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.
|BukuWarung||Bookkeeping||Quona Capital, East Ventures, AC Ventures, Golden Gate Ventures, Tanglin Venture Partners, Michael Sampoerna, Snapdeal founders||Pre-Series A|
|BukuKas||Bookkeeping||Sequoia Capital India, Speedinvest, S7V, January Capital, Cambium Grove Capital, Credit Saison, Hustle Fund, Whiteboard Capital, 500 Startups||Pre-Series A|
|Ula||Supply Chain||Sequoia Capital India, Lightspeed India, SMDV, Quona Capital, Alter Global, Patrick Walujo, WillyArifin, Sujeet Kumar, Vaibhav Gupta, Amod Malviya, Rohan Monga, Rahul Mehta||Seed|
|GudangAda||Supply Chain||Sequoia Capital India, Alpha JWC, Wavemaker Partners||Series A|
|Warung Pintar||End-to-end||SMDV, Vertex, Pavilion Capital, Line Ventures, Digital Garage, Agaeti, Triputra, Jerry Ng, EV Growth, OVO||Series B|
|Super App||Supply Chain||Undisclosed||Series A|
|Ralali||Supply Chain||Arbor Ventures, TnB Aura, AddVentures, Qualgro, Jo Hirao, SBI Group, Digital Garage||Series C|
|GrabKios||Bill Payment, Supply Chain||Grab||Acquired by Grab|
|Tokopedia||PPOB, Supply Chain||Softbank, Alibaba, Sequoia Capital India, East Ventures, CyberAgent Capital, Indonusa Dwitama||Series G|
|Bukalapak||PPOB, Supply Chain||Emtek, Mirae Asset-Naver Asia Growth Fund, Ant Financial, 500 Startups, Shinhan Financial Group, GIC, aucfan Co||Series F|
|Wahyoo||Supply Chain, Operations Management||Agaeti Ventures, Kinesys Group, Chapter1 Ventures, SMDV, East Ventures, Rentracks||Seed|
|Blibli||PPOB, Supply Chain||Djarum Group||-|
|Ayopop||PPOB||Finch Capital, STRIVE, Convergence, Miten Sampat, Aakrit Vaish||Series A|
|Payfazz||PPOB||Y Combinator, Insignia Ventures Partners, ACE & Company, Quiet Capital, BRI Ventures, B Capital Group, Tiger Global Management, Vertex Ventures||Series B|
|GoToko||Supply Chain||Gojek||Series 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.”
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.