E29 – The Impulso Podcast – Indonesia plans to ban TikTok Shop, Luckin x Moutai sells more than 5 mil cups, and Lummo’s liquidation

 

Welcome to the Weekly Recap by Momentum Works, where we dissect business news in China and Southeast Asia. On this episode’s agenda: Luckin x Moutai collab, Lummo liquidation, and Indonesia’s plan to ban TikTok Shop.

Listen in to gain invaluable insights and stay ahead in the dynamic world of business. Below, you can find the player to tune in and the transcript (generated by AI).

Episode transcript:

Dalia 0:01
Hello, everyone and welcome back to yet another episode of the imposter Podcast. Today we are bringing to you a weekly recap for our guests. We’ll be talking about recent news and developments in China and Southeast Asia. Now, let’s introduce our guests. Jianggan?

Jianggan 0:18
Hello

Dalia 0:19
Now we have Vion

Vion 0:21
Hi

Dalia 0:22
and Ada

Ada 0:23
Aloha

Dalia 0:25
And finally, our new colleague Siqi

Siqi 0:27
Hi, Siqi here and you can also call me Alina.

Dalia 0:30
Okay, great. Thank you guys for coming today. And now to Jianggan

Jianggan 0:35
Hello. It has been an interesting week, we have three topics that we want to cover in this podcast. So first, obviously, as some of you might have heard Luckin Coffee in China started selling liquor. And they’re actually doing pretty well with it. So the second topic and the third topic that we’re talking about are related to Indonesia. First, there’s a rumor saying that Indonesia is considering a ban on Tiktok shop, which is making waves in E-commerce space in the country. The third is that there’s this company that raised lots of money in the SaaS space in Indonesia, which is which has filed for liquidation. So we’ll touch upon that as well. So first topic, Luckin coffees, Moutai spice latte, Vion you want to give some background?

Vion 1:23
Sure. So last few days ago, Luckin launched a new drink with Moutai, essentially alcohol alcohol-infused latte. Everyone has been asking, how does it actually taste? And can you drive up the drink it? Right? What makes a noise is actually all the social craze that goes behind it. And of course, it’s so 5 Million Cups in just the first day of its launch.

Dalia 1:48
I think what might be interesting for our listeners is that this combination of alcohol and coffee is not really new, right? We already have some Bailey-coffee combinations and stuff like that. But I wonder what exactly makes Luckin Coffee and Moutai different. And what’s exactly the reason behind the roaring success?

Jianggan 2:09
Even before that, not everybody in our listener base is familiar with Moutai. What is Moutai?

Jianggan 2:15
So he originally came from this, province in a Southwest court Cujo, which is famous for its weird climate and cost kind of landscape. So the town of Maotai, which was called something else, right before, I mean, it’s famous for for making this kind of distilled liquor for 1000s of years. And he has this spice test, which, depending on your personal taste, you either like it, or you hate it. But regardless, it has been a staple of important banquets in China, business people, and in the past, the government consumed a lot of that. So obviously, I mean, how much how much is out there? 10 You know, like 1000 Something RMB per bottle?

Ada 3:23
3000 Usually, okay, so that works out to be around 600 Singapore dollar

Vion 3:30
So, this latte is selling at about $3 After this after the vouchers. So of course everyone is saying “Oh, now this is where I get to have a first taste of my Maotai in my life”. Right. And on social media people are seeing Luckin people get to have their first taste of Moutai. And Moutai’s usual customer gets to have the first days of Luckin. Oh, and even people working in Luckin seeing their seen people who are not their usual customers. Of course, this collaboration brings a lot of interesting, dynamic increase in that case.

Siqi 4:19
They bring in an effect about one plus one is more than two. The target customer for Luckin is mostly based on young people. And Moutai, usually with the older generation, but now they’re mixing the two effects to kind of bring more customers to both of their brands. So I think that’s very interesting.

Vion 4:44
I’m just curious. I mean, do Moutai customers actually go and drink Luckin Coffee? I don’t think so. Right? It’s usually the other way around. Right? I mean,

Siqi 4:53
By doing this, I think most customers are changing their impression or mold that they want to do something

Jianggan 5:00
Why would Maotai asking your customers just sent you an impression doesn’t make sense, right?

Ada 5:04
I think Moutai might be trying to cater more to the younger generations. So basically people are not their customers yet. Yeah. Because they try to make their brand, more appealing to the younger ones. Think Tiffany’s rebranding, like over the last few years, it’s been like it’s quite, it’s done quite a lot of rebranding, getting brand ambassadors that were usually not their typical choices.

Jianggan 5:40
What is Tiffany for people who are not aware?

