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THE BACKGROUND

Asia Pacific really likes their whisky.

The gold liquid makes up 40% of multinational alcoholic beverage company DIAGEO sales in Asia, compared to only 25% of its global sales. One of the brands that sit under the behemoth is Johnnie Walker, the world’s most widely distributed blended whiskies.

The immensely popular liquor started out life in 19th century Scotland when John “Johnnie” Walker began selling it from his grocery shop. It was his son, Alexander Walker, who took the elixir global with a simple distribution model.

Shippers would take the bottled whisky with them on their journeys around the world, sell them, take a commission and handover remaining profits to the firm. Over 100 years later, the brand sells over 120 million bottles across 200 countries in bars, restaurants, breweries and lounges.

Four bottles of Johnnie Walker are consumed every second” – Pittsburgh Post-Gazette 

So the question arises, if in today’s digital world, people can order clothing, groceries, razors and even pets online, why not alcohol?

Companies like Drizly, Saucey, Paneco, Wishbeer and yes, Johnnie Walker, are attempting to offer their own solutions to ensure that consumers can enjoy a drink at any time of the day, but not many have found lasting success.

The Challenge

After shutting down its luxury e-tail site “Alexander & James” after a short four year run, DIAGEO publicly acknowledged that it was struggling to find success in online direct-to-consumer, referring to it as,

A pot of gold at the end of the rainbow that you need to keep on chasing.”

The company recently lost its place to Kweichow Moutai as reigning liquor market leader in China as the Chinese taste shifted to premium brands, especially for gifts and elaborate events.

DIAGEO Online

Moutai’s market capitalisation reached $71.5 billion on the Shanghai exchange in April, while Diageo’s London capitalization is $71.1 billion. Source: FT and Bloomberg.

In light of the company’s closure of “A & J” earlier this year citing that “consumers don’t look for specialty shops online”, the company is shifting focus to sell its products on platforms like Amazon and Tesco.

A partnership with a mass marketplace is appealing for two reasons; (1) it already has a large audience and (2) enables the sale of DIAGEO products online.

“We can raise awareness, but if they can’t buy the products, it’s void. [The partnership with Amazon] gives us that complete circle – we can entertain and educate viewers with how-to guides, and then make it as easy as possible for them to make the purchase,” said Johanna Dalley, World Class Global Director at Diageo Reserve.

“It’s the perfect storm – we are creating content that inspires people to buy our brands, and we can directly look at conversion and click-through rates.”

But what happens when strict regulations in emerging markets like Thailand prohibit the use of photos or celebrities to promote the brand’s lifestyle?

THE STRATEGY

Big C, one of Thailand’s largest retailers, offers a range of beverages from beer to wine online but the website states it cannot display any photos/logos/names of alcohol due to the country’s Alcoholic Beverage Control Act.

DIAGEO Online

Big C product selection for liquor on its website. Thailand has banned the promotion of alcoholic beverages sales but many companies risk the fine.

On the other hand, Wine Connection and Wishbeer, both operate websites in Thailand that contain photos of wine bottles, craft beers and sales. The companies are risking the 150,000 – 200,000 THB ($6,040) in hopes of a stronger payout.

A fair assumption given a recent study found that approximately 30% of Thai people started to drink alcohol after seeing images of their favourite celebrities posed with drinks.

If DIAGEO is willing to risk the fine, which no reports indicate it has ever been enforced, it has a strong direct-to-consumer opportunity in Southeast Asia – especially Thailand, Singapore and the Philippines – because of the region’s growing online adoption and preference for spirits and beer.

DIAGEO Online

Source: Chartsbin

DIAGEO, in particular Johnnie Walker, has long been eyeing emerging markets. Brazil, Mexico, Thailand, and China are some of the brand’s top seven global markets.

How has the company approached selling in these markets?

In Diageo’s case, the company has created a four-part ecommerce strategy:

  1. Developing a strategy and getting its ‘house in order’ (internal restructuring, hiring, etc.)
  2. On-trade and off-trade strategy
  3. Activating ecommerce channels (strategic partnerships with pure players, delivery companies, etc.)
  4. Direct to consumer through individual brand websites

Anyone looking at DIAGEO’s key moves in the online space cannot say the company hasn’t tried.

In 2016, the company announced a partnership with Deliveroo to offer an ‘alcohol-on demand’ service called thebar.com in certain areas in the UK. It’s a similar and popular strategy like Wine Connection’s partnership with delivery company, honestbee, in Thailand.

DIAGEO Online

honestbee home delivery of Wine Connection products.

Charles Ireland, Diageo GM for Great Britain, Ireland and France, says DIAGEO is spending more money on digital platforms like Google, Facebook, Instagram and even dating app Tinder, than traditional media for the first time. The goal is to use videos and other forms of content to educate and raise awareness.

“There is a shift towards content marketing within Diageo more broadly. In terms of monetisation, we will see more partnerships with Amazon from a commercial perspective. Other retailers are content hungry too, and are looking for content for their websites. [We will] provide them with content if it helps people click through to purchase,” said Dalley.

