How to succeed in building a B2B marketplace in Indonesia?

B2B ecommerce has a fancy name in China – Industrial Internet. Although it is far less sexy than B2C (the likes of Taobao & Pinduoduo, or Lazada and Shopee), B2B itself is necessary as many of the businesses along the B2B supply chain feel the challenges of our time. 

In Southeast Asia, B2B ecommerce platforms have also begun to attract investors’ attention in recent years. India’s Udaan has reached a valuation of nearly US$ 3 billion under the investment of DST and Lightspeed last October. The valuation of Telio in Vietnam also jumped from 0 to US$100 million with continuous support from Sequoia Capital.

And in Egypt, B2B platform MaxAB secured the largest seed round in the Middle East and North Africa region last year – US$ 6.2 million.

Of course, there is a special case in India and Indonesia where multi-brand retailing is not open to foreign investment or has great restrictions. As a result, the core mom and pop retail shops (Kirana Shops in India; Warung in Indonesia) became the main target customers of B2B ecommerce.

In addition to Udaan, B2B companies appearing in India include Jumbotail, ShopKirana, and ShopX invested by Li & Fung. Reliance Jio, which has been frequently invested by big names recently, is also targeting Kirana stores. The reason is simple, these stores need to purchase goods. They bear the cost of rent and delivery at the end (delivery just needs a son, no extra cost), and also become a good last mile network.

There are also many staring at Warungs in Indonesia. The e-commerce unicorns Tokopedia and Bukalapak both have partner programs with Warung. Large conglomerates such as Lippo and Sinar Mas have their own B2B supply chain platforms.

It is not easy for startups to enter this market unless they have enough capital backing them: Ralali had pivoted several times before it seemed to be on the right track; Stoqo, who copied Meicai from China, unfortunately, died in the epidemic; Warung Pintar and Payfazz were lucky – the former was funded from the beginning, the latter got a lot of money from the sky (yes, the sky – DST) after a long hard fight.

Of course, you might say that these companies have different models. However, they will go the same way as all they do is the end agent network. This is actually already done by the state-owned bank BNI, but they are not burning money and there is not much technology involved, so naturally, they are not competitive. Everyone opens an account to get their salary and just withdraw the money to do their own things.

After the seemingly chaotic competition, GudangAda suddenly appeared at the end of last year. Over a year since founding, it has secured two consecutive rounds of financing, with a total amount of 30 to 40 million US dollars.

GudangAda aims to provide a one-stop trading platform services for the FMCG B2B trading industry. At present, the Gudangada platform already has tens of thousands of verified members, including distributors, wholesalers, and retailers, and has covered more than 500 cities in Indonesia. 

It is worth noting that at the beginning of this year, GudangAda announced that it obtained a seed round of US$10.5 million. In just over two months, it has received more than US$20 million in a round from Sequoia India and its existing investor Alpha JWC. It seems that investors are very optimistic about its potential in the B2B industry.

Unlike many startups in Indonesia, the founder of GudangAda, Stevensang is not the rich second generation who graduated from Harvard or Stanford, nor did he go to UCLA which is crowded with young Indonesians.

On the contrary, he is a veteran who has been working in Indonesia’s FMCG industry for over 20 years, starting from sales and distribution. However, he has more determination and execution ability to solve problems with technology and mobile Internet than other experienced leaders.

Stevensang has a clear understanding of the pain points of the entire channel, especially the wholesalers. In recent years, the cost of labor, fuel, operations, etc. has been increasing. Due to traffic congestion, imperfect infrastructure, and other factors, the efficiency of the entire market has also decreased, which is a huge challenge for wholesalers in Indonesia.

As a veteran of the industry, Stevensang believes that wholesalers are aware of the higher and higher costs and the resulting profit margins are gradually lower than before. This general trend cannot be changed. Moreover, it is very inefficient to deliver goods by separate brands.

However, if no one takes the lead and is determined to carry it out, this situation will not be changed and the pain will not be resolved.

Moreover, for any B2B platform, the wholesale market is a very difficult market to penetrate into in Indonesia. Building trust is crucial. So instead of online promotion and communication, Stevensang said that he paid more attention to face-to-face conversations in the early days. Stevensang said that many wholesalers have been working with him for more than 15 years, but face-to-face communication is still necessary.

Before establishing GudangAda, Stevensang prepared for 2-3 years and had conducted careful communications with many wholesalers to understand their needs and ideas, so as to cultivate customer trust in this process. After GudangAda was established, Stevensang and early employees personally visited hundreds of wholesalers and signed everyone to settle in during the process.

