Deciphering social commerce #2 – Can urban commerce translate to rural areas?

This is an article contributed by Sonat Yalcinkaya (Kaya) and Vyani, co-founders of Shox Rumahan, one of the leading rural commerce startups in Indonesia. Kaya has extensive experience running e-commerce across different countries. While he is native to Turkey, he also speaks fluent Mandarin Chinese and Bahasa Indonesia.

On the other hand, Vyani possesses a keen understanding of rural Indonesia, having been heavily involved in Nestle’s activities in the region. A second-time founder, she grew Shipper’s fulfilment initiatives more than 50 times after her start-up, Pakde, was acquired by the company.

We spoke about the different factors that affected the success of a business model in rural areas in the first part. Let’s deep dive into the urban business model.

We witnessed an explosion in social commerce business models in Tier-1 cities in Southeast Asia during the pandemic. Business models that sold FMCG and fresh produce were the clear winners. However, we have not seen any of these models make it to rural Indonesia. Why is that?

Having worked in rural areas for years, we at Shox Rumahan have some assumptions. It boils down to pain points and trust issues that vary distinctly between the urban and rural populations.

Urban needs

Surprisingly, during Covid, social commerce models that were similar to group buying picked up in urban areas. As the pandemic became serious, there was an increase in the number of people trying to avoid public exposure, especially in cities as the population density was high. People were cautious about going out, even to buy groceries, since they could come in contact with strangers.

This fear was an ideal factor that helped social commerce startups disrupt daily shopping habits. It paved the way for fresh produce and FMCG startups to solve this pain point by bundling orders for every apartment and urban territory. The aggregated sourcing helped them reduce their prices.

Another factor that enabled their success was the high density in urban areas – companies could address hundreds of households in apartments and this also helped them cover the high logistics cost. Moreover, the daily nature of these items enabled predictability and high retention rates.

Contrasting Needs of Rural People

When you consider rural areas, the population is sparse and there is no easy way to deliver to hundred households. In addition, people in rural areas live remotely and look forward to going to the market (or bazaar) to socialize. This is ‘social media’ for the rural population. Furthermore, in rural areas, it’s not only farm to table, but they have their own farm next to their table. Sourcing organic products is not a pain point.

For FMCG products, it’s a common habit for people in rural areas to go to nearby shops (warung/toko) for their daily needs. Startups who want to bring FMCG products to rural areas have big incumbents to overcome.

Incumbent Competition

These incumbents have a comprehensive logistics network (You can always find cigarettes and packaged goods from top brands in the most rural parts of Indonesia). If a startup wants to capture the rural user base, it can’t bypass this network. Even if they try, the margin for FMCG products is razor-thin. By default, they are stuck in price wars with incumbents.

Most importantly, there is almost no loyalty as B2B interactions are built purely on price and the agent/distribution network is transactional. They might switch overnight to the next startup that offers the lowest price (subsidizes by bleeding cash).

The pandemic has helped bolster commerce across different cities, be it urban or rural. However, companies should do their due diligence and understand a particular population’s needs before deploying manpower and logistics. An urban business model won’t necessarily suit the rural population without tailoring it for its people.