Indonesia’s tech giants are battling to bring roadside stalls online

As many as 117 million Indonesians — a majority of the country’s workforce — are involved in micro-, small-, and medium-sized businesses, according to research company Katadata. For tech companies that need to build scale, that idea is alluring: a whole new e-commerce segment, populated by millions of independent entities.

For three years, Maryam Hasan earned a living running a modest snack stand, a bamboo kiosk selling grilled sausages and powdered drinks. She was satisfied enough; the stand, tucked among the busy streets of the South Jakarta district of Jagakarsa, drew a healthy number of passersby. Then, in 2018, an agent from Warung Pintar — a startup she’d never heard of — approached with a surprising deal.

They’d give her a stove, a water dispenser, a Wi-Fi connection, and a phone-charging station, they said, and help her expand her shop to offer digital services and basic household staples. The only condition was that Hasan had to download their app and order her supplies there. They’d even ship the goods for free.

“All I needed to do was heat water for coffee or prepare ice cubes,” she told Rest of World, still amused at the memory. “They literally provided everything at no cost.”

Soon, teenagers were milling outside the warung after school, plugged into the phone-charging station, playing mobile games on the free Wi-Fi connection, and loading up on sweet, chocolaty Milo. Hasan’s kiosk is at once a convenience store and a one-stop digital services center; locals will stop by to pick up a packet of instant noodles as they electronically pay their bills. Those small purchases add up: pre-pandemic, Hasan’s take-home pay averaged about $1,400 per month, more than four times Jakarta’s minimum wagWarungs, roadside stands or kiosks, serve as community oases for Indonesian neighborhoods. Despite the country’s rapid digitization, many remain firmly analogue. Warung Pintar, meaning “smart kiosk,” is one of around half a dozen e-commerce startups competing to bring them — and all of Indonesia’s 65 million small businesses — online, offering them everything from electronic bookkeeping to purchasing to delivery.

There is an increasing sense of urgency as they join other major e-commerce platforms like Bukalapak and GoTo, which are also bent on signing up warungs as mitras, or partners, in a race to capture the last-mile point of contact with millions of Indonesian consumers. At best, these companies can capture the real prize of granular, everyday purchasing data; at worst, they are pursuing a dead end in a market that already belongs to the big players.

Also Read: Google and Singapore’s Temasek to Invest $350 Million in Indonesian Shopping Platform

“This is the first time that the mom-and-pop retailer, the small store, actually has a smartphone in their hand,” Ula’s CEO Nipun Mehra told Rest of World. “This change will only happen once, ever.”

As many as 117 million Indonesians — a majority of the country’s workforce — are involved in micro-, small-, and medium-sized businesses, according to research company Katadata. For tech companies that need to build scale, that idea is alluring: a whole new e-commerce segment, populated by millions of independent entities.

As with Hasan’s snack-stand transformation, they pitch the warung owners around efficiency. Store owners have always had to maintain links with networks of wholesalers, who supply their products, and work with middlemen and brokers. The e-commerce companies have brought suppliers together onto their platforms, which — if warungs choose to participate — gives them direct access to a wider range of products.

Ula, through its app, allows its customers to order and manage their inventory online. Mehra told Rest of World that a typical wholesaler in Indonesia might carry 200 to 300 different products, while the neighborhood where the warung operates might actually consume closer to 7,000 products. “The fact that you don’t have access to the breadth of selection is a huge bottleneck,” he said.

Mehra’s path to Ula includes stints at Walmart-owned Flipkart and Sequoia Capital India. At Sequoia, he was part of the team that invested in Tokopedia, which alerted him to the shifts going on in Indonesia’s e-commerce landscape. “I [saw] how they built, how they grew, and I thought: Indonesia is amazing,” he said. He founded Ula in 2020, and, by the end of August 2021, over 50,000 warungs had signed up, according to the company.

Still, say analysts, upstarts could struggle in a marketplace where Indonesia’s local tech giants are already making inroads.

In recent years, Bukalapak and Tokopedia have been running mitra partnerships: platforms that link warungs with suppliers of goods and allow them to offer digital services like mobile data top-ups. Bukalapak accounts for 39% of the warung e-commerce segment, according to a report issued in August by China Galaxy Securities and Malaysian bank CIMB, with 8 million mitras, while Tokopedia is just ahead with 8.6 million.

