It’s full steam ahead for Southeast Asian super app Grab, even as it begins to round off an eventful year that’s both propelled and devastated tech companies of all kinds across the world.
Grab itself has not emerged from the pandemic unscathed. Ride-hailing, long deemed a core part of the decacorn’s business, took a big hit with the spread of COVID-19 in Southeast Asia, even as food delivery turned en vogue overnight. Manpower strength was trimmed by 5 per cent to keep a lid on costs. ‘Sustainable growth, not growth without measure’, became the catchphrase of 2020.
But today, towards the end of the year, it sounds like the worst is nearly over.
Speaking at DealStreetAsia’s Asia PE-VC Summit 2020 on Tuesday, Grab’s president Ming Maa shared that the Southeast Asian super app is now generating over 95 per cent of pre-COVID revenues, with deliveries contributing more than half of the total.
Maa outlined three key focuses for Grab in 2021: last-mile logistics, fintech, and merchant services. Gearing up across these fronts will help solidify Grab’s super app strategy to be what Maa calls the “platform of choice” in Southeast Asia. It’s something Maa confidently believes Grab already is today.
“I think the reason that we’re becoming this platform of choice is really because of the scale of the platform that we’ve built. The customer reach, our ability to go direct to customers, and having the absolute lowest last-mile cost for deliveries is very, very important. And frankly, a payment solution that reaches more consumers than any other. All of that combined together creates a great partnership opportunity with many global companies,” shared Ming Maa over the live webinar.
But that effectively re-draws battleground lines for Grab in Southeast Asia. Two years ago, Grab was fighting tooth and nail for market share with two ride-hailing heavyweights, Uber and Gojek. Moving ahead, Grab’s entrance into e-commerce, logistics, and fintech will see it colliding with winning unicorns that occupy these verticals — Shopee, and Tokopedia, to name just two.
“I do believe that competition will increase quite a bit over time. We’re seeing a lot of digital platforms start to focus on local services, like transportation, like food delivery because what’s abundantly clear is just how attractive these markets can be, and what value we can provide to our customers,” shared Maa.
Competition isn’t just healthy. It’s critical, added Maa. “It’s really important to have competition and ensure that our customers have a choice. That’s a very important (aspect) for a market to develop in the right way.”
Edited excerpts of the talk with Maa from the summit:
It’s been a tumultuous 2020. How has the past year been for Grab, and how has COVID shaped Grab’s objectives for this year and the next?
It’s a year that’s highlighted the differences between resilient businesses from those that are less so. At Grab, our total revenues are now back to well over 95 per cent of our pre-COVID revenues. We have a little bit more way to go but our direction and trajectory are absolutely spot on. As you would expect, there’s been tremendous growth in our deliveries business, far beyond what we originally expected. In fact, it now generates over 50 per cent of our total revenues.
I think this pandemic has highlighted one of the advantages of our business model on the supply side of our marketplace. We’re really operating in a very unique region. It’s a region where motorcycle drivers can do ride-sharing, food deliveries, parcel deliveries, all in one. So we can very quickly toggle our driver supply to meet different areas of demand that allows us to help our drivers maximise their earnings. But it also means that we can provide them the lowest delivery costs in the market, and that’s a very unique difference.
On the consumer side, there is no question that behaviour has changed. What’s very encouraging in the data is that even when cities open up, our customers continue to use delivery because of the convenience. So this does seem to be a very durable change in behaviour.
And of course, I would be remiss if I didn’t mention payments and the adoption of digital payments. That has really started to scale. In fact, we see a 30% growth in first-time cashless payment users across the region, and this is just for food delivery.
What are your new strategies and product focuses for 2021?
First of all, I would say that our overall super app strategy hasn’t changed. The advantages in terms of solving a customer pain point, the lifetime values, the retention rates, are just so much more compelling compared to an approach where we just focus on a single vertical. But within the overall super app strategy, we are adjusting our focus to serve our customers the best we can in this new normal.
I’m excited about three areas for 2021. First, we’re tripling down on deliveries. There’s been tremendous demand for last-mile (deliveries), and I really believe that our customers have embraced deliveries in a very durable way that will persist for a long time after COVID.