THE FUTURE

In Asia, the demand for alcohol is not the problem when beer sales consistently outpace GDP growth like in Vietnam since 2009. The biggest challenge is lack of awareness and oscillating regulations.

“In terms of direct to consumer [selling], I think there are consumer goods companies that are doing it quite successfully, but we haven’t quite hit a successful formula yet and we’re continually working on it,” says Charles.

Keep walking Johnnie, you’ll get there.

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.”  

Vietnam, like most countries in Southeast Asia, is experiencing a rapid surge in middle class growth but at a rate faster than its neighbours. According to BCG, the ‘middle and affluent class’ is set to double to 33 million people by 2020 and earn approximately $714 or more a month.

Despite the slowdown of on-demand startups across the rest of the world, Vietnam’s developing landscape has been wide open for value-added services as more professionals in their late twenties and thirties move into their own apartments and pursue white-collar careers.

On-demand groceries and food delivery service MarketOi is one of few startups based in Ho Chi Minh focused on serving the increasing amount of individuals that can afford ‘status’ – expats included.

“It’s not only about being middle class, but also about showing that they’re middle class,” – Oscar Mussons from Dezan Shira & Associates.

eIQ talks to MarketOi’s partner, Nicolas Embleton, about how the company is tackling the ever changing market.

Southeast Asia’s “hip food scene”

The current “food commerce” startups in Southeast Asia – foodpanda, UberEats, honestbee, HappyFresh, etc. – are either delivering hot meals or groceries. MarketOi, founded by French entrepreneur Germain Blanchet last year, actually does it all.

Placed orders are fulfilled within an hour or less as separate in-house riders are based in each of Ho Chi Minh’s districts.

MarketOi “Hunger Games”-esque homepage

“Customers can order a pizza from a restaurant, a croissant from a bakery and a coffee at Starbucks within one order. We try to optimize the route by estimating cooking and preparation time, and sorting out the pickup order so that it makes sense in the delivery chain. The food has to be hot at arrival, and if it’s impossible, the customer is always notified in advance,” says Nicolas.

“MarketOi is a service, we have to do the best to make sure our customers get what they need.”

The company currently has 40 official restaurant and grocery store partners, with over 50 unofficial partners undergoing a trial period that typically lasts three months. MarketOi aims to reach 100 official partners by the end of this year.

“We onboard brands first to test their demand during trials,” says Nicolas. “If the feedback is positive, then we sign them as an official partner.”

Foreigners’ satisfaction about economic aspects in Vietnam and Japan. Longer lines indicate higher satisfaction. Graphics by HSBC

Today, 80% of MarketOi’s user demographic are expats and 20% locals.

On-demand food is notably popular among the stream of expats living and working in Ho Chi Minh thanks to the great “work-life balance” as reported by HSBC data.

“MarketOi is still growing, and since the founding team are foreigners ourselves, it’s easier to know what other foreigners want and become early adopters,” says Nicolas.

The platform services 500 active customers to date and carries out approximately 1,300 deliveries a month with $15,000 in monthly revenue. Since its launch last year, MarketOi has experienced 5% growth week on week.

The platform is also investigating delivery for things such as pet food and medicine, two areas where Nicolas sees potential.

“We essentially want to become top of mind for consumers when they need something in a short span of time,” he says.

As most service providers, convenience is key, but operating in a developing market like Vietnam is not without its challenges.

Scaling the on-demand business  

“The Vietnamese market is tough,” says Nicolas. “There’s a lack of brand loyalty and costs are high while margins are low.”

“Restaurants also feel the same pressure to fill seats in order to balance their high costs, but it can be tough in a city with low dining out preference for Western establishments,” says Nicolas.

“We offer restaurants a way to increase revenue without increased marketing costs,” says Nicolas. “MarketOi does the marketing and receives a commission for each partner order.”

It seems like eating out is picking up in Vietnam though, thanks to an influx of international brands but only for special occasions. The most common meal that the Vietnamese go out to eat is breakfast, with local noodle shops being the most popular option.

Only 7% of dine out destinations are at Western restaurants, including fast food chains McDonald’s and KFC.

Another interesting note is that more than a third of the company’s orders come through ‘chat app’, 30-40% from the website, and the rest from the MarketOi app. Not surprising as 9 out of 10 people access the internet through mobile phones in Vietnam.

Since majority of orders come in via chat, a MarketOi team is dedicated to answering customers and relaying orders to partners.

“Keeping the direct lines between us and the customer is important for an enjoyable experience but this system is impossible to scale because if our orders increase significantly, it will be difficult to manage the personal relationship with our customers,” says Nicolas.

He mentions that the company is currently working on in-house technology such as testing AI, processes, internal tooling and bots to help it scale.

What does MarketOi think businesses should know about Vietnam?

“Vietnam is a very ‘do it all at once, or not at all’ kind of country,” Nicolas observes. “Mass behavior is a thing here in Vietnam.”

