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honestbee Thailand officially introduced its on-demand groceries services to the public on March 16th earlier this year in Bangkok with a buzzy press conference.

This isn’t the company’s first step into Southeast Asia, the Singaporean based company is already present in eight markets since its initial launch in 2015.

eIQ sat down with Joel Sng, CEO and co-founder of honestbee, to talk about the company’s on-demand model, product market fit and scalability in a developing market.  

Groceries online in Southeast Asia

Delivering apples and milk to a customer’s front door isn’t a new concept. Instacart, US born groceries service, took off in 2012, serves 25 markets in the US, and raised $400 million in March. The company’s valuation was $2 billion in 2015.

Jakarta based on-demand service HappyFresh that raised a $12 million Series A and an undisclosed Series B launched in both Indonesia and Thailand two years before honestbee entered the same markets.

Why has there been so much money swirling around groceries?

According to Nielsen, 30% of Millennials (ages 21-34) and 28% of Generation Z (ages 15-20) respondents say they’re ordering groceries online for home delivery, compared with 22% of Generation X (ages 35-49), 17% of Baby Boomers (ages 50-64) and 9% of Silent Generation (ages 65+) respondents.

And groceries are only the beginning. honestbee doesn’t only offer apples and oranges, they want to be the ‘everything, everyday’ app.

Much like the mentioned businesses, honestbee shares similar value propositions:

  • Exclusive partnerships with supermarkets and other retailer partners
  • A single check-out purchase through a mobile app
  • An operations network composed of part-time workers and motorbikes taxis
  • A vast inventory of groceries and fresh produce
  • Scheduled “slotted” deliveries
  • Asset light business: no warehouses, only hubs (grocery stores) and no delivery trucks

There are a few differences that make honestbee stand out: the company makes money from delivery fees and revenue share and can actually save up to 30% on labor costs because shoppers are hired as independent contractors, not traditional full-time, salaried employees.

Product market fit for a demanding income bracket  

Unlike the others, honestbee targets the top 10% money makers in each market by being more selective with partners to offer a service consumers are willing (and able to afford) to pay a premium before the rest of the market adopts the behavior.

Current exclusive partners include Villa Market, Fresh Deli, organic produce provider Fruits for Health, and all natural household cleaning line Pipper Standard.

“We figure out what each market needs and work with the right partners to bring value and convenience to our customers,” says Joel.

What also differentiates honestbee from its competitors is the varied service it offers across markets. How does the company decide what to launch? Through regular customer focus groups like the one held in Singapore of March this year.

A few questions the focus groups aim to answer before officially launching a new service:

  • Do the customers like our partners?
  • How do they suggest we improve the shopping methodology?
  • Is the infrastructure already there or do we need to build it?
  • Is the market growing fast enough in terms of age and adoption of behavior?

These feedback loops help honestbee work out what each market needs and led the company to discover certain market intricacies:

  • Offering garbage removal in Taiwan would be an instant success as the country has high stringent waste policies   
  • Launching an on-demand laundry service in Hong Kong works as there is large expat population in the country
  • Singaporeans would not pay for marked up meal deliveries as offered by rivals foodpanda, UberEats
  • Online grocers in Japan accounted for only 2%, or $5.5 billion USD, of the retail grocery market in 2015

Although each market is different, the core of the business still remains its groceries delivery service and is always launched first.

A teeny problem: “Managed crowdsourcing”

There are a few challenges with on-demand models:

  • Shopper retention and shortage because of fluctuating wages in a developing market
  • Expectancy for shorter and shorter delivery times by customers: same day → in two hours → next hour
  • Out of stock items and inaccurate deliveries – balanced with a “Bee” training program

Although it is risky to be spreading services so thin in concession, Joel is confident the company has the resources and isn’t concerned about needing more external investment aside from the $15 million it raised last year.

“We are comfortable with our economics right now,” comments Joel.

honestbee aims to become a one-stop solution for customers and make it possible to have anything available at the touch of a button by marrying the online and offline world.  

“Groceries is such a generic term,” comments Joel. “We never envisioned just being in the groceries business – we want to solve problems for our customers.”  

