It is not news that every major food delivery player is entering the grocery delivery space – be it Grab, foodpanda, Gojek or even new entrants like ShopeeFood. The competition is heating up! 

It is understandable that these players want to sustain in the long run by leveraging on their existing delivery infrastructure and customer base. And the huge, unpenetrated grocery delivery seems like a great opportunity!

However, has anyone figured out the space?

The USD $300 billion grocery market has less than 1% online penetration. The industry is still in an experimentation phase and players are trying different models.

Each player is trying to capture the market in their own way. Grab even recently acquired Jaya Grocer to integrate storefronts to their online grocery channel. We see a lot of potential for this acquisition to catapult Grab further into the grocery space. 

However, this is not the only business model Grab is employing to capture the grocery delivery market and there are other players in the space as well. 

But the business models we see in Southeast Asia are similar to what tech giants like Meituan and Alibaba implemented in China. 

i) Integrated Online and Offline channels (Owning storefront)

A company owns both the offline retail stores and online channels to control the entire channel of buying groceries. Customers can order online and choose to either pick up the groceries in person or get it delivered to their doorstep.

This model has high capital expenditure and operational cost, but the cost can be recovered since offline stores yield high revenue and offer great branding and customer exposure.

Grab’s acquisition of Jaya Grocer is a great opportunity to integrate their online channels with Jaya Grocer’s offline store. This model follows Alibaba’s footsteps where they launched offline Hema stores in China. 

ii) 1P (Owning inventory and warehouse)

Companies own warehouses (usually in high-demand areas) and the inventory to control the quality of products and ensure a better customer experience. A major advantage of owning a warehouse is that they have direct contact with the supplier which reduces costs and gives more control over the quality of products.

However, there’s also a great risk in owning the inventory and warehouse. There’s a significant investment involved and it is also operationally demanding.

Grab and Gojek are trying out this model, which is similar to Meituan Maicai.

Redmart by Lazada also owns the inventory, but they don’t do on-demand deliveries. Since they only do scheduled deliveries, it is much easier to optimize. 

iii) 3P (Marketplace)

These companies don’t own or operate warehouses. They partner with other players to provide the goods. 

This model requires low capital and is faster and cheaper to scale. It can provide a large selection to customers and a good customer experience provided there’s a good system and integration with partners.

However, it has lower margins, so a higher volume is needed for positive unit economics. 

Players like Grab, foodpanda, Gojek are trying out this model, which is similar to Meituan Shangou and Alibaba’s Ele.me. 

Unlike in China, no major platform in Southeast Asia is trying community group buy yet.

Southeast Asian players are trying multiple business models at a time to see which clicks with their audience. 

The industry is still developing, and the business models may work depending on the city, customer segmentation, supply chain, etc. 

 

If you would like to learn more about grocery delivery and food delivery in Southeast Asia, you can download a complimentary copy of our food delivery report here.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.