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E-commerce in Indonesia has seen rapid growth in e-grocery services, with some 83% real CAGR between 2015-2020, to reach IDR21 trillion in 2020. While e-grocery has been expanding for some time, the Coronavirus (COVID-19) pandemic led to a surge in demand in 2020, with food and drinks e-commerce estimated to have doubled in comparison to 2019, pushing firms to expand their product coverage, as well as their outreach, beyond the initial area the business started in, which is often Java, due to more developed infrastructure compared to other regions in Indonesia.
New and existing platforms such as Gojek, through Goshop, and Grab, through its partnership with e-grocery player Happyfresh, have expanded the reach of the e-grocery industry. In Indonesia, traditional grocery retailers, which include wet markets and independent small grocers (warung), contribute close to 50% of food and beverage retail sales due to the perceived freshness and lower price in comparison to other modern channels. To meet this demand, several new startups, such as Tanihub and Sayurbox, launched in 2016 and 2017 respectively, have entered the market for farm-to-table solutions that establish a direct connection between farmers and consumers.
The government started to recognise e-commerce potential from 2016, introducing the e-commerce roadmap, that lines up logistics, funding, consumer care, infrastructure, taxation, human resources, and cyber security planning. In the first quarter of 2020, the trade ministry further updated regulation to increase the ease to apply for permission to set up businesses, such as through Online Single Submission (OSS) without any fee required, creating more opportunities for SMEs.
Small and medium-sized enterprises and foodservices are entering food and beverages e-commerce
While e-commerce has grown consistently, the pandemic has undeniably promoted a permanent digital adoption amongst consumers and businesses alike, including SMEs, with the Google Temasek e-commerce report indicating that more than 90% of consumers intend to continue their online habits post-COVID, through online sales and purchases in Indonesia. SMEs are also engaging through social media apps such as Instagram and Whatsapp to reach out to more consumers. The number of food and beverage businesses entering the market through Instagram has increased exponentially, especially in categories like frozen ready meals and baked goods.
The transition to the second phase of food e-commerce expansion happened when mandatory social distancing led to a declining number of diners in restaurants. While food delivery first saw a surge in demand during the initial lockdown period, there is increasingly a shift towards home cooking due to cost and concern over quality and safety of delivered cooked food. Furthermore, there is also growing demand to have the restaurant experience at home. Such demands were initially met by chained restaurants like Yoshinoya, Hoka-Hoka Bento, Coco Ichibanya and Bakmi GM, that launched frozen versions of their menu. The packaged strategy was also followed by beverage specialists like Starbucks, that introduced 1 litre bottled coffee for consumers. These products are not only available for purchase from their outlets but also from food delivery platforms like Gojek, as well as e-commerce platforms like Tokopedia and Shopee. Given the popularity of these brands and consumers’ trust, they are able to reach out to a wider range of consumers across Indonesia, including areas where their brands have yet to enter the market.
Encouraged by these opportunities, independent foodservice outlets are also providing frozen or larger packaged menus to be consumed and stocked at home, allowing consumers to have the dine-in experience at home. This includes ready-to-cook meals in the form of meal kits, ready-to-eat food packages, and 1 litre packaged beverages by local players such as Anomali Coffee and Dua Coffee. While it provides opportunities to widen their consumer base, the main opportunities lie in minimising the decline in earnings by targeting their loyal consumers. Unlike chained foodservice brands that are located in various places, independent players are typically located in limited spaces; sales of packaged products sold online can therefore help to widen their revenue sources.
Digital product and platform innovations are expected to stay beyond this pandemic era. This is supported by improved connection, logistics and other infrastructures. Remaining challenges may still be seen through the limited number of talents and skills available to be part of e-commerce, which is what the government is trying to push through training and funding.
As new options are now available for consumers through e-commerce platforms such as Tokopedia and Shopee, as well as food delivery platforms like GoFood and GrabFood, packaged food and drinks players have to be mindful of this new competition. Consumers are no longer limiting their options of a quick and convenient meal and drinks to instant noodles or instant coffee mixes, as they now have the option to purchase a greater variety of equally convenient foodservice experiences.
For more information refer to our research on Indonesia.