5 Reasons Lazada to Acquire RedMart

Speculation It emerged last weekend that Lazada, Southeast Asia's leading online marketplace, which is reportedly looking to acquire Singapore-based online grocery startup Redmart for $30-40 million, has confirmed. Lazada, which just got a fresh $1 billion in cash from Alibaba, was previously not known for adopting a model with heavy assets; in fact they are actively trying to transform into a full-fledged marketplace model, especially after the acquisition of Alibaba.

Then why does this one company want to acquire an online grocery retailer? ecommerceIQ shares several possible reasons:

1. Join a new emerging arena

Electronics, health & beauty, clothing, household needs, Lazada offers all of these categories, except perishables/groceries.

Online groceries have been present in North America since the Dot-com trend but have only recently become popular through the on-demand model, first introduced by Instacart and since then growing with the presence of Google and Postmates that fills this space.

The offline grocery sector in Singapore is worth an estimated SG$5.5 billion in 2014, while online grocery retail is estimated to be valuable SG$120 million and only make up 1-2% of the entire grocery market in Singapore. This shows that more and more professionals and families are willing to spend money to have their groceries delivered to their home pintu in front of them.

Of all the Southeast Asian countries, Singapore has highest internet penetration and the greatest shopping capability, making this market the most ready for this kind of business model. ECOMscape: Singapore shows the large number of players, both traditional offline grocery retailers and pure online players, who have joined the e-grocery sector in the hope of gaining a share in this online market.

"The strategy to enter this space is to find local players who have shown traction and buy them to get a solid footing and we will see a lot of that," he said. Vinnie Lauria, Founding Partner of Golden Gate Ventures, who has invested in marketplaces such as Carousell and online grocery store Redmart.

By acquiring Redmart, Lazada will enter into the online grocery competition which is already fierce but at a cost guaranteed reputation and Alibaba in their corner, they have the ability to reduce operational loss Redmart and become a strong new player. Lazada's acquisition of Redmart actually saved the startup from ending up as a Webvan Next, the pioneers of online grocers who burn money too fast.

“As part of our growth strategy, we are always looking for ways to better serve our customers by adding new product categories and improving our service offerings,” commented Maximilian Bittner, Lazada Group CEO, of the acquisition.

With a multi-category approach, this Redmart acquisition will allow Lazada to maximize Redmart's revenue per user to outpace grocery sales, which are often characterized by thin margins.

2. Lelong, auction!

Southeast Asia loves good deals and it's no wonder that Redmart has quietly put themselves on the market after the report operational loss of $21 million in 2015 and the company's valued liabilities of $125 million emerged earlier this year. There were also rumors that earlier this year Redmart was trying to get a new injection of $100 million but nothing has been confirmed. $30-40 million isn't a bad price for a startup that has secured over $59 million in funding from Softbank, Garena and is backed by tech celebrities like Facebook co-founder Eduardo Saverin.

Lazada confidently made this acquisition knowing they could optimize operational costs by leveraging their own fleet to make deliveries via LEX. In comparison to their competitors, Honestbee and HappyFresh, Redmart's business model works quite well:

3. Further distribution for Alipay

Redmart's current payment options include PayPal and credit cards. It won't be long before Lazada implements Alipay on their site and allows shoppers to pay for their groceries through Alipay. Grocery is a great gateway to addicted users to online shopping — it's needed by everyone and has a fairly low average price. Just as Alibaba is using Didi in China to get its users to register with Alipay Wallet by subsidizing taxi orders, they will use Redmart groceries to attract people in Southeast Asia to rely on Alipay.

Ant Financial, the company behind Alipay has taken several steps to launch global expansion them and ensure that these payment methods are spread across Southeast Asia. The company has partnerships with many companies, including Concardis, Ingenico, Wirecard and Zapper in Europe, First Data and Verizone in North America and Paysbuy and Counter Services in Southeast Asia.

Alipay is the largest online payment and money transfer system in China with more than 450 million active users. It won't be long or too difficult for Jack Ma to get his Trojan Horse out.

4. Get an e-commerce workforce

The HR challenge is not a new concept for companies in Southeast Asia. By acquiring Redmart, Lazada instantly gets 200 in-house employees who are already trained in the special field of e-commerce. The ability to acquire talent who has extensive knowledge and skills will make it easier for Lazada to quickly expand e-commerce in the grocery category in other Southeast Asian countries where Lazada is located besides Singapore. Indonesia, Thailand, the Philippines and Malaysia have consumer spending on food and non-alcoholic beverages of $130.2 billion, $63.3 billion, $51.3 billion and $25 billion, respectively (Agriculture Canada). And apart from that...

5. Amazon soon present in South East Asia

US ecommerce giant Amazon finally announced their plans to enter Southeast Asia via Singapore in Q1 2017 and Lazada needs to maintain their competitive edge. Amazon has started Amazon Prime with a version that has been adapted in China to better compete with Alibaba and will likely also introduce the same exclusive services in Southeast Asia that have made their US consumers so loyal to these marketplaces — like Amazon Fresh and Amazon Prime.

Amazon Fresh launched in 20o7 and is currently in 17 markets. Shoppers only need to pay $14.99 per month for the service but require an Amazon Prime membership — a service that Lazada has yet to replicate for its users.

“The standards for grocery retail are very high. The supermarket and grocery store is one of the best retailers in the world.” Ajay Kava, Vice-President of Amazon Fresh, told The Daily Telegraph.

“We believe that the key to Amazon Fresh's long-term success is to combine low prices, wide selection, fast delivery methods and a user experience that Amazon users know and love.”

Let this kitchen knife sharpening begin.

- Disclosure: This article was written by Cynthia Luo and translated by Rara Kinasih. The original article can be accessed HERE.

This article is a collaboration between DailySocial and eCommerceIQ.