Indonesia’s Bukalapak sells O2O growth story as it preps for imminent IPO

Photo: Bukalapak's LinkedIn page

For a good few years, Bukalapak has been maintaining that it is no longer an e-commerce company. The company operates an O2O business, it argues, making it an “all commerce” company.

While cynics may have thought that its O2O story was merely an attempt to save face amid the notable advances made by e-commerce rivals Shopee and Tokopedia, Bukalapak has proven that its O2O game actually means business.

In a shareholders meeting last month, the company announced its 2020 figures, which, among other things, showed that the number of its offline agents (known as Mitra Bukalapak) stood at around 7 million – for the first time ever exceeding the number of online sellers on its marketplace, which totalled around 6.5 million. 

While the difference may not be significant, the recent trajectory of its O2O business suggests that the gap is bound to drastically widen. At the end of 2019, Bukalapak had 5 million online sellers and only 3 million Mitras. 

“O2O will be crucial, as offline presence is necessary to gain market shares in non-tier 1 cities, which is Bukalapak’s main positioning in Indonesia’s e-commerce market,” said Joshua Agusta, director at Mandiri Capital Indonesia, one of Bukalapak’s newest investors.

The onboarding of 4 million new O2O agents in the space of a year had helped the company clock a rise of over 130% in transactions, and ultimately record an 80% EBITDA increase, it said. This represents a staggering rise for a long-time e-commerce underdog, but also a growth story for a company that is understood to be prepping for an imminent IPO.

Blue offline ocean

Bukalapak’s foray into the offline segment came in 2017 when it launched a second app to empower the mom-and-pop shops or warungs. The app, called Mitra Bukalapak, enables MSMEs including warungs and agents to sell virtual products like phone credit, data plan, electricity vouchers and train tickets.

It later also developed a B2B marketplace function that connects warungs to principals, allowing them to replenish their stock by ordering wholesale goods on the app and have them delivered to their doorstep.

The rationale was clear: the increasingly competitive e-commerce business was covering only 5% of the retail market. The big opportunity, Bukalapak realised, lay in the offline space, and predominantly in Indonesia’s tier 2 and 3 cities. The company quietly began to tap the offline market, while continuing to scale the e-commerce business, which had helped push the company to reach the $1 billion valuation mark.

“By tackling high-value verticals and the right customer segments, they built moats and competed well. By serving the Mitra segment at an unmatched scale and depth, they differentiated. The combination built a tactical advantage for them at every turn,” said Khailee Ng, a managing partner of 500 Startups, whose firm was one of the earliest investors in Bukalapak.

No doubt, the expansion into the offline segment was seen as a blue ocean for Bukalapak, with only early-stage fintech startups Kudo (now GrabKios) and Payfazz in the market at the time. However, it did not take long before others joined the fray.

In the B2B commerce space, particularly, Indonesia is only now seeing big-name investors betting on new players in the B2B marketplace game targeting warungs and traditional small retail, which comprises about 80% of the overall market in Indonesia.  The list of newcomers includes Warung Pintar (backed by Vertex and EV Growth), Ula (Sequoia, Lightspeed), Gudangada (Sequoia, Alpha JWC) and Super (Softbank, DST Global). 

Interestingly, the cash-loaded peers that Bukalapak had been fighting in the e-commerce arena have also jumped onto the O2O bandwagon. Tokopedia and Blibli, for example, have also rolled out bill payment and B2B commerce products targeting offline MSMEs, while Shopee has only joined in the bill payment/virtual products game. It must be said, however, that none of them has treated O2O with the rigour as Bukalapak has.

“Interest in O2O opportunity is a function of e-commerce players’ market position, category mix, geographic reach, synergies with existing capabilities, etc. Keeping these factors in mind,  a company had to decide whether it should double-down on e-commerce or can derive better returns by tapping into O2O opportunities,” said Roshan Raj, a partner at research firm Redseer.

Raj also notes that market leaders in horizontal e-commerce are largely decided and a material shift in their rankings looks less likely, while the O2O commerce opportunity is still very much up for grabs.

Ramping up O2O offerings

The intensifying competition has prompted Bukalapak to accelerate its growth by expanding not only its customer base but also its array of offerings.

Its virtual products on its platform are now sold by a variety of categories of individual agents such as students, full-time workers, ride-hailing drivers and housewives, to help them earn additional income. 

Meanwhile, its B2B marketplace business, which initially offered only FMCG products targeting warungs and food stalls, has expanded to other categories such as electronics, fashion and motorcycle accessories, and targeting new types of MSMEs including small merchants located in malls.

“I think coming from an e-commerce marketplace play, and specifically Bukalapak, gives us direct access to the vast established commercial partnerships, and technological infrastructure and prowess in addressing the O2O commerce space,” said Mitra Bukalapak head Howard Gani, who added that the company was working on a number of different revenue channels.

One potential significant revenue source for Bukalapak’s O2O play is through fintech products. The company had started teaming up with local lenders to offer financial services to customers in underserved markets, where 70% of its MSME partners are located. It is expected to add to its suite of fintech offerings after recently roping in the VC arms of state-owned lenders Bank Mandiri and Bank BRI as strategic investors in their latest round.

“Financial inclusion is key to serve Bukalapak’s customers in non-tier 1 cities, hence fintech will be crucial for Bukalapak for both its core commerce play and other aspects that can support the growth of SMEs in Indonesia,” said Mandiri Capital director Joshua Agusta.

Among the existing partnerships Mitra Bukalapak has established with Bank Mandiri are investment products (BukaReksa), financing products (BukaMotor and BukaMobil), Mandiri account opening via Mitra Bukalapak, and also the current exclusive partner of BukaRumah, a seamless feature enabling buyers to purchase houses with Mortgage through Bukalapak.

Building local appeal

By having Bank Mandiri and BRI, two of Indonesia’s largest state-owned lenders, on its cap table in what appears to be a pre-IPO round of over $400 million, Bukalapak is expected to boost its appeal among capital market investors in the local bourse, where the company is set to list first, per our earlier report, before potentially pursuing a US listing. 

Over the 10 funding rounds it has raised since its establishment in 2011, not once has an Indonesian company come on board to join early investor and current largest shareholder Emtek.

Bukalapak’s list of investors includes prominent international firms such as GIC, Naver, Standard Chartered Bank and Microsoft.  

In another move that raised eyebrows, Bukalapak recently announced the appointment of political icons Bambang Brodjonegoro and Yenny Wahid as president commissioner and commissioner, respectively. Brodjonegoro is a former Research and Technology Minister, while Wahid is a pluralism activist and daughter of former president and Nahdlatul Ulama (NU) leader Abdurrahman “Gus Dur” Wahid.

According to Thendra Crisnanda, head of research of MNC Sekuritas, having trusted well-known figures associated with a company, along with selling an “intriguing growth story” can help a company perform well in its debut listing, but ultimately business performance will determine its fate.

“Influential people are important in order to build a good image related to GCG (good corporate governance) of a company. In some cases, the appointment will also give the good signal to get better support from the government and from certain parties,” he said. “However the investors need to do their own homework to know what they are buying rather than only follow the hype or FOMO”.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.