Minimarkets, a store that sells food and sometimes other goods, in Indonesia have been hailed as the “killer” of supermarkets since 2012. Its rapid growth has been largely driven by the increasing numbers of Indonesia’s middle class, where the demands for products and convenience have steadily grow hand-in-hand.

Despite the slight slowing down of the country’s economy in 2015, minimarkets’ growth didn’t show any signs of the same nature. According to the latest report by Fitch Ratings, about 1,200 additional new stores—from Indonesia’s two largest minimarket operators; Alfamart and Indomaret—opened their doors in 2015 for business throughout the archipelago, and the rating agency also expects an additional 1,000 stores to be open this year.

Such significant growth and performance for the retail format are not at all surprising given that the high demands are matched with the low operational capital commitment that the minimarket format has. They can penetrate areas that are of lower traffic with more ease than its hyper and supermarket counterparts.

Moreover, the substantial rise in the number of minimarkets might also hint at a change in customer shopping behavior within the field of modern retail formats.

Looking at the current trend, is it possible that Indonesians are shifting their grocery shopping habits from the bulk-purchase at hyper and supermarkets to smaller but more frequent buys at minimarkets?

To answer this, we pulled information from our single-source panel and receipts data to see if a shift in Indonesians’ shopping behavior is really happening. To provide a more current and up-to-date information, all data are based on real-time receipt figures taken from January 2016 to August 2016.

Mini is Big!

To look at purchase patterns across the different retail formats, we decided to look at the customers’ share of wallet where it shows which portion of their spending goes. The graph below is the total Indonesian share of wallet starting from January 2016 to August 2016.

It shows that not only do minimarkets dominate the shoppers’ spending, its size is also growing from below 50% to hitting the 60% mark in August. So, as minimarket’s percentage rises, supermarkets and hypermarkets have steadily been losing its share when it comes to their fraction within Indonesian shoppers’ wallets. Hypermarkets and supermarkets lost over 10% total market share in just 8 months.

Snapcart minimarket

 

From the data above, it can be concluded that there is a shift in purchase behavior in Indonesia. Has the shift in shopping habits of Indonesians spread throughout the country? Or is it only focused in just one part of the archipelago?

Looking at the number of minimarket chains in and outside Java as recorded in our data, Java has more chains. This number also corresponds with the fact that Java is home to about 140 million Indonesians, which is significantly more than half of the entire population of the country.

Snapcart minimarket

With this fact at hand, we look at the same data sets while adding Java and ‘outside Java’ lists as new variables. Shown on the graphs below, share of minimart wallets in Java has risen from 45% in January to just below 60% in May, then falling to 55% in June but rising again to 59% in August. It’s surprising that the share of wallet of minimarket outside Java is in fact higher than the ones in Java, despite having a lower number of minimarkets.

Looking at the share of wallet outside Java, it shows that people outside Java are spending more at minimarkets than Java residents, as its share of wallet never falls under the 50% mark. In fact, minimarkets’ share of wallet outside Java has significantly risen to around 66% in August.

Snapcart minimarket

Snapcart minimarket

What drives the shift?

There is a shift in consumer spending from the supermarkets and hypermarkets to minimarkets, but why? Is the shift of purchase to minimarkets driven by convenience? Or do other factors play a role in the rise of minimarket share? We look into the discount rates and the price perception of minimarkets.

Among all the modern market formats, minimarkets claim the deepest discount rate.

Taken from the receipt data, the graph below shows that the discount rates in minimarkets never falls under the 20% mark throughout January to August 2016.

At the same time, hypermarkets have the lowest rates with discounts reaching the 20% mark for their products only around February, March, and June, and supermarkets reaching above 20% average discount rate only around the first three months of 2016.

Snapcart minimarket

When looking at the percentage of promoted products to total basket size, Value on Deal (graph below), it shows that a good amount of items within the hypermarket and supermarkets shoppers’ baskets (above 10% of the total number of items) are filled with discounted products.

About 10% or less of the minimarket shoppers’ baskets are filled with promotional items. This could mean shoppers buy in minimarkets because of a cheaper price perception due to the depth of discount rate but once they have made a purchase, they actually buy products that aren’t discounted due to either product affinity or impulsive purchases.