The second is to enable home entrepreneurs to do more and do better. We’re investing in our merchant services platform to help our merchants earn more. We’re helping them go online, we want to make sure that they benefit from digital adoption, help them with digital marketing, how to better attract and target a much larger audience.
Third, we’re focused on growing our financial services business. Insurance has been a huge success. For us, we’ve originated somewhere over 20 million paper policies, since we’ve launched that business last year. We’ve launched our first micro-investment product, so you can now invest and save, even if you just have $1 in your wallet. Our goal is to continuously keep transforming the idea of financial services with products that are more accessible, more affordable, and more transparent for every customer.
Grab recently did a partnership with Lazada that saw the integration of your platforms in Vietnam. Can you take us through the motivations for that partnership? Is this something that we can expect to see in other parts of Southeast Asia?
First of all, I wouldn’t call this integration. It’s really a partnership with Lazada. We’re honoured to be their partners across a variety of local services, food delivery, last-mile logistics. We’re also partnered with Lazada in Thailand on different marketing campaigns, and I see a lot more we can be working on together.
But I think the more interesting trend that we’re seeing is that we are becoming the platform of choice, particularly for large global companies that want to expand into the region. For example, we have a very broad strategic partnership with Marriott International, where we work on food delivery for all the restaurant properties within the hotel. We’re doing payment, transport, we’re integrating loyalty and rewards, advertising. So a lot is going on. We also have a great partnership with Unilever, where we’ll be delivering their food products, household products, and personal hygiene products. This list goes on and on.
I think the reason that we’re becoming this platform of choice is because of the scale of the platform that we’ve built. The customer reach and our ability to go direct to customers, and having the absolute lowest last-mile cost for deliveries is important. And frankly, a payment solution that reaches more consumers than any other. All of that combined together creates a great partnership opportunity with many, many global companies.
What kind of growth opportunities can we expect especially with regards to logistics? Are there specific areas that you’re looking to plug considering that Grab has its own fleet of active drivers?
I think the use case for last-mile logistics is very broad. Not only does it cover traditional sectors and e-commerce marketplaces like Lazada where we power the last-mile delivery, but there are also many times when we focus on same-day deliveries or instant deliveries. There’s a value in being able to receive products on the same day, rather than waiting for one day to get it and I think the entire world will shift towards same-day and instant deliveries.
At the same time, I also think there’s a very broad market of social commerce. So these are individuals that may be buying or selling on social media platforms and using our services as fulfilment for the last mile. I think particularly now in this day and age with COVID around, the last thing you want to do when you purchase and transact, you don’t want to meet somebody in the park and then transact.
E-commerce remains a pretty small component for Grab’s business at the moment. I guess you can say that we can expect more such products in this space from Grab as we move into 2021?
We’re really hopeful that we’ll be able to bring all of Grab to our e-commerce partners. So it’s not just last-mile deliveries, but partnering with our payment solutions, partnering with some of our local services, and providing a much richer experience for customers. I think that is the bigger opportunity.
Just a few years ago, Grab was battling Uber and Gojek on ride-hailing in Southeast Asia. Today, we’re talking about logistics and e-commerce. Do you see the likes of Shopee and Tokopedia potentially becoming meaningful competitors to Grab?
I think, first of all, having competition is not only healthy, it’s actually critical. It’s really important to have competition and ensure that our customers have a choice. That’s very important for a market to develop in the right way. And to your point, I think even today, we compete with a variety of different companies in food delivery, grocery delivery, payments, fintech.
I also believe that competition will increase quite a bit over time, we’re seeing a lot of digital platforms start to focus on local services, like transportation, food delivery.
But I think probably what sets us apart is really two things. First is, we are the only super app with a regional footprint. At the end of the day, on the supply side, that means having the lowest cost for last-mile deliveries. Ultimately, I think that is truly the key to competing sustainably over the long term — having the lowest costs for deliveries.
