Indonesia’s quick commerce startups lose speed amid tight competition and funding crunch

[JAKARTA] Once hailed as the fastest-growing sector during the Covid-19 pandemic, Indonesia’s quick commerce industry is losing steam. Several home-grown startups are leaving the market or pivoting to new ventures.

The industry is grappling with profitability challenges and is increasingly focusing on economic indicators. The recent exit of GoTo’s quick commerce business, Tokopedia Now, underscores the trend of companies striving for profitability by shedding loss-making operations and concentrating on financial sustainability.

Tokopedia Now, a quick service that delivered daily necessities within two hours of an order, shut down last month after three years of operation.

The anticipated low uptake was a key factor behind the company’s decision to discontinue its quick commerce service, said a recent report by BMI, the financial research arm of Fitch Solutions.

BMI noted that elevated inflation and rising interest rates have significantly dampened spending growth in South-east Asia’s largest economy.

As discounts and fee promotions have disappeared, many customers now view quick delivery services as a luxury.

“In an environment of tepid income growth, an ultra-fast delivery service like Tokopedia Now is unlikely to attract strong demand from a consumer segment reluctant to pay a higher premium,” wrote BMI.

The country’s quick commerce sector has declined over the past two years following the easing of pandemic-related social restrictions and a shift in consumer behaviour, analysts noted.

This decline has been further exacerbated by a slump in funding for tech startups and intensified competition from larger and cash-rich players.

“When funding runs out, startups must stop burning cash and concentrate on achieving profitability. With little room for excessive promotions and discounts, this shift can be discouraging for consumers to shop online,” Nailul Huda, director of digital economy at Center of Economic and Law Studies (Celios), told The Business Times.

Indonesian tech startups were once a main investment destination for tech startups. However, their total funding plummeted by 64 per cent to US$191 million in the first half of this year from US$526 million for the same period in 2023, indicated online market intelligence platform Traxcn.

Tech in Asia reported that since last year, Indonesia’s quick commerce sector has had a significant drop in fundraising, with only the local grocery social commerce platform Segari securing a US$23.5 million investment. This is in stark contrast to 2022, when five startups successfully secured capital.

However, BMI noted that Indonesia remains a highly attractive online retail market overall, bolstered by rising smartphone adoption rates and increasing internet connectivity.

The closure of Tokopedia Now added to the growing list of quick commerce and e-grocery companies struggling with the challenging market dynamics that have emerged post-pandemic.

Earlier this year, Y-Combinator-backed quick commerce platform Dropezy exited the market and pivoted to the poultry industry under a rebranded name.

The company initially offered 20-minute delivery of daily essentials and fresh items on a 24/7 basis in the Greater Jakarta area.

E-grocery platforms that connect farmers directly with consumers and eliminate intermediaries, such as TaniHub and Sayurbox – which had stellar performance during the Covid-19 pandemic – are also now struggling with cash flow issues and layoffs.

Asset-heavy business

While small players struggle to catch up, key players with substantial funding continue to thrive, such as Grab with its quick on-demand service GrabMart Kilat, and AC Ventures-backed quick commerce Astro, which raised US$60 million in funding two years ago.

Astro offers more than 1,000 products ranging from daily necessities, such as snacks, to fresh fruit and vegetables. It only takes 15 minutes for the goods to arrive to customers.

The company limited its initial services to around 90 selected neighborhoods in densely populated Jakarta, served by more than 1,000 drivers.

Salim Group’s Indomaret, one of Indonesia’s largest convenience store chains with over 22,000 locations, has also expanded its quick commerce capabilities across its retail portfolio.

The company leverages a robust fast-moving consumer goods retail network and extensive logistics warehousing across Indonesia. Its quick service, Klik Indomaret, contributed nearly 7 per cent of its revenue last year.

Looking ahead, observers suggested that Indonesia’s quick commerce will be led by players with extensive networks of “dark stores” in densely populated residential areas to facilitate rapid delivery.

Dark stores will allow quick commerce players to own inventory, control the items offered to consumers and operate efficiently to manage delivery charge issues.

“Minimarket retailers have networks in nearly every village. Those who will exit the quick commerce market the fastest are those without such extensive networks,” said Huda from Celios.

Roshan Beherea, partner at Redseer Strategy Consultants, noted that strong capital is required as expenses for renting dark stores, procurement, packaging and wages are all part of the operational costs for quick commerce companies. This also leads to recurring overheads.

“Quick commerce is an asset-heavy business model. For it to succeed, dark stores must be profitable and capable of handling a high volume of orders quickly each day,” he said.