How Shopee outspent Lazada; Indonesia’s thriving D2C brands

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25 Nov, 2021
Tech in Asia

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Many foreigners love Vietnamese traditional black coffee, but for me, it’s too strong.

For sure, Southeast Asia has a diverse coffee culture. It’s not a surprise that Starbucks has a lot of local rivals, one of which is Kopi Kenangan in Indonesia.

The grab-to-go coffee chain is backed by top venture capital firms like Sequoia Capital, Alpha JWC, and B Capital. It is reportedly raising another US$200 million, which could propel the company to unicorn status.

Aside from Kopi Kenangan, Indonesia’s consumer brands like Flash Coffee, Green Rebel Foods, and beauty retailer Social Bella have also been scooping up millions in venture funding. Social Bella in particular chose Vietnam as its first overseas expansion, opening new offline stores even amid the Covid-19 pandemic.

The direct-to-consumer (D2C) landscape in Indonesia is thriving. In the first half of the year, our data shows that as many as 17 VC firms have invested in the country’s consumer brands.

In this week’s big story, Tech in Asia maps out the key players in Indonesia’s D2C space.

It might take some time for Indonesia to produce a Warby Parker, the US-based eyewear maker that went public in September and is now worth about US$6.8 billion.

Can D2C brands be the future of ecommerce in Southeast Asia? For now, the bulk of the money remains with the marketplaces.

Pouring through financial figures, our analysis this week looks at how Alibaba and Sea Group have each invested in their ecommerce units. It just might be a lesson in reaping what you sow.

— Huong

THE BIG STORY

 

The key players in Indonesia’s D2C space


Image credit: Timmy Loen

Investors are taking notice as more Indonesians buy things online during the Covid-19 pandemic.

HOT TAKE

 

The international race between Alibaba and Sea Group



Here’s what happened:
Alibaba’s net income for the September 2021 quarter plummeted 88% to US$833 million from nearly US$7 billion in the previous quarter. The group has slashed its growth forecast for fiscal year 2022 to 20% to 23% from the previous 29.5%.

The company blamed “slowing market conditions and more players in the China ecommerce market” for its underperforming results. It’s also obvious that Alibaba has been the hardest hit by China’s prolonged crackdown on the tech sector.

Alibaba also cites heavier spending on various “strategic” units such as Taobao Deals, Lazada, local consumer services (Ele.me), and community marketplaces (Taocaicai) as one of the downturn factors.

Here’s our take:
Between 2018 and 2020, Alibaba injected about US$4.4 billion into Lazada, with more than US$2 billion in 2020 alone, though it’s not clear how much of those were spent on operations.

Shopee, meanwhile, splurged around US$6.6 billion in the same period, our calculations show.

The investment gap may partially account for Shopee’s overtaking of Lazada in the region.

Some believe that following the 2016 acquisition, culture conflicts between staff and management from Alibaba and Lazada, as well as frequent top executive changes, have contributed to the slowed momentum. Others would argue that Lazada prioritized building its ecommerce infrastructure for the long haul.

Nonetheless, with a difficult environment at home and its Chinese ecommerce business seeming to have hit a ceiling, Alibaba may need to up its international game and play the Lazada card right.

A warning sign is that Shopee’s revenue in the third quarter of the year is closing in on Alibaba’s entire international ecommerce business, which also includes Trendyol (Turkey) and AliExpress in addition to Lazada. The gap could disappear as Shopee is expanding its empire to Brazil, France, India, Poland, Spain.




But as Shopee stretches its resources thin, can it defend its home turf in Southeast Asia?

The race in the region is still wide open, where 40 million new internet users coming online in 2021, according to estimates by the latest e-Conomy SEA report from Google, Temasek, and Bain & Company.

More importantly, is Alibaba willing to increase its investment in Lazada? “These areas, it’s not a one-year investment period, it’s several years. [But] there might be some adjustment in terms of the mix of the investment,” says Alibaba chief financial officer Maggie Wu during a recent call with analysts.

For one, the ambitious plan of Cainiao, Alibaba’s logistics arm, to build a smart warehouse network in Southeast Asia may give Lazada an edge in last-mile delivery and fulfillment over Shopee, which mostly relies on third-party logistics providers.

Shopee’s impending showdown with incumbent leaders like Poland’s Allegro and India’s Flipkart may also siphon away part of Sea Group’s US$13 billion war chest, though the company says that these are just trials.

Without the same advantages it enjoys in Southeast Asia, Shopee will likely have to invest more time and resources carving out a niche for itself in these new markets. This could perhaps provide Lazada with an opportunity to bounce back.

— Huong & Tianwen

 

NEWS YOU SHOULD KNOW

Check out Tech in Asia’s coverage of Asia’s ecommerce scene here.
 

1️⃣ J&T Express has reportedly raised US$2.5 billion and could partner with Shopee in Latin America.
 

2️⃣ Meesho, the India-based social commerce unicorn, is in talks to raise US$1 billion. It just bagged US$300 million in a round led by SoftBank back in April.
 

3️⃣ ByteDance has released a TikTok app for sellers, developed by its Singapore-based team. Chinese media says the app is mainly used by merchants in Southeast Asia.
 

4️⃣ Walmart and Twitter have collaborated to test the latter’s new ecommerce initiative called Live Shopping in the US.
 

5️⃣ Flipkart has acquired online pharmacy startup SastaSundar, and it has also entered the healthcare vertical with Flipkart Health+.

FYI

 

1️⃣ Is cashierless the future of retail?




Just pick up the coffee and walk away with your Starbucks? It might sound too good to be true.

Starbucks and Amazon Go have recently launched a new store concept in New York City. Customers can order their coffee first on the Starbucks app and pick it up at the store. Users can also purchase other in-store items, which will then be automatically added to their Amazon Go virtual cart.


2️⃣ Forget Santa Claus, shopping bots must rescue this Christmas

Parents in the US are turning to shopping bots to scour retail websites this holiday season, according to this Wall Street Journal report. The reason? The global supply chain woes have made empty retail shelves all too common.

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