Ada 5:43
US luxury jewelry brand? Okay, yeah. So basically, if you check, like the choices of their brand ambassadors, and also how they represent themselves, in social media, I think they’ve made quite a lot of effort to get rid of the very old classy, but you know, belong to like mum and dad generation kind of image, and try to be really chic in a way. So I think Moutai might want to do the same thing. Because of course, you still have the old prestige for the most classic liquor, right? That’s still reserved for like, very formal and high-end, business lunches, and all that. But then, of course, for the younger ones, they can make the brand also accessible to them. The last time I went back home, we saw like, a whole list of Maotai ice cream is actually a proprietary brand, by Maotai.

I think, you know, the launch a quite a few years ago when I was still back in Beijing. And then people were trying to pay the middlemen to get to, like, get a taste of ice cream, because it’s not really widely distributed. Then, later on, they gradually opened up more branches to make it accessible. So when I was there, I don’t think a lot of people were buying but as they passed by, so Oh, very interesting.

Jianggan
Vion, so how exactly is the Luckin x Moutai drink mixed? I mean, do you just I mean, at the point of sale, right? I mean, you buy a latte, and they just add a few drops of Moutai in it?

Vion
This is what everyone is saying. Right? So when you first launch, everyone’s thinking, you know, you have the latte, you pour a bit of more time into it. But actually, when you look at the store, how they are making it, they are mixing a package of thick milk latte, or coffee. How this is made, according to them is that they ship a box of Moutai to the factory and mix it, with the milk to produce this thick milk. So essentially, of course, it reduced a lot of complications in the logistics and of course, a lot of the cost-saving considerations as well.

Jianggan
Yeah, it would be weird that you have bottles of water at any point. so how to control the usage and how to prevent corruption at that site will probably be a difficult task. Um, I think I think I don’t know what you mentioned about so the attempt to reach out to young people Luckin? How many outlets do we have in China? 10,000 More than that, more than 10,000. The only way you can order Luckin is through the app or WeChat mini program. Right? So they have direct access to a lot of customers? Probably millions.

Siqi 9:28
Yes, because online payment in China is really spread and we young people like to get used to online payment on the WeChat app. So it’s very convenient for us to buy lucking coffee on WeChat Yeah, on WeChat in a takeaway store.

Vion 9:44
Yeah. Okay. So this means that I mean, lucking has this interesting distribution power to reach out to millions of customers, young customers directly. Do you guys think that this is a product that’s going to stay or do you think that’s a one-off? I mean people credibility people post on social media, talk about it for a few weeks, and then nothing’s gonna stay. What do you think? Ah, ice cream is still there, right?

Ada 10:08
It’s still there. But it’s not really they don’t really have a lot of all it’s solid that I think it’s more for a brand other than just, you know, actually try to boost up the sales volume of the product. I mean, if this product is gonna stay, I think Moutai is going to face some challenges to boost the production capacity of the leaker.

Vion 10:28
Interesting, Do you mean that this actually consumes a lot of my time?

Ada 10:33
I mean, consider the number of cups. I think there, it definitely reaches a larger audience and a much larger base of customers at the you read if you order regularly, of course, you consume more of the ingredients. And then like the most classic, high, and multi, it’s not exactly easy to buy, right? Sometimes there are counterfeits. Sometimes you just kind of get it.

Jianggan 10:57
So they have a production limitation. If their production is limited, why would they expand to more customers?

Ada 11:07
This, I think is a decision right? Sometimes higher-end brands do try to play hard to get in a way, but sometimes is actually limited by the production capacity. Right? And also need to think about how this brand is going to evolve quite a few years down the road. So we need to do a bit of forward planning. So I think maybe later on people tend to drink liquor less due to various considerations. And it might be a good idea to actually you know, consume the liquor and still upgrade and maintain the brand prestige or some other and more innovative ways.

Jianggan 11:45
Another question is can you drive after drinking?

Vion 12:23
Yep. So someone did a test. So it’s actually what she was in collaborating with the local police, traffic police to drink it. And then she got she got herself tested. Of course, the alcohol content is below the threshold of drunk driving.

it’s below the threshold. And know that China is one of the strictest drunk driving law. I mean, according to the official, we are not recommended to drive after drinking.

Jianggan
And there are some lessons that we think that organization could take from that, which are the top lessons do you think?

Vion
Of course, one, if you look at this, the whole craze, I mean, it looks a bit gimmicky, but it has the effect, right, significant effect? So one, how do you make a significant or a knockout, we call it a knockout product, right? Something that get people to remember you, right? And second, would be in terms of collaboration, in this case, you have Moutai and Luckin collaborating with each other. Like the point that we mentioned just now it’s more of a win win partnership. Yeah, so I think I will say that, that those are the two.