Snapcart minimarket

With these facts in mind, could price perception really drive the rise of minimarket shopping? To find out, we conducted a survey comparing 14 different product categories for each retail format on the price perception of each category.

The 14 product categories we are looking at include; baby care, baby food, beverage, breads and pastries, cereals and grains, confectionary, cooking needs/condiments, dairy, health, household care, personal care, preserved food, snacks, and spread.

We asked over 3,000 respondents about the average price of each category in minimarkets in comparison to super and hypermarkets. The results showed that respondents agreed that the prices in minimarkets for most categories are identical with super and hypermarkets, with the exception for baby care and baby food categories.

To Conclude

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The main driver for the shift of Indonesian shoppers from hyper and supermarkets to minimarkets may simply be due to the convenience factor. Minimarkets’ low capital requirements allow it to penetrate and exist in rural areas, making it the only viable choice for customers in such environments.

While price perception might not play an important role in the behavioral shift, minimarkets’ deep discount rates may be important bait for shoppers to make purchases at their stores. Furthermore, when looking at the percentage of promoted products to total basket size, only 10% are discounted while the other 90% of the content within the minimarket baskets are filled with products that are not discounted.

This proves that minimarkets could be a more effective outlet for your brands’ product categories, whether to include it as a key channel or to continue with this strategy.

This article originally appeared on Snapcart.asia’s blog on 4 November. Find it here.

Indonesia’s cashback mobile application has launched in the Philippines. Filipino shoppers can now get cashback for buying groceries at their usual convenience stores through the Snapcart platform. The company has been recognized by Accenture and Omnicom Media as one of the best startups in Asia.

How does Snapcart work?

Users can simply snap their grocery receipts from any retail establishments, for example, popular department store Robinsons or 7/11. They can then upload the receipt onto the Snapcart application and get cashback as much as 10-20% on items bought under offer. This could mean that a shopper gets $2 back for a $10 lip gloss purchase from a brand partner.  Currently, Snapcart is promoting more than 200 items on offer.

In Indonesia, Snapcart’s home turf, the app had 500,000 downloads in less than 10 months. Currently, it has over 75 brands providing cashback to their shoppers.

Snapcart Interface

Snapcart’s value for brands

It’s not only shoppers that get something out of the app. Information from users’ receipts go back to the startup’s database where it is compiled and used to provide clients with valuable insights on consumer spending.

For brands and enterprises, Snapcart provides real time market intelligence and consumer data on how shoppers consume and interact with different brands. The app is able to engage the audience, measure brand KPIs and predict return on investments. This is something that Snapcart can provide more efficiently over market research studies, as the app gets real time, real access to user data.

Why choose the Philippines?

Similarly to Indonesia, Philippines has a digitally savvy population, where smartphone penetration is at 40% and growing rapidly, with the potential to double by 2018.

Like Indonesia, modern retail is a fast growing segment. Snapcart’s downloads in the first few days is already set to match, if not surpass Indonesia. – Teresa Condicion, Snapcart’s Co-Founder and Snapcart Philippines’ Country Manager.

Southeast Asia loves to snack.

According to insights from Nielsen, Filipino consumers enjoy snacking so much, 74% view it as a source of nutrition. Consumers continuously look for snacks which offer health benefits, but are also looking for an occasional treat.

In contrast, Indonesians, Malaysians, Singaporeans, and Vietnamese rank enjoyment as the foremost reason for snacking, while eight out of 10 Thai consumers (79%) snack to satisfy a craving.

Filipino respondents to the Nielsen survey choose from a wide variety of snacks, preferring bread above others, followed by fruit and chocolate. Filipino consumers also exhibit characteristics of spontaneous snackers, including trying new snacks, buying a variety of snacks, and making unplanned snack purchases. Spontaneous snackers often eat snacks as soon as they buy them and tend to buy snacks at the check-out counter.

This kind of consumption trend makes Philippines an ideal location for Snapcart – the cashback would benefit consumers greatly and a wide array of different consumer behaviors and insights collected from shopping habits in grocery stores would allow brands to better serve them.