In a not-so-shocking move last month, retail giant Target acquired a grocery delivery startup for more than half a billion dollars to better compete with Amazon in the US.

Given the latter’s influence on the state of retail over the last decade, there has been a wave of excitement and fear sweeping the industry on a global scale.

The gradual consumer preference for digital has forced traditional businesses, predominantly in developed markets, to restructure internally or shut down. Case examples include retail leaders Macy’s, Sears, and American Apparel, whose legacies are now read about in bankruptcy stories.

Today’s headlines are revealing retail behemoths getting pushed to a corner by a new breed of entrants shaking up the retail status quo with business models revolving around ecommerce, omni-channel, click and collect. These new companies also tend to execute faster, reach further and understand how to utilize the goldmine that is the internet.

But understanding that “digital disruption” or “retail innovation” is needed within a traditional corporation isn’t merely enough to bring about real change.

The speed at which businesses incorporate digital channels will determine their chances at survival and relevancy to the next generation of consumers.

But by the time they come around to asking, “am I moving fast enough to catch up to my competitors?”

It’s already too late.

Shopping sprees in the West

Companies in the US felt heat from the Amazon Effect much earlier than India or Southeast Asia did, ensuing panic in direct competitors like Walmart, Target and Home Depot and forcing them to act quickly.

In the last two years alone, large corporations like the above invested over $5 billion in acquiring digital companies to beef up their portfolios.

While most of these companies have the capacity to carve out resources to build their own ecommerce operations in house, the pace at which the internet industry moves doesn’t wait for employees to learn “Digital 101”.

Not to mention the additional pain points such as internal resistance, lack of ecommerce talent and channel conflicts. Large corporations in general tend to struggle when venturing outside of their core competencies. The quickest way to patch up your business is to buy what you don’t have.

In regards to Walmart’s total $4 billion acquisition spree,

“Walmart is buying a new consumer base — upper-middle-class people who normally wouldn’t shop at Walmart — and these new relationships would bring higher margins.” — Jim Cusson, president of retail branding agency Theory House

And the “buy what you don’t have” trend is prevalent across the industry as more traditional players gobble up digital startups. In the last eight months alone,

Walmart [retailer]: acquires Bonobos for $310 million in cash and last mile delivery startup Parcel
Sodexo [food management]: acquires majority stake in Paris-based online restaurant and food delivery startup FoodCheri
Home Depot [retailer]: acquires online business of retailer of textiles and home decor products The Company Store
FTD [flower delivery giant]: acquires on-demand flower startup BloomThat
Target [retailer]: acquires same-day delivery startup Shipt
Luxico [luxury home rentals]: acquires US-based text messaging platform for hotels Hello Scout
Albertsons [grocery retailer]: acquires meal kit company Plated
McKesson Canada [healthcare supply chain]: acquires marketplace for natural healthcare and beauty products Well.ca

“Quality exits like this don’t stem from a ‘for sale’ sign tacked to the door.” – Chris Arsenault, board member at Well.ca

Of course, the enormous price tags of these acquisitions could be spent on buffing up the in-store experience but the returns would take a long time to see whereas Target’s own online sales growth from Q1 2015 to Q3 2017 show how successful the company has been able to leverage ecommerce.

Target ecommerce growth from 2015 to 2017. Source: Bloomberg

While an acquisition may seem like a quick, easy solution, there are numerous factors to consider to avoid backlash such as price point adjustments and consistent branding. Without understanding how digital can compliment the current business model, it’s likely the new asset will simmer and die in a couple of years. Simply put, don’t buy ecommerce for ecommerce sake.

Absorbing a digital company on the other hand brings about mountains of data, new customers, a solid brand, fresh talent and a seat at the hippest place where everyone hangs out, the internet.

Movement in the ASEAN region

As with most trends, they eventually infiltrate markets on a global scale and Southeast Asia is no exception. Even a couple of years before Amazon’s lackluster entry in Singapore, a few traditional retailers took the acquisition route to capture digital opportunity early.

