with great leaders, helps build a great company.”

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This article was created in partnership with GudangAda. To know more, please visit the GudangAda website