Also, I think importantly, that, that nowadays, customers are exposed to lots of things you really need to like, work extra hard to create talking points that will get you spread across social media, right.

Jianggan 14:45
Okay, let’s turn our attention a little bit to Southeast Asia. Wednesday night. There’s news coming out saying that the government of Indonesia is considering a ban on social media. That’s based on some comments that the minister or for, for cooperatives and SME, he made some comments at the parliament saying that okay, Indonesia should consider a ban of TikTok Shop because it’s it’s engaged in some monopolistic behavior. And and since India or US have done some actions to take to Indonesia should should do the same. So, before we dive into the details about how we should interpret this, I think I think investors had already responded quite favorably to the, to the to the news, I think the Shopee share price was up by 5.12%, during the trading day after this news came out. But of course, I mean, there’s there’s a lot to unpack in this. Before that we are house to catch up to Indonesia.

Vion 15:54
Where should I even start? So we’ve been talking to a lot of practitioners over the course of the past few months, while working on the TikTok Shop reports. Right? And what we’ve been hearing a lot, it’s, I mean, of course, they have made a lot of announcements, saying they will be investing billions into the market, right? But if you really go on to the ground, you actually see activities that go underneath, right? People are renting studios, renting, you know, all these places for live-streaming sessions. So a lot of going on. So of course, it’s empowering a large group of ecosystems of influences content creators.

So we have covered that quite extensively in a recent report, The TikTok Shop Playbook, where we analyzed I mean, what they’re doing and why people are watching it, why they were spending so much on it, and then what’s the impact to the ecosystem? But this message about a ban is first out of the blue, right, You don’t have any sign and for the last few, weeks, we have heard about TikTok applying for a permanent license. You hear about them like no, I mean, the CEO of TikTok making a commitment to investing billions into Indonesia and Southeast Asia in marketing in general.

I mean, again, back to the statement, of course, if you look at one layer down first, it was not a public, you know, announcement or any public event, right? It’s not recorded anywhere, it’s just people have different views, and they have the freedom to express their views. Right. So yeah, I don’t see a total ban on TikTok Shop especially now, like what we mentioned, just now, you have a whole group of ecosystems of people working with TikTok Shop imagine the economic impact this has especially you know, in the smallest sellers as well.

Jianggan 18:19
From my point of view, I look at a few elements in it right. So, so try to try and unpack this news. So first, as we said, this is these are some comments that the Minister for Cooperatives and SMEs made in the parliament. So it was not any, like official government communique or it was not any like no draft proposal, whatever. So, from days to the actual formulation of policy, you will take a long time, if that is the direction the of the policy. And the second point is, I mean, the minister is the Minister for SME and a small and cooperative, of course, I mean, his objective is to boast and in a way protect the SMEs, in Indonesia. So we have seen a lot of different perspectives for Indonesia, saying that I mean, how the foreign goods have been impacting the SMEs, Indonesia. So but but the thing is that that ministry per se does not have the power to ban Tiktok shop, because that would require a joint effort from multiple government agencies, including the Ministry of Communications and Information coming for which has not said anything. And we have heard from different sources that the TikTok’s application for payment license is actually going well. So we don’t see this as something which would immediately impact guitar shops, prospect prospects, Indonesia, but, but of course, we know that, as in many countries, what is coming out Indonesia, elections, which is which obviously is, is democratic contest. And you have now I think, four different parties vying for the presidential role in elections next year. So we will see how that plays out. But I think during the same time, you will see a lot of issues becoming part of the political debate. And I think for every stakeholder or for every investor involved in this, I’m just really, really trying to understand I mean, the different political dynamics that’s, that’s, that’s shaping the dialogue, and how that would potentially actually evolve during the process.

At the end of the day, one thing which is also interesting about this episode is that you see a few international media writing about it in the Financial Times, etc, etc. But Indonesia, aside from Jakarta globe, you don’t see other like mainstream media making a big fuss about it, which is unlike what you would normally see in a highly sensitive or highly politicized event. So So probably, that offers some useful pointers about and what might be behind behind it or not.

Jianggan 21:43
Last topic of the week, which is also related to Indonesia, which is a company called normal, which used to be called a buckle cash. And the startup, which has received I think, in total $149 million of funding in the last three years, what does the company into the company builds a app, a software piece that for SMEs to to do bookkeeping. And, and the thesis is that, okay, once I get every SME to do the bookkeeping, through my app, I get an accurate view of how these people are and how these businesses are, and how much credit worthy they have this trove of data will allow us to, to offer multiple services, including lending. So the news is the company is named for voluntary liquidation returning about $70 million to the investors so clearly that the management and investors no longer believed that this company should actually continue Go ahead, even though they still have lots of cash in reserve. So that opens up a few questions first, why are they doing that? And the second, is this piece of business model viable? Ada, how do you think about a bookkeeping business model? For SMEs?