According to estimates by several FMCG market research companies, there are about 20,000 wholesalers in Indonesia, and the number of registered members with GudangAda’s real-name verification is gradually approaching this number.

How to break through in the traditional FMCG market:

GudangAda gave them a more efficient platform to try to connect all parties in the entire market. According to GudangAda’s statistics, their clients’ business volume can gain substantial growth in just a few months after accessing the platform. Then they will also start recommending the platform to surrounding friends or downstream of the industry chain. This also allows GudangAda to expand rapidly in Indonesia’s complex FMCG market system, and maintain this fairly high retention rate.

After gathering large wholesalers, GudangAda believes that it is a natural thing to expand offline to regular retailers and to Warung, which is widely found on the streets of Indonesia. Promoters inform them of the wholesalers who have settled in the platform and incorporate these small retailers and wholesalers into this platform to provide them with technology and one-stop solutions, which gives them flexibility and choices.

In terms of offline performance, GudangAda will equip different transportation vehicles with the buyer’s specific size to maximize efficiency. At the same time, there are also staff responsible for offline transactions to assist in the transactions between buyers and sellers, so that even orders for dozens of packs of instant noodles can be realized successfully.

GudangAda chief strategy officer and head of corporate development Ryan Wei said that at this stage they are more willing to focus on what they are good at, expand their market share, and grow member engagement, buying frequency and order value. At the same time, logistics is also naturally the next step focus – not only to ensure basic fulfilment efficiency through self-operated logistics, but also to gradually deepen the cooperation with logistics companies and fleets to connect them with a similar marketplace model. The team will also build deeper linkages with existing merchants through technology. 

If you do not control the transaction side but only integrate offline logistics or just sign up with various small merchant shops, the value is actually not great.

The impact of the current epidemic and plans for the future:

Stevensang believes that the epidemic will have a considerable impact on the entire Indonesian economy and may last 1-2 years. At this time, every company should give priority to how to survive in this situation, observe the changes in consumer behavior, and seriously think about how to change the business model to reduce unnecessary costs and expenses.

For online businesses, as people need to maintain social distance, they are more willing to complete transactions online compared with face-to-face contact with wholesalers. Many wholesalers who have communicated with him are considering how to switch to online business, and many consumers will also reduce some unnecessary expenses and pay more attention to daily necessities. Therefore, the current situation may actually help GudangAda’s online business growth.

Finally, the online B2B market in Indonesia is still very small at this stage, but as the market continues to develop, people will also slowly accept more efficient and cost-effective ways to conduct transactions.

At the same time, GudangAda hopes to accumulate enough user data in the future to turn it into a product advantage for digital marketing.  Make a reasonable match by the size and geographical location of distributors and wholesalers, so that they understand each other’s needs, and provide high value-added best-selling category optimization and inventory management. This will greatly improve the operating efficiency, business scale, and user influence of the entire platform.

In terms of talent recruitment, Stevensang admits that it is not easy for startups in the Indonesian local market, facing traditional industries and focusing on offline operations. But GudangAda, after achieving the early high-speed growth and being able to obtain institutional investment, has the opportunity to bring in international-level professionals, including Ryan, who has an investment and multinational entrepreneurial background. The current epidemic has caused a considerable number of tech talent to flow into the local market from other startups, which is a good opportunity to expand the team.

“Even though this may be a long process, I always believe that a good team can give us a greater competitive advantage, and the continuous recruitment of world-class high-end talents is very valuable for a startup.”                                                                             

 —— Stevensang

Momentum Works’ Opinion:

Geographical dispersion, wholesalers of various sizes, small street vendors, etc. form a complex closed system of the Indonesian FMCG B2B market. Unlike 2C products, the trading habits they have maintained for a long time are difficult to be penetrated by existing Internet technologies. 

GudangAda has solved this obstacle very well in the early stage through a lot of industry relations and preparations. More efficient and convenient services also increase the user’s dependence on the platform, especially in the context of the pandemic, whether it is a larger wholesaler, retailer or small shop will actively consider using online methods to achieve transactions.

However, it is not easy to do well in this market. Receivables management and fulfillment costs are all problems. The pandemic is just a good opportunity. How the platform attracts more users while maintaining a stable cost advantage and long-term value to all parties is a tough test for operators.

Relatively speaking, we believe that competitors are not the biggest challenge for GudangAda’s development.

Connecting all parties to the online platform is only the first step. In the future, how to better explore the FMCG B2B market, a huge market that is relatively neglected by capital, there is more space for GudangAda to explore.