The Ups and Downs of the "Online Grocery" Industry during a Pandemic

When Indonesian President Joko Widodo announced the first case of a citizen exposed to SARS-CoV-2 on March 2, 2020, the public was hit with various concerns, one of which was the issue of lockdown which will limit their activities outside the home. This condition then causes a reaction panic buying which makes them unthinkingly buy up basic necessities and health products in large quantities.

Exactly on April 3, 2020, a Government Regulation related to Large-Scale Social Restrictions (PSBB) was enacted in several areas as an effort to break the chain of transmission of Covid-19 in Indonesia. A number of public facilities were closed, school and office activities were carried out from home, limited transportation, and only allowed 11 sectors to operate during the PSBB.

With offline outlets closed, even our most basic needs--food and water--turn to the online sector. Sector online groceries Indonesia has been one of the beneficiaries of the COVID-19 pandemic because it has succeeded in encouraging urban customers to buy their daily needs online in order to limit social interactions and activities.

Rama Notowidigdo, Co-Founder and CTO of Sayurbox, admitted that the pandemic had tripled the company's business growth in a very short time. The company even had to stop operations for about a week to adjust its services and return with the right strategy.

As the saying goes "maintaining is harder than earning", the significant surge in demand at the beginning of the pandemic does not necessarily make doing business easier. Behind the ever-increasing growth figures, there are many adjustments that must be made and challenges that loom over this industry.

Ecosystem online groceries in Indonesia

Different from China and the United States (US), the ecosystem online groceries in Indonesia it is still classified as a "baby". In China, the situation is very different—in 2018, online shopping accounted for 32,5% of all grocery transactions, up from 1,4% in 2010.

Meanwhile in the US, almost a third of all households already shop for groceries online. According to Brick Meets Click/Mercatus Grocery Shopping Survey research, the US online grocery market reached $8,4 billion in April 2021, with 67,8 million households placing an average of 2,73 online grocery orders during the month.

In the InMobi report entitled "Marketing in the Era of Mobile", online groceries becoming the second digital business sector after E-commerce which increased during the Covid-19 pandemic. The PwC "Indonesia Consumer Insights" survey also showed that 69% of Indonesian respondents said they bought more food ingredients online after the implementation of distance restrictions.

Rama said that one of the biggest challenges in Indonesia is the market that is still controlled offline channels. Meanwhile in China and the US, modern channels has become the main choice. Sayurbox itself is focusing on converting offline players to online through digitalization supply chain leaders and help farmers to reach a wider range of consumers.

"Currently, Indonesia is still focused on digitalization with many processes still manual. It is difficult to collect complete data with a very large population. There is still a very long way to go." he added.

The offline market still dominates

Behind the increasing online shopping penetration figures, the offline market still dominates the grocery industry. Not a few people prefer to shop at traditional markets rather than ordering groceries online because of the price comparison or product quality that they can choose themselves.

To anticipate this, e-grocery players such as HappyFresh are trying to improve the user experience by providing personal shopper who is in charge of selecting the best quality food ingredients. Apart from that, many other players also offer various promotions to reach new users.

Indonesian society itself is known to have a strong culture of hospitality and bargaining. This is the main reason the Indonesian people cannot be separated from traditional markets which allow various social interactions. However, the pandemic that has not yet subsided has forced people to make peace with the situation and put this culture aside for a moment.

Though internet penetration in Indonesia at the beginning of 2021 it was already at 73,7 percent or reaching 202 million people, market share online groceries itself is still limited. Although statistics show that the industry online groceries experiencing quite rapid growth, market segmentation and services themselves are still concentrated in big cities such as Jabodetabek.

Rama admitted that initially, Sayurbox itself focused on offering healthy and organic products with a middle to upper market share. As time goes by, they discover the fact that this market is not big enough. Then, they started developing services to b2b and targeting more middle class people.

HappyFresh has a similar target, especially the retail community. Not only for the upper middle segment, but also mass market. The company's demographics also show that around 80% of its consumers are women aged 25-40 years. Working parents and single professionals also represent a large group of its customers.

Alpha JWC Ventures and Kearney's latest study predicts that second- and third-tier cities will account for 48 percent of activity E-commerce in Indonesia in 2025, up from 30 percent in 2020.

In this case, several players in the industry are increasingly targeting tier 2 and 3 cities. One of them is HappyFresh which has just expanded to Bogor and Makassar. Through expanding this coverage area, it is hoped that the public will become more familiar with and understand the service online groceries in Indonesia.

The emergence of new players

Limited offline activities have shifted people's consumption patterns to the online realm. Likewise, when shopping for daily necessities, many people prefer to use delivery services to reduce physical contact and the risk of exposure to the virus. This is seen as a golden opportunity for many parties to try to enter and reach the market online grocery.

Several players are trying to expand their business into the online grocery realm, such as Travelio using the Traveliomart brand, as well as Ub Advertising with the Ubifresh service. On the one hand, this is good business differentiation to add revenue streams companies in the midst of a pandemic, but it also creates its own challenges in being able to scale the business.

Additionally, large startups such as Gojek and Blibli has also previously launched services designed to meet users' shopping needs. With a large user base, it is considered that GoMart and BlibliMart will find it easier to reach a wider market.

The similarities of some of the players previously mentioned are, online groceries is not their core business. Companies that decide to expand their business lines into quite different domains must be prepared for various risks, including competing with existing players core business the same one.

In interview with DailySocial, Filippo Candrini, Managing Partner of HappyFresh Indonesia, said that the number of new players targeting the online grocery industry in Indonesia is not necessarily a worrying thing. In fact, this can encourage his team to work harder in producing new innovations.

"It's more like a marathon, not a race", he said.

Regarding Indonesia's potential to fully utilize technology in food distribution, Rama believes in the industry online groceries Indonesia will be able to reach that stage. "With more and more new players and modern channels which of course will continue to develop, we are on the right track to reach that stage," he said.