Sephora bought online beauty retailer Luxola in 2015, Central Group acquired fashion e-tailer Zalora Thailand in 2016 and last year announced a joint venture with Chinese internet giant JD.com.

What has driven this flurry of activity by corporations across the world?

It is avoiding what Jeff Bezos describes as “Day 2”. An idea explained nicely by Bezos in his letter to stakeholders:

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.” – Jeff Bezos

Which day does your company operate in?

The Background

Name any Chinese bike-sharing company that you know of and chances are that ofo and Mobike are among your top choices. There is however, another bike-sharing company worth talking about.

Founded as early as November of last year, Bluegogo is a Tianjin-based bike-sharing firm and has quickly become the third largest company of its kind in China, following, of course, ofo and Mobike.

Similar to its competitors, the dockless bike-sharing brand is equipped with a GPS tracker and users book the bikes through the Bluegogo app.

Because the bikes are station-less, they are scattered random spots throughout the city. In the first half of 2017 alone, Bluegogo already has 70,000 bikes in three Chinese cities: 35,000 in Shenzhen, 25,000 bikes in Guangzhou, and 10,000 in Chengdu.

Source: Mashable

Bluegogo has drawn several investors to fund its business and was valued at $140 million after pocketing a Series A round of $21 million in November last year and $58 million earlier this year.

With two large funds raised within a single year, the company seemed to be performing well in China that it began looking into overseas expansion to leverage the hype surrounding the share economy. What could possibly go wrong?

The Challenge

Like other share-economy startups, think Uber, ofo, etc., Bluegogo needed to find a way to become profitable.

One way to prove its worth to investors is its ability to expand.

“Bluegogo, being a latecomer to the bike-share game, needs to be aggressive” – Mashable

Bluegogo has not only been aggressive in expansion at home but also reaching as far as the US. The Chinese company chose San Francisco, the second most bike-friendly city in the States as its first venture into North America.

In January this year, the company was the first smartphone-enabled bike-sharing platform to launch some 20,000 dockless bikes in San Francisco, USA.

However, Bluegogo’s American Dream was not smooth sailing. Instead of a warm welcome by SF city dwellers accustomed to miles of bike lanes and high quality cycling facilities, Bluegogo faced angry lawmakers.

The company having achieved rapid success in China, implemented the same strategy in the US by placing dockless bikes everywhere on the streets of San Francisco. The problem was that the city ended up with large, messy and unsightly piles of bikes.

Leftover bikes from bike-sharing firms such as Bluegogo pile up in China. Source: Mashable

San Francisco has historically been known for its welcome mat, but in recent years we’ve let ourselves become a doormat. It’s time to put the public’s interests first, even if that means disrupting the disruptors,” said Aaron Peskin, Supervisor of the San Francisco Board.

Peskin even called the bikes a “public nuisance,” and vowed to destroy or even sell the bikes if they clogged up city streets.

In Bluegogo’s defense,

There was a problem in communicating,” said Ilya Movshovich, BlueGoGo‘s North America VP of Operations. “The people we reached out to initially were not the people we needed to get to. We didn’t quickly enough communicate with the appropriate heads.”

Until even now, San Francisco has yet to approve Bluegogo’s presence and even imposed a new law to increase the penalty for Chinese bike-sharing companies planning to litter its city.

If expansion wasn’t success, monetization would have to come from deposits provided by Bluegogo’s claimed 20 million cumulative users. If only 10 million users paid a $14.96 deposit, it would mean the company has collected around $149 million in deposits, in addition to the $0.08 per half hour charge to ride.

So why was the company owing roughly $30 million in total outstanding payables to vendors, unpaid rent and overdue salaries?

Bluegogo’s empty Beijing office. Source: China Money Network

It also owed users $15 million worth of deposits as of November 2017.