Publicly listed Bukalapak has staked its future growth on the mitra business, which it can expect to make nearly half the company’s revenue within the next two years, according to the report. Bukalapak and GoTo have more money to burn than their smaller rivals, and different measures of success. While dedicated companies need to make a profit from warungs, their bigger rivals can afford to lose money in the short term to bring stores onto their platforms, with a view to monetizing their data by offering them more profitable financial services products down the road.

Dimas Adhi Saputro, a mitra with Bukalapak in Bandung, West Java, told Rest of World that Bukalapak’s seller fees are more transparent than with other apps. He started selling online as a teenager, offering everything from mini-mattresses to bags of kacang and packs of frozen kebabs, on several platforms: first Shopee, then Tokopedia. In 2020, he settled on Bukalapak for his work as a “digital seller,” offering phone credit and bundle top-up services. “[Bukalapak’s] priority is really the stalls,” he said. “[With them], everything was smooth and easy.”

The e-commerce companies have prioritized outreach and use social media to connect with users. Facebook pages, with titles like “Online Seller Community Indonesia by Bukalapak” and “Resell and Make Profit — Become a Friend of Ula,” give business owners advice and keep them engaged with voucher giveaways for commonly bought items, like packs of instant Indomie noodles and sacks of rice. They’ve also funded training for business owners in second-tier cities.

Until now, Bukalapak has “burned money to reach new customers,” said Bhima Yudhistira Adhinegara, director at the Center of Economic and Law Studies (CELIOS) in Jakarta. “They’re using discount promotions and also subsidizing their couriers. It’s a very expensive, unprofitable business.”

But winning the warung sector offers the loss-making e-commerce giants a chance at a wider prize: providing financial services with higher profit margins, like microloans, to these small businesses. Replicated over the country’s tens of millions of small businesses, interest rates on loans could add up fast.

Packaging many functionalities in one platform makes it easier for so-called super apps like Bukalapak and Tokopedia to win new business. “The small players are not part of super apps,” said Adhinegara. “[Success] depends on how many other services you’re offering to the store.”

Speaking to Rest of World, their smaller competitors were undeterred. Ula, for one, is beta-testing a pay-later function on its app.

“Competition is fierce. That’s true,” BukuWarung co-founder Chinmay Chauhan said. “But the market is huge. But we don’t see it as competition because there’s a lot of room for the players to co-exist.”

There are hints of a more basic challenge for the industry. The companies may, in fact, be selling a solution to a problem that doesn’t fully exist. It can be hard to convince warungs to uproot their in-person distributor relationships, some of which stretch back decades. Big fast-moving consumer goods suppliers aren’t always amenable to companies intervening in the market, either, which revs up price competition.

The e-commerce startups overlap in some of the digital tools they offer. Ula’s platform is one of the more focused, while a company like BukuWarung offers an entire digital operating system, complete with payments and inventory management. Similarly, GudangAda is planning to launch software services like bookkeeping, while using its own logistics infrastructure to connect warungs to wholesalers and delivery.

Warung Pintar’s generous offer to upgrade Hasan’s store is unusual and was extended mainly because her warung was already busy and surrounded by a parking lot, with room for customers to gather. A more typical offer is just to begin using the app.

In East Jakarta, warung owner Fitriani told Rest of World that she has been approached by various salespeople from tech companies. But she declined to download the app or join as a partner; she “doesn’t want to be bothered by trifles.” Most salespeople showed her how to use their apps as a price-comparison tool, which didn’t impress her. “I am quite old; I have no time to be occupied by some apps. If there’s a product that runs out of stock, I could simply ask my agent to drop off the goods,” she said.

Across town, from his warung near a busy polytechnic campus in Cipedak, South Jakarta, 35-year-old Lahem said that going online has no appeal for him. His imagination seemed to reject a scenario without street-level warungs. “In normal times, or times of crisis, people need these items to survive. Can you imagine if warungs across Jakarta closed down during the pandemic?”

At this point, the e-commerce companies may still need the warungs more than the warungs need them. Small businesses in Indonesia are bound to embrace e-commerce to some extent. But the cost of bringing them aboard, and in building a critical mass of users, means that some of the platforms vying for their attention will probably not survive.

“[It’s] kind of like hype in the ride-hailing apps in the last three or four years,” said Adhinegara at CELIOS. “There’s still a long way to go because, at the end of the day, you still need to talk in person with the small vendors and educate them about the benefits of using digital apps. It may take a long time.”