Ada 23:06
I see there are quite a few different factors for adoption. I mean, first of all, whether they need that, right? Sometimes, I mean, if the government is not very strict about, you know, even the smallest ones firing the correct income taxes. I mean, they just go by array. And also, I think, in a lot of countries across the world, smaller SMEs, they do two sets of bookkeeping, right? One for internal records, the other one for tax purposes. And essentially, of course, if they use some sort of software to record, it wouldn’t be the private book, or it’ll be the public book. And then that’s not the whole picture of their financials. And also, a lot of us SMEs, they don’t really do like income based accounting, they just do cash based accounting, right? And that’s not really like a complete or very good indicator of their financial status. And also, like digital adoption, do you actually pay for the bookkeeping software? How much should you pay for it? To actually get the free ones elsewhere? Right?

Jianggan 24:08
So with all these challenges, why did company raise so much money? So let me just quickly run through their fundraising. The company was started apparently in 2016. In 2020, they raised a seed round of 9 million in January 2021. They were a series a of 8 million and may 2021, Series B of 50 million and January 2022, of 80 million. How do you how do you make of this, the the timing for all this fundraising?

Ada 24:37
I mean, there’s never a consensus in in terms of investment right. That thing. I mean, at times investors invest for very different considerations. Also like for one particular deal, salesman by each individual will be different because they come from different backgrounds, they have different pieces of evidence, information for decision making.

Jianggan 24:59
So why do you think Do people put so much money into this company? Do you invest in these kind of companies?

Ada 25:04
Personally? No. Why? Because when I was back in China, there was a wave of like SaaS investment as a service. Oh, yes. And also like startups, right? Quite a few years ago, I was also looking quite closely into that sector, we actually invested into like one of the companies in that sector, although they don’t really just provide SaaS to the customers for various considerations. Because first of all, I think there’s legal pressure for the SMEs to file taxes, right. But then if tax accounting is not exactly just very straightforward, there’s all that like the VAT is and tax savings and across geographies, right? You have like different laws and regulations. And that’s why it’s kind of a there’s always like considerations, and the ways in terms of how you want to account for it, and how you do the bookkeeping eventually. So I don’t think any software can easily do that. And also, it’s kind of politically wrong for any software to claim. I help you save taxes in the most efficient way. Sometimes gray area, in a way, right. But that’s

Vion 26:15
what tax consultants do. Right? They help you optimize the tax. Yes.

Ada 26:20
But then, I mean, there are a lot of caveats in terms of like, how you approach it, how you want to advertise yourself as? And how do you pitch to our own customers, and also depends on our scale. Right. So that’s like, the second layer of considerations are one, I think, genuinely, it’s kind of hard for SMEs around the world to pay for SAS, in a way that people do pay for services. And also, legally, sometimes you need, like the accountants to do all the reporting for you, it’s a lot easier to do all the like accounting, auditing and verification, for like, administrative and regulatory purposes. And that’s why I don’t do it yourself.

Vion 27:03
Which is more interesting, is how many SMEs are there Indonesia?

65 million. And but if you look down this number 99%. So we did a bit of digging in our MSME in Indonesia report. Now you named Yep, 39% of that 65 million is a micro. So that’s about annual turnover of $20,000.

I think below that, right. So less than 20,000 less than that. So we have, we have tracked the government statistics, are 64 65 million SMEs, employing 109 million people. So which means that each SME employs an average of less than two people. So basically, we go to different countries, different countries, definition of SMEs will be different. Indonesia happens to have this MSME concept, micro small and medium enterprises. And if you if you look at the actual medium that the number goes drastically down to like 80,000, or something, which, if you build a SaaS model, it’s it’s not viable. And if you want to really want to do credit, I mean, the best way is to to send someone down to do the due diligence, right?

Ada 29:19
I mean, especially for economies with a significant proportion of cash transaction. I mean, if you eventually you can already get a close looped record of all the transactions and all of the business, you’re basically don’t really know the status. And also, if you cannot reclassify what’s a transaction or for it doesn’t really help you assess the status as well.

Vion 29:45
Which means that if you don’t actually have the full control over a payment, it’s hard for you to just try to build a value proposition based on what you record after the payment.

Jianggan 30:48
Okay, back to Dalia.

Dalia 30:50
Okay, thank you, everyone, for your valuable insights and we are going to be linking in show notes in some of the featured materials. For example, if you want to know a bit of more about Luckin’s business strategy and how they’re competing with Starbucks. We have another podcast episode discussing that. That brings us to the end of the podcast episode. Thank you for tuning in with us and we’ll see you on Wednesday. Bye bye