To make things even worse, Bluegogo’s CEO Li Gang went missing early November 2017 and was later discovered to have fled the country. What was this once promising company going to do?

Li Gang, Bluegogo’s CEO. Source: Linkedin

The Strategy

In attempt to explain the disastrous situation, Li released an open apology letter. As cliché as it sounded, he blamed the company’s state on lack of financial support, claiming that Bluegogo was ‘on thin ice in the face of two well-funded players’, pointing fingers at ofo and Mobike backed by Tencent and Ant Financial, respectively.

The bike-sharing market is full of challenges, and my mind is too childish and naive to succeed in the sector.” – Li Gang

But there could be some light at the end of the tunnel. Li took the opportunity to announce a partnership with another small bike-sharing startup called Biker, who would be in charge of operating Bluegogo as usual under its management.  

The Future

The merger of small startups like Bluegogo and Biker is considered to be a typical one for competitive and costly markets. Li admitted that he will use the revenue generated from the partnership with Biker to pay off its debt.

Bike-sharing is an asset-heavy industry. As investors become increasingly cautious and reasonable about their bet, a timely merger or acquisition may be the only chance for second-tier players to survive,” – said Shi Rui, Analyst with consulting firm iResearch

Despite a promising partnership with Biker, there has been no word from the company itself to confirm the partnership.

The fall of Bluegogo has spurred the question, has the bike-share economy bubble finally burst?

There have already been three Chinese bike-sharing startups – Xiaoming Bike, Mingbike, and Coolqi – collapsing within a span of one year; the latter actually teaming up with Biker.

Even ofo and Mobike investors are said to be in talks for a possible merger to survive in China’s bike-sharing market, which was estimated to be worth $1.5 billion this year. Is the future of bike-sharing M&A and endless funds?

Without support from a wide range of investors and good financial planning capabilities, even the best bike product is powerless,” wrote Li Gang.

We beg to differ. A company that relies on solely on funding in the long run needs to rethink its business model. Good luck Bluegogo/Biker/Coolqi.

As you may have already realized, Amazon’s recent $13 billion acquisition of Whole Foods is more than about groceries. By adding an enormous offline groceries chain and its customers attention to its repertoire, the retail beast moves closer to becoming a real one-stop destination for all consumer needs.

Slate puts it best, “Scale, meet scale. Logistics, meet logistics. Loyal customer base, meet loyal customer base.”

Before this, Amazon was already banking on America’s $800 billion grocery business via Amazon Fresh; it’s key competitors being Instacart, FreshDirect, Google Express and Blue Apron.

An Amazon Prime member can now receive everything he or she needs within two hours or shorter depending on their location; a feat these other grocery delivery services will find it tough to beat. 

This move will further reinforce consumer behavior of searching for products directly on Amazon rather than a typical search engine – behavior already witnessed in Indonesia.

This acquisition also puts in Amazon’s hands customer data from a network of shoppers that ring up $300 million in sales across North America. 

Why else would Facebook partner with Dunnhumby, a grocery data firm in 2016 to learn more about how Facebook advertising incentivizes purchases?

The grocer, most importantly, also has veteran experience and knowledge on sourcing and storing fresh food that can help Amazon’s “wasteful” Amazon Fresh operations and improve the entire customer experience, a staple to Bezos’ business philosophy.

Bloomberg reported that workers at Amazon Fresh threw away about a third of the bananas it purchased because the service only sold the fruit in bunches of five. Employees trimmed each bunch down to size and chucked the excess.

“There’s just not a lot of demand there. The whole premise is that you’re saving people a trip to the store, but people actually like going to the store to buy groceries,” said Kurt Jetta, chief executive officer of TABS Analytics, a consumer products research firm.

The grocery game can’t be won by trucks and websites alone. Whole Foods gets two-thirds of its sales from fresh fruits, vegetables and meats, whilst other supermarkets gets only 25% of sales from those fresh categories.