Second, we really live and breathe and execute an extremely hyperlocal way to customers. Every country, every city is different. We avoid the mistake of taking a very cookie-cutter approach to our region. Our super app in Singapore looks, feels, and functions very differently from our super app in Indonesia. And it’s important to do so because unless you address the customers hyper-locally, you will ultimately miss-serve your customers in the wrong way.
In one of our previous summits, we were discussing capital being a defensive moat for Grab. Is that still the case today given the current fundraising climate?
Capital has never been a defensive mode for us. We’ve been very blessed to have great investor support. But we’ve had that support because of the underlying characteristics of the business. I think our real moat is, the people, the teams that we built, and the culture that we created.
I’ve seen a lot of companies but I’ve never seen a company with such a genuine core belief in the mission to drive Southeast Asia forward. And it’s not a CSR (corporate social responsibility) tagline. It’s not a headline that we use. Everyone lives and breathes the opportunity to move that region forward. And what we mean by that is, we really want to help make digital services more accessible and more affordable to a large middle economy that, frankly, has never had access to the same services, the same benefits that you and I take for granted when we wake up every day.
Secondly, we really believe in our mission of empowering micro-entrepreneurs like our drivers and our small businesses, our restaurant partners, so that they can also benefit from the digital economy and not be left behind. We have a true belief that the more that we can help these entrepreneurs out from the informal economy to the formal economy, the more we help to reduce income inequality around the region, the more we help the region as a whole.
If you actually look at the scorecard on this, we now have over 9 million entrepreneurs on our platform today. Everyone from drivers to mom-and-pop restaurants to the kiosk street corner, more than 30 per cent of our entrepreneurs in Indonesia have never held a job before Grab. Today, they’re earning incomes that can be up to four times the minimum wage in each country. So I think our core belief, our mission and motivation really come from that.
Grab has for the longest time built its core business around ride-hailing for its superapp strategy. But with the COVID pandemic, certain segments performing better than others. Can I assume that Grab is now building its product around fintech? How is that transition like?
I think transportation will always be core for Grab. If you think about the services that we have built around the super app, it’s all around the last mile. How do we solve the last mile? Now, the last mile might be a transportation last-mile problem, it might be a delivery problem, it might be a payment problem at the last mile. But the common thread that ties together is how do we solve that last-mile problem in the most efficient and the most cost-effective way for our customers? So I think that is ultimately our core.
You’re right, the financial services market is arguably one of the largest opportunities in front of us, with well over $60 billion market for digital services alone. And we are right at day zero in financial services. In fact, we have submitted an application for the first retail digital bank licence in Singapore, and one of our beliefs is because we operate one of the largest marketplaces in the region, we have this huge volume of transactions occurring on our platform. So that creates a very unique opportunity to provide our customers with the types of payment, financial services, products that are relevant for them.
So whether it’s Pay Later for a customer buying on e-commerce or it’s working capital financing for our merchants, or microinsurance products. These are all things that we spend a lot of time thinking about. In August, I talked about our AutoInvest product in Singapore. For the first time ever, customers can now invest even if they have $1. So I think we are just seeing the tip of the iceberg on where financial services can go to, and we’re just very excited and very honoured to be serving our customers this way.
We see that Grab has begun hiring key leaders for the digital banking team. Can we take this as a sign of confidence in winning the bid for digital banking licence in Singapore?
Well, we’re waiting on the decision on the licence, so it would be premature for me to comment! But what I can comment on is that our digital bank plans haven’t changed because of COVID. In fact, I think it’s the opposite. We think it’s even more important now to have a banking solution that is accessible and affordable to as many consumers as possible.
Grab has raised quite significant capital this year. How challenging has it been for fundraising during this season? Would you consider debt to be a cheaper alternative now?
Well, first of all, there’s nothing announced on the fundraising or investment front. We’re just keeping our heads down and focusing on executing the super app strategy. We do view fundraising and partnership as very similar opportunities. There are, of course, potential partnerships that will help us better serve our customers and we’ll look at them one by one.
Debt is obviously something that will help any company diversify the capital structure, and as companies become more and more mature, the ability to raise debt becomes an option and it makes a lot of sense. We’re keeping all options open.
