Your Questions Answered – Off the Record: Behind Shopee’s Doors – Part 2

Momentum Academy’s first-ever exclusive briefing Off the Record: Behind Shopee’s Doors was a huge success. We had more than 400 registrations at the event, where we discussed Shopee’s strategy, leadership, organization, people and culture. If you missed it, you can watch the event on our YouTube channel.

Momentum Academy helps improve your organization’s culture and management through workshops, immersive simulations, and mentorship. Leaders can become better decision-makers by understanding innovation and disruption and that’s what Momentum Academy enables you to do. 

We received more than 20 questions during the event, all of which we did not have enough time to answer during the one-hour session. We took the time to go through all the questions and answer them for you. 

You can find the first part here.

People and organization

13. How did Shopee become successful in localization? Can this success be replicated in other areas?

Leaders who have lived and worked in multiple countries (as opposed to in a single culture) plays a big part in it. Streamlined internal command and control, as well as the competent executives hired/sent locally, also played a big part. 

Will it be replicated in other areas – quite possible. However, when things become more complicated, will the leaders have sufficient mental space, and will the organization (whose share prices have dropped a lot recently) continue to bring in top-notch talent? 

14. I heard that people/culture issues are trending inside Shopee (big promises but weak execution, morphing into PowerPoint culture). Is it true?

When an organization becomes big, a key issue is communication. Do people making presentations affect the company’s big plans? Or was this just to get an understanding and not meant to be implemented? It’s important to identify what’s important and not. 

PowerPoint presentations should serve the purpose of letting the leadership have a quick grasp of the proposal, and make decisions to prioritize accordingly. It does not mean every plan that ends up on a ppt presentation should or would be implemented. 

You should always take internal feedback with a pinch of salt – and for serious evaluations, speak to multiple people at different levels/functions to piece together a better picture. 

15. Do you think Shopee diversifying into many aspects (logistics, wallets, insurance, food delivery, grocery delivery, gamification, live streaming, etc.) will actually stretch their resources and focus and prevent them from developing their key areas of business?

It surely does – and we would argue primarily the mental space of the key leaders. Whether they can tackle this challenge effectively under the current market circumstances is interesting to watch. 

The execution challenge (for example, improving Shopee Xpress’s service levels) will largely depend on the executives that are running the business units. 

ShopeeFood

16. How is ShopeeFood doing? Will it be a strong competitor to current market players?

ShopeeFood is aggressively offering vouchers to get meaningful market share, and it has managed to build some market share in Indonesia specifically. It recently launched on-demand express delivery in Indonesia.   

From a ShopeeFood point of view, it is a reasonable strategy to earn a seat at the table. The question is how are they going to increase their market share from Grab, and eventually turn this costly local fulfilment network into profitability?

17. How is the food delivery business positioned in the whole group, especially in terms of resource and money?

At the end of Q3 2021, we did not anticipate that ShopeeFood would be so aggressive in the final quarter of the year. The numbers coming from food delivery certainly make up for the slowing down of ecommerce growth in say Indonesia. Moving forwards, it is almost guaranteed that the company will move into groceries in one way or another. 

18. Do you think Shopee’s recent capital raise in the public market and their cash balance of 15 billion USD is enough to fund their expansion into Latin America, India, Europe as well as ShopeeFood? After the last quarter, their cash cow Garena is dramatically slowing down.

We don’t know if their focus is going to be on Europe, especially after their exit from France, but Shopee will continue to focus on its expansion in Latin America and try very hard to keep its Indian ambitions afloat if possible.

Their cash and cash equivalents balance in 2021 was about US$10 billion, which is probably enough for a while, especially when financial services (i.e. lending) start to contribute meaningful profits. If they can prove improvements in profitability in the next few quarters, and the rate hike cycle stabilizes, it might be able to tap into the capital market for more money.  

Vouchers and Incentives

19. Are there significant discount vouchers being sold on Shopee (eg: $10 coupon being sold for $9.50)? How would you rate the quality of their GMV and what happens if/when those vouchers disappear?

Vouchers and incentives are used to steer users towards contributing to some key performance metrics of the company. 

If Shopee vouchers disappear now, we are pretty sure that Lazada and Tokopedia market shares will grow. Shopee is at the same time building infrastructure (logistics, payment etc.) and helping (good) sellers achieve volume – this will make them less of a matching platform but more of a full value chain service provider. The question is whether they can build this moat quickly enough, and how deep indeed is this moat. 

20. How many gratis ongkir coupons could users get every month in Indonesia?

It varies every week and every month, from team and ground sources in Indonesia. It seems to be enough to make the platform more attractive than others. 

21. How many orders are subsidized by Shopee in Indonesia today, in terms of free shipping? We heard most of the delivery fees are paid by Shopee nowadays. Is that true?

We have not studied the exact breakdown – but from the sources on the ground, it is reducing but still constitutes a fairly good percentage. More detailed due diligence is needed to get the full picture. 

Numbers 

There are also a few questions we received that ask about specific performance metrics of Shopee. Answers to these questions do not fall under the purview of Momentum Academy but the Insights arm of Momentum Works, which conducts on the ground due diligence. We are in the process of building regular tracking but if you have any customized requests in the meantime, you are welcome to write to us at [email protected]. Here we will just share some basic understanding: 

22. How many active merchants does Shopee have now?

There are different ways to define this – for number of stores, we would estimate the total stores to be lower than 20 million, and stores with at least 1 sale per month probably 30-40% of that. 

23. Is Shopee’s business model viable? How many of their markets are already profitable?

It is. The question is at which scale. In the markets they are dominating, such as Taiwan and Malaysia, there are already attempts to improve profitability, and we believe that the rest of the markets will follow this year. 

24. What’s the market with the highest margin for Shopee now? What causes the high margin compared to others? Could other markets replicate this?

Which market in Southeast Asia is Shopee’s most profitable in terms of take rate?

The blended take rate would be how much you could charge merchants as part of the transaction – that includes commission, service fee (for Shopee Mall), advertising fee, transaction fee, and increased fulfilment. To give you an example – in Singapore, it is about 7-10% for non Shopee mall merchants and 10-12% for Shopee mall merchants.  

Do not forget Shopee has digital financial services (esp. consumer credit) too.

If you found this interesting, Momentum Academy is hosting its next pubic briefing – Off the Record: What’s Up With Grab? where they analyze the market logic behind Grab’s financial report, the organization, strategy and leadership. You can check out the event here.