“Whole Foods as a kind of guinea pig for Amazon — a pricey, organically sourced one, perhaps, but a guinea pig all the same.” – NY Times

Whole Foods’ grocery-distribution infrastructure is already expected to act as Amazon’s grocery-distribution infrastructure and will incorporate the e-tailers technological capabilities to streamline the checkout process at Whole Foods to possibly push the long-awaited “cashier-less” Amazon Go concept.

What does this mean for everyone?

Following the announcement of Amazon’s acquisition, grocery chains’ stock took a tumble on Friday. Walmart stores Inc. fell 4.7%, while US retailer Kroger Co. dropped 9.2%.

Payment companies such as Square.Inc also fell over the concern that the acquisition will lessen the importance of traditional payment methods.

The value of the industry should reflect grocery players across the globe, also counting those investing in countries such as Singapore and Thailand. The acquisition may not have a direct impact on Southeast Asian grocery players yet, but it represents how change could come in the future as Amazon is rumored to launch in Singapore and Lazada’s acquisition of RedMart.

If grocery players remain purely within their vertical, it could make them vulnerable to an acquisition or worse, once an all encompassing, data hungry giant makes it way into the market.

Amazon’s acquisition of Whole Foods can serve as validation to how important consumer data, logistics, payments and an integrated value chain is, for small players that do not have this, it will be difficult for them to exist in the future.


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What is Foodpanda? 

Foodpanda is Rocket Internet’s global food delivery service, present in 22 countries, 500 cities with a strong footprint in Asia. The company has raised $318 million in funding since its inception and will now be sold to rival Delivery Hero.

The company had already shut down its Indonesian arm a few months ago and sold its branch Vietnam in 2015 after struggling to compete with local rivals.

What does Rocket Internet get for Foodpanda? 

Stock in Delivery Hero, which gives the German conglomerate a total of 37.7%. They previously paid $586 million for a 30% stock in February of last year.

If calculations are done backwards:

  1. $586 million for 30% = 19.5% million per 1%
  2. Foodpanda sold to Delivery Hero for 7.7% additional stake roughly equals $150 million
  3. The company was sold for half the price of its total $318 million funding

Rocket Internet SE said the combined business will process more than 20 million orders a month and operate in 47 countries.

What is Delivery Hero?

Delivery Hero Holding GmbH is an online food-delivery service based in Berlin, Germany. The company launched in 2011 and now operates in 33 countries internationally in Europe, Asia, Latin America and the Middle East and partners with 300,000 restaurants.

Why did they sell Foodpanda? 

According to TechCrunch source,

Foodpanda has slashed the asking price for its Indonesia operations to basically zero after more than a year of unsuccessfully trying to offload it.

The company is reevaluating its entire business across [Southeast Asia], and it has already made tentative efforts to sell in some countries. The company expanded in Asia via a series of acquisitions, which, in many cases, ironically leaves it without obvious suitors.

With more on-demand services like Go-Jek and LINE Man offering delivery services, how will the combined company fare? Tweet us with your answer @ecomIQ.

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

What do you think about the Lazada-Redmart deal?

Let eIQ know by commenting or find us on social media: Facebook | Twitter | LinkedIn

Hot on the heels of Amazon’s entry into Southeast Asia, Lazada has just confirmed its acquisition of Singapore web startup RedMart, reports Tech Crunch.

Lazada is spending $30-40 million to buy Singapore-based RedMart. Officially the deal is undisclosed and scheduled to be completed before the end of this year.

According to news, RedMart has been facing financial troubles, and has been working with numerous banks to find a buyer since September.

In a press release, RedMart states that it will continue to be run independently of Lazada despite this transaction. This new deal will help the grocery startup expand into new product categories, and possibly new countries. Lazada currently operates in six countries in Southeast Asia.

With Amazon’s grocery delivery service heading the same way, we sense an intense rivalry coming soon to Singapore.

A version of this appeared in Tech Crunch on November 2. Read the rest of the story here