Speculations broke over the weekend that Lazada, Southeast Asia’s leading online marketplace, was set to acquire Singaporean grocery start up Redmart for $30-40 millionnow confirmed. Lazada, fresh off its $1 billion injection from Alibaba, is not known for adopting an asset heavy model; the company has been actively transitioning towards a full marketplace model, especially post-Alibaba acquisition. So why would the company want to purchase an online grocery retailer? ecommerceIQ shares some possible reasons why:

1. Joining a thriving new playing field

Electronics, beauty, apparel, home & living, Lazada offers it all, except perishable goods.

Groceries online has been around in North America since the Dot-com craze but only recently popularized through the on demand model, first introduced by Instacart and since then been flourishing with the likes of Google and Postmates saturating the space.

The offline groceries sector in Singapore was worth an estimated $5.5 billion SGD in 2014, while online grocery retailing is worth approximately $120 million SGD and makes up only 1-2% of the entire grocery market in Singapore. It shows that more and more busy working professionals and families are willing to pay for the convenience of having their groceries delivered to their front door.

And out of all the Southeast Asian countries, Singapore has the highest internet penetration and greatest spending power, making it the most mature market for this business model. ECOMScape: Singapore shows the many players, both traditional offline grocery stores and pure play ones, who have recently joined the e-groceries sector in hopes of grabbing more online market share.

singapore ecommerce landscape

singapore ecommerce landscape

“The strategy of coming in, looking for a local player who has shown traction and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, Founding Partner of Golden Gate Ventures, which has invested in marketplace Carousell and online grocer Redmart.

By acquiring Redmart, Lazada would be joining an already fierce online grocery feud but with their already established reputation and Alibaba in their corner, they have the capabilities of mitigating Redmart’s large operating losses and becoming a strong new comer. Lazada’s acquisition of Redmart essentially saved the startup from becoming the next Webvan, the online grocery pioneer who burned through money too fast.

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

With a multi-category approach, Lazada’s acquisition of Redmart will enable the group to maximize revenues per Redmart user as customers go beyond just buying groceries often characterized by thin margins.

2. Lelong, lelong!

Southeast Asian’s love a good deal and it’s not surprising five-year old Redmart quietly put themselves on the market after reports of huge operating losses of $21 million for 2015 and liabilities valued at $126 million surfaced earlier this year. It was also rumored that earlier this year Redmart was going to raise new funds of $100 million but nothing was confirmed. $30-$40 million isn’t a bad price tag for a startup that has raised over $59 million in funds from SoftBank, Garena and has the backing of tech celebrities such as Facebook co-founder Eduardo Saverin.

Lazada is making the acquisition confidently with the knowledge that it can optimize costs by leveraging its own fleet for deliveries through LEX. In comparison to its competitors, honestbee and HappyFresh, Redmart’s business model fares quite well:

tia-redmart

Source: Tech in Asia

3. Further distribution of Alipay 

Redmart’s current payment options include PayPal and credit card. It won’t be long before Lazada implements Alipay on their sites and allow shoppers to pay for their groceries through Alipay. Groceries are the perfect gateway drug to get users hooked to online shopping — everyone needs it and average price points are low. Just like Alibaba leveraged Didi in China to get users signed up for Alipay Wallet through subsidized taxi bookings, it will use Redmart’s groceries to get people in Southeast Asia hooked to Alipay.

Ant Financial, the company behind China’s digital payment giant Alipay, is already making moves for global expansion and ensuring that the payment method will be widespread throughout Southeast Asia. The company already has partnerships with companies including Concardis, Ingenico, Wirecard and Zapper in Europe, First Data and Verifone in North America, and Paysbuy and Counter Services in Southeast Asia.

Alipay is China’s largest online payments and money transfer system with more than 450 million active users. It won’t be long nor too difficult for Jack Ma to roll out his Trojan Horse.

4.  Acquiring ecommerce manpower

The talent challenge is not a new concept to companies in Southeast Asia. By acquiring Redmart, Lazada gains an instant 200 in-house employees who are already trained in ecommerce specific fields. Acquiring knowledgeable and skilled talent will allow the company to quickly expand the (perishable) groceries ecommerce category beyond Singapore to other thriving Southeast Asian markets where Lazada is present. Indonesia, Thailand, Philippines, and Malaysia have consumer expenditure on food and non-alcoholic beverages at $130.2 billion, $63.6 billion, $51.3 billion and $25 billion, respectively (Agriculture Canada). With that being said…

5. Amazon is coming (already here)

The US ecommerce behemoth has finally announced its plans to enter Southeast Asia via Singapore in Q1 2017 and Lazada will need to maintain a competitive edge. Amazon has already begun offering a tailored version of Amazon Prime in China to better compete with the likes of Alibaba and will more than likely introduce the same exclusive services in Southeast Asia that keep customers in the US so loyal to the marketplace – namely Amazon Fresh and Amazon Prime.

Amazon Fresh launched in 2007 and is now in 17 markets. Shoppers pay only $14.99 a month for the service but require Amazon Prime membership – a service that Lazada has not yet replicated for their shoppers.

“The bar in grocery retailing is exceptionally high. The supermarkets and grocers are amongst the very best retailers in the world,” Ajay Kavan, vice-president of Amazon Fresh, told The Daily Telegraph. “We believe that the key to the long term success of Amazon Fresh is to bring together the low prices, vast selection, fast delivery options and customer experience that Amazon customers know and love.”

Let the sharpening of the kitchen knives begin.

By: Cynthia Luo, Product Manager

red-mart-lazada

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