Indonesia poised for an engrossing VC-backed warung digitalisation play in 2021

Photo: Warung Pintar website

Numerous startups set the ball rolling on the digitalisation of Indonesia’s micro, small, and medium enterprises (MSMEs) in 2020. This trend is poised to gain further momentum in the coming year.

The startups aiding the digitalisation of MSMEs, particularly warungs (local parlance for mom-and-pop stores), have arguably evinced more investor interest than any other segment this year — 43 investors announced capital injection into this space.

Investors poured generous capital into fintech platforms such as BukuWarung and BukuKas, as well as B2B commerce companies Ula and Gudangada in 2020, continuing a trend from previous years when warung-focused players like Warung Pintar and Wahyoo attracted sizeable venture capital.

Deep-pocketed tech companies have also evinced interest in the space. Shopee, Tokopedia, and most recently, Gojek have started tapping into the warung-digitalisation play, joining unicorn peers Bukalapak and Grab.

The appeal of the segment is only too evident as we reported in a deep-dive analysis of this space in July.

In Indonesia, there are anywhere between 3.5 million and 4 million warungs. They comprise the bulk of Indonesia’s micro, small, and medium enterprises (MSME) industry, which contributes over 60 per cent of the country’s $1 trillion GDP.

According to DealStreetAsia data, there are at least 16 venture-backed startups of varying sizes that in some capacity try to serve and digitalise warungs in the country. This list excludes P2P lenders such as Modalku, Amartha and AwanTunai, that also target warung owners and MSMEs for loans.

Expand Table

CompanyVerticalInvestorsStage
BukuWarungBookkeepingQuona Capital, East Ventures, AC Ventures, Golden Gate Ventures, Tanglin Venture Partners, Michael Sampoerna, Snapdeal foundersPre-Series A
BukuKasBookkeepingSequoia Capital India, Speedinvest, S7V, January Capital, Cambium Grove Capital, Credit Saison, Hustle Fund, Whiteboard Capital, 500 StartupsPre-Series A
UlaSupply ChainSequoia Capital India, Lightspeed India, SMDV, Quona Capital, Alter Global, Patrick Walujo, WillyArifin, Sujeet Kumar, Vaibhav Gupta, Amod Malviya, Rohan Monga, Rahul MehtaSeed
GudangAdaSupply ChainSequoia Capital India, Alpha JWC, Wavemaker PartnersSeries A
Warung PintarEnd-to-endSMDV, Vertex, Pavilion Capital, Line Ventures, Digital Garage, Agaeti, Triputra, Jerry Ng, EV Growth, OVOSeries B
Super AppSupply ChainUndisclosedSeries A
RalaliSupply ChainArbor Ventures, TnB Aura, AddVentures, Qualgro, Jo Hirao, SBI Group, Digital GarageSeries C
GrabKiosBill Payment, Supply ChainGrabAcquired by Grab
TokopediaPPOB, Supply ChainSoftbank, Alibaba, Sequoia Capital India, East Ventures, CyberAgent Capital, Indonusa DwitamaSeries G
BukalapakPPOB, Supply ChainEmtek, Mirae Asset-Naver Asia Growth Fund, Ant Financial, 500 Startups, Shinhan Financial Group, GIC, aucfan CoSeries F
WahyooSupply Chain, Operations ManagementAgaeti Ventures, Kinesys Group, Chapter1 Ventures, SMDV, East Ventures, RentracksSeed
ShopeePPOBSEA Garena-
BlibliPPOB, Supply ChainDjarum Group-
AyopopPPOBFinch Capital, STRIVE, Convergence, Miten Sampat, Aakrit VaishSeries A
PayfazzPPOBY Combinator, Insignia Ventures Partners, ACE & Company, Quiet Capital, BRI Ventures, B Capital Group, Tiger Global Management, Vertex VenturesSeries B
GoTokoSupply ChainGojekSeries F

“It’s a sign of a maturing and evolving ecosystem where entrepreneurs and investors are moving from companies focusing on premium users to companies focusing on inclusion into the digital ecosystem,” said Krishnan Menon, co-founder and CEO of accounting platform BukuKas. “This will unlock the power of technology and its impact on the nation as a whole, and not just the cream of the crop.”

COVID-19 catalyst

The advent of COVID-19 has given fuel to startups that are digitalising warungs.

In a report published in Q2, Redseer said that eB2B FMCG players have reported a moderate growth of 10 per cent in order volumes and a 4-5 per cent rise in average order value due to the pandemic. It attributed the increase to lockdown measures as warung owners were unable to visit their brick-and-mortar wholesalers to procure products. eB2B solutions, therefore, have become relevant for warungs and brands reeling from the pandemic.

“Next year, we expect to see the continued growth of the market. The pandemic has only hastened that growth,” said Nipun Mehra, founder and CEO of B2B marketplace Ula, who explained that the pandemic has created the realisation that e-commerce is a safer and more reliable way to procure items.

Ula says it plans to go beyond consumables and expand into businesses such as apparel, electronics, beauty and personal care, and toys, while also expanding its presence beyond the Surabaya region.

BukuKas’ Menon believes that 2021 will see companies double down in different ways. “Some will try to go wider and some will try to go deeper. Hard to say which is the right strategy. Making yourself more relevant to the user is critical, whichever path one chooses,” he said.

Modernising the supply chain

Of all the sub-verticals in the warung space, supply chain management (B2B commerce) is the one to keep an eye out for.

With businesses like Mitra Bukalapak, Grabkios, and Mitra Tokopedia, as well as more specialised players like Ula, Gudangada, and Super already in the game, Indonesia has seen yet more prominent players vying for a share of the market.

EV Growth and OVO-backed Warung Pintar, for example, decided to jump right in when it launched the Grosir Pintar app in November.

Another recent entrant is local decacorn Gojek. Its GoToko service, launched in September, helps shop owners and grocery stores fulfil goods and product inventory.

Given the emergence of many new players in 2020, the landscape is definitely more crowded now versus 2019. However, the low (around 1-2 per cent) penetration of the multi-billion-dollar B2B opportunity offers significant potential for multiple B2B players to co-exist,” said Roshan Raj, partner at consulting firm Redseer.  “Directionally, we expect these players to identify their areas of strength and work towards differentiating on the retail categories of interest and structure of partnerships (with brands, distributors/wholesalers and retailers) they strike in the offline retail network.”

Adrian Li, founder and managing partner at Indonesia-based AC Ventures, which counts BukuWarung, Warung Pintar and Wahyoo as portfolio companies, believes a lot of the companies in the warung digitalisation game are still “very early in their business model formulation or implementation of monetisation strategies.” As such, the VC firm says it has advised its investees to focus on a core product-market fit and go deep on quality of users — demonstrated by strong retention rates, frequent engagement, and value creation for end-users.

Given the nascent nature of the space, Li foresees more venture capital money being injected into businesses around the warung segment next year.

“As it is still early in the market cycle with barely 10 per cent adoption rates by all ventures combined, there will be continued interest by investors in the opportunities offered in this space. As the sector matures, more sophisticated applications will be built on top of the solutions in place which will further create more business opportunities,” he said.

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.