What is the approach and attitude towards inorganic growth, especially with regards to M&A? You’ve deployed various kinds of methods on this front, although for the longest time Grab has always taken a partnership approach to scale. Any changes on that moving into 2021?
We’re always looking for opportunities to partner with big companies. In fact, I’m very fond of the saying, “If you want to run fast, run alone. But if you want to run far, run together.” I think that approach and philosophy is quite important to grasp. And you’re right, partnerships can take many different forms. JVs can make a lot more sense than your pure investments or M&A. Because joint ventures can create a good alignment of interest in a very unique way. We’ve had some very successful JVs in the healthcare space like with Ping An, Good Doctor, and Zhong An in the insurance sector.
So COVID has not slowed us down at all. In fact, I feel like it’s the opposite. It’s quite clear that digital platforms are converging with respect to the services that they offer. And I think that convergence will trigger a lot of discussions and conversations around partnerships, joint ventures, and investments.
Do you ever think that this network sometimes has become a bit of a snag, especially when it comes to building a more coherent strategy and the need for Grab to execute at speed?
Yeah, it’s a very astute question. I think we’re very deliberate about the types of partnerships and the specific areas for partnerships that we enter into. And that’s specifically done to balance exactly those issues that you raised.
I think anything within the core of Grab, which has to do with our last-mile solutions, I think we will tend to execute internally. But I think opportunities that are somewhat outside of our core into various adjacencies where we can really benefit from the learnings of other companies that have already gone through that learning curve. Those are situations where it makes a lot of sense to partner together.
So you’re right, the key is to be very deliberate and very thoughtful about how you define success in these partnerships, and how you set up from day one, the right environment to make sure that these partnerships will be successful in the future.
Has COVID-19 affected your own timeline for IPO? Because you do have a deadline to list by 2023 in order to avoid a hefty payout to Uber.
There’s no change in our thinking around IPO and timelines. And frankly, we have an amazing and very constructive partnership with Uber. And I think Uber, like many of our shareholders, wants us to focus on keeping our heads down. They want us to focus on delivering the best service for our customers and on executing our super app strategy. Ultimately, if we stay focused on the operational execution, an IPO will happen at the right time.
You’re based in the US right now. I’m sure a huge part of what you do also requires you to sell the Grab brand to important US investors and stakeholders. What have those conversations been like in the US given that Southeast Asia is still a new market to many US investors?
Well, I still spend the majority of my time in Southeast Asia. But I think that when you speak to the investor community here, many investors are more inclined to look at China or other large developing markets for obvious reasons.
But I also think in many ways, there are a lot of similarities between Southeast Asia and China 10 years ago. There are 650 million people in this region. That’s twice the population in the United States, and we have some of the most densely populated cities on the planet. As you know, it’s very young, Gen Z is a third of the population, a very strong, middle-income class that has disposable incomes. This middle class is growing. These consumers are just absolutely smartphone native. In many situations, they’re skipping traditional service providers in favour of mobile-first companies.
We talked about financial services, but 70 per cent of the consumers in Southeast Asia are underbanked or unbanked altogether. So that creates an opportunity because we don’t need to necessarily convince our customers to switch from a bank to a wallet. In many instances, our wallet is their first experience with a financial institution. So we’re skipping generations of service providers. We’re building a lot of the infrastructure, whether it’s payments or last-mile logistics, a lot of the infrastructure that has historically held the region back and we’re building this infrastructure, not just to grow our own business, but to also help other tech companies grow digital penetration in the region. Hopefully more and more of this will be seen by the investment community globally.
One thing we did see this year was Sea Group’s remarkable share rally in the US in the early part of this year. How did Grab view this? Would you say this is some validation of the opportunity in Southeast Asia?
I think that’s probably a better question for Sea Group, but I certainly hope this is a sign of greater awareness and appreciation of the markets here. And, you know, frankly, we’re rooting them on. I think the more Southeast Asian companies IPO globally, the more awareness becomes developed. So we really want to cheer these companies on.