My experience building a rural ecommerce startup in Indonesia

This is a contributed article 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 ecommerce 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.

A lot of investors around us are excited about ecommerce in Indonesia, having watched it take flight in the past year. GMV has almost doubled, and the rising valuation of unicorns such as Tokopedia and Bukalapak– not to mention the meteoric rise of Sea Group’s (Shopee’s parent company) share prices– points to the promise that this market holds.

Yet, ecommerce activities in Indonesia remain confined to Tier 1 cities. With only 10.2 million inhabitants, Jakarta makes up less than 5% of Indonesia’s population, but it accounts for roughly 58% of the total number of ecommerce users. Whether it’s Shopee or Tokopedia, the biggest players are mainly competing for users from the urban community. According to numbers from the logistics ecosystem, 60-70% of the ecommerce parcels have destinations in the Jakarta Metropolitan Area (Jabodetabek). 

This market still has much room to grow in Indonesia– and most of the growth will be driven by the 130 million rural Indonesians who are unbanked and uninitiated to ecommerce. 

The rural population, more than half of Indonesia, remains very much untapped. Here, a different set of rules apply: most buyers are difficult to access, unbanked, and unwilling to trust tech solutions. You cannot apply the existing B2C model in rural marketplaces, regardless of how successful it has been elsewhere. A different model is needed.

Although the consumption power of these rural Indonesians is expected to increase by almost 50%, the bigger players continue to prioritize their presence in Tier 1 cities– out of practicality. For them, it remains easier to tap into the infrastructure they have built and grow the numbers. As such, there will be many opportunities for businesses that target this group to carve out a sizable market presence.

The question is, however, how should we tackle the rural ecommerce puzzle? If it was that easy, many would have already done it. Our take is that a deep understanding of the rural consumers and communities is the first step. 

Social commerce will be different in Indonesia

Because of how its ecommerce system has evolved, and how closely tied it is to the ecommerce supply chain in Southeast Asia, China remains a reference point for Indonesian ecommerce. 

From what we have seen there, social commerce (Pinduoduo, Shihuituan) was key to allowing ecommerce players to close the gap – and leapfrog – the traditional retail industry. And we believe that it offers valuable reference points on how to enable rural communities in Indonesia into ecommerce as well, which is why our team is trying to introduce social commerce operation models to these rural communities.

Yet, social commerce will also be different in Indonesia. The first reason is geography (and logistics). China is a huge, centralized landmass; Indonesia is a scattered archipelago. Supply chains are stretched more thinly in the latter, increasing the overall cost of logistics.

The second reason is infrastructure. While the different ventures into ecommerce have led to investments in infrastructure, Indonesia still does not have a tech ecosystem that’s as integrated as China’s. Or simply put, Indonesia does not have a super-app that’s quite like WeChat. Many social commerce apps in China tap onto the multiple features that are weaved into the WeChat platform– they do not have this existing foundation in Indonesia.

We cannot copy-and-paste the successful models of social commerce from China to Indonesia; adjustments must be made, especially for the rural economy in Indonesia. 

And even more different in rural Indonesia

While digital banking and digital payment solutions are becoming more common in Indonesia’s cities, the rural areas are still a cash economy. Around 60% of the rural population– or 90 million Indonesians– do not have their own bank accounts and pay for their big-ticket purchase in (cash) instalments. The major ecommerce players in Indonesia do provide instalment plans, but rural Indonesians tend to find their application process cumbersome, with too many questions asked (to many of which they do not have answers).

The bigger concern, however, is price. Since these rural areas are more inaccessible, the logistic and delivery costs involved are both higher, jacking up the prices of the products. In Indonesia’s easternmost provinces, the products can cost up to two times as much as those sold in Tier 1 cities. 

And obviously, using the same delivery model in the cities will not be economically sustainable, even for the large platforms with a big war chest. 

Social commerce = Trust

People often say that social commerce makes sense because shopping is a social experience. We share and connect with our friends, family, and acquaintances about what we buy– social commerce simply extends this idea. 

But that’s not the full picture when it comes to Indonesia’s rural economy. Yes, shopping is a social experience, but for the rural leaders that we work with, it’s also a communal responsibility. Within their tightly knit rural communities, the members are unwilling to trust tech-based solutions but willing to trust their neighbours. 

 

When they buy products online, they are doing so with the trust of their Rukun Tetangga (neighbourhood units). Once any purchase falls short of their RT’s expectations, these leaders also lose the trust (and possibly respect) of their community.

Compared to community group-buying in other contexts, the stakes are higher (for both buyers and sellers). Sellers must earn and cultivate the trust of their buyers. Fail to do so and they lose not only a buyer but also the entire community. Price will matter, but customer satisfaction might matter even more.

Don’t push retail to rural; pull rural to retail

We believe that Indonesia’s ecommerce giants have (deliberately or unintentionally) overlooked these factors, so the trickle-down economy that they designed will not work in rural communities. What players such as Shopee does especially well is to facilitate competition by listing as many sellers and pushing out as many stock-keeping units (SKUs) on the market as possible. 

This model keeps prices low, but only for Tier 1 buyers– it doesn’t matter to rural consumers once they factor in their high delivery costs. Without its cost-savings, this system of ecommerce is no longer attractive to rural buyers, especially since the products are not suited to their needs.

What Shox Rumahan did was flip the pyramid and focus on drawing the rural communities to ecommerce instead. Rather than push these buyers with a lot of products, we wanted to supply only the products that they wanted. It’s not just localization but hyper localization; the needle is a lot easier to find in this much smaller haystack.

 

Our agents play a big role in this inverted system. These rural leaders are our eyes on the RT– they know exactly what their village likes and shop on behalf of them. It’s a win-win situation for both sides. For our rural buyers, they can buy products at Jakarta prices (without markup), buy them in 5-10x instalments, and receive them within a shorter delivery span.  

 

Unlike the big ecommerce players, we can provide prices at Tier 1 prices because we are targeting our products at the RT-level, rather than individual buyers. Our average order value (AOV) currently exceeds $200, which is 5 to 10 times that of other social commerce players. This bulk ordering makes it easier for us to distribute our logistical costs– our delivery costs can drop by 5 to 10 times depending on the size of the village.

For us, we can provide a more targeted selection for these communities while building trust with them through these agents. Shox Rumahan is more cost-effective in our acquisition of customers; our CAC in these rural communities is up to 10 times cheaper than the existing players. And these customers stick around because they see the real value. 

An experienced team with on-the-ground insights

As a team headquartered in Yogyakarta, an ancient (and fascinating) city in the heart of Java island (where 140 million Indonesians live), our team is situated in the heart of rural Indonesia, allowing us to quickly notice and respond to the changing needs of our target audience. 

 

Most of the cofounders and executive team members have significant experience in ecommerce, with stints in Midea, Bukalapak, and Shipper. 

 

Digital banking is the next frontier

Shox Rumahan has already become the leading ecommerce player in the 5000+ villages that we have entered. We want to build on this trust that our users have given us by providing digital solutions that cater to their everyday needs.

Through analyzing the purchases of these rural Indonesians and also the communities they are in, our team can also estimate their credit scores.

We are thus in a good position to create a digital banking ecosystem in Indonesia’s rural economy, introducing our community to digital payment and other financial solutions while increasing their digital literacy.

At the same time, we also hope to consolidate the demand of Indonesia’s rural economy and highlight its market potential, which will allow us to attract local and international retailers and expand our selection.