For example, lemon tea shops were immensely popular a few years ago, and businesses filled each street with the same kind of shop, selling the same beverage and saturating the market.

This led to a fear of starting something new in Vietnam.

Government constraints are also a big hurdle for businesses that want to operate in Vietnam as noted by Raphael Wilhelm, SoNice.vn founder, one of Nicolas’s good friends.

“Paperwork takes time and the only way to speed up process is through local connections, which can be difficult to obtain for foreigners.”

“Sometimes, to get things done, you have to contact a friend of a friend in Ho Chi Minh,” says Nicolas. “It’s the way business happens around here.”

“Within the next year, we want to expand into another city in Vietnam and increase the speed of deployment. MarketOi’s advantage lies in the fact that the service is still very much needed here, but we are seeing a clear interest in other cities where it makes sense,” says Nicolas.

The MarketOi Team in Ho Chi Minh

Here’s what you should know today.

1. Alexa now takes orders from Amazon’s instant Prime Now and alcohol delivery services

Great news for impulse shoppers – Amazon announced that it will now let Prime subscribers order from Prime Now, its two-hour delivery service, as well as its newer alcohol delivery service, in cities where these are offered.

Amazon says that Alexa’s Prime Now implementation will let you order multiple items at once and make recommendations whilst automatically give you the next available two-hour delivery window.

These two newest features are also a mark of how Amazon is giving Alexa a front and center place as a key interface between Amazon itself and its customers.

 Prime Now and alcohol delivery are designed in the same vein. The idea is that you can use Alexa when you are multitasking at home and too busy to get on the computer or your phone.

Read the rest of the story here.

2. Alibaba buys online ticketing platform Damai

China’s Alibaba Group Holding Ltd has fully acquired online ticketing platform Damai.cn

The move marks a further push into entertainment by the firm as it expands beyond its core online retail business.

Damai.cn will be a strong platform to distribute the company’s media content as well as expand its user reach and engagement.

Read the rest of the story here.

 

3. Walmart launches tech incubator

The Silicon Valley based incubator will be called ‘Store No. 8’. The incubator will help identify changes that will reshape the retail experience in the next few years, including AI reality, autonomous vehicle and drone delivery, and personalized shopping.

The US retailer has been overhauling its online team to better challenge Amazon with greater selection and lower prices, including various acquisitions of smaller fashion labels, most recently Modcloth.

Read the rest of the story here.

 

4. Adidas trials customer personalization to tackle fast fashion

Adidas has been testing a store where shoppers can design a sweater, have a body scan to determine fit and get it knitted by a state-of-the-art machine within hours, as a way to respond to fast customer demands.

It hopes the drive will help it adjust better to fickle fashion trends, allowing it to sell more products at full price

“If we can give the consumer what they want, where they want it, when they want it, we can decrease risk, at the moment we are guessing what might be popular,” says brand chief, Eric Liedtke.

Read the rest of the story here.

Here’s what you should know for today.

1. Rocket Internet’s home services marketplace Helpling raises $11m

This latest funding round is led by APACIG, a joint venture between the German startup investor and Qatari telco Ooredoo. It’s a downround, however, which means that its valuation decreased as compared to the previous funding round.

 Helpling has also announced it’ll bring window cleaning, furniture assembling, and paint work to all its markets.

Helpling’s business model is asset-light. However, this type of model is easy to replicate. How can it beat out local and regional competition to become a dominant player?

What are people saying about it? “I think it’s a tough model because clients don’t have loyalty to the middleman platform,” says Poh Chen Wei, founder of Pegaxis, a B2B platform that connects service providers to properties.

 

2. World Bank’s IFC investment firm invests $2M in Southeast Asian fund SeedPlus

IFC confirmed today that it has invested $2 million in the SeedPlus fund, the size of which has not been disclosed.

Its portfolio includes B2B repairs platform Moglix, Mimetic.ai, which manages an AI assistant platform, and mobile security firm AppKnox.

“Ultimately we want to curate and carefully select our investor base, that goes back to our focus to support our startups beyond Singapore and Southeast Asia,” said Tiang Lim Foo, operating partner at SeedPlus.

Read the rest of the story here.

 

3. Recommended Reading: Fast fashion fading as H&M, Zara show strain

Retailers’ recent results illustrate the difficulties facing the fashion industry as consumers divert spending to leisure activities and buy more of their apparel from a rising number of online suppliers.

Richard Chamberlain, analyst at RBC Capital estimates that H&M’s same-store sales fell 3% in the month, weighed down by the tough industry conditions and as initiatives to expand online options for customers and improve methods of supply take time to feed through to sales.

Read the rest of the story here.

 

4. Community Chatter: Malaysians are savers

Source: Nielsen’s Twitter account

Malaysia now has one of the lowest consumer confidence ratings in Southeast Asia, which does not bode well for local demand in the country for 2017, according to Nielsen’s findings.

Read the rest of the story here.

Here’s what you need to know.

1. Lalamove to launch same day delivery service in Bangkok by June

Apart from the technology development for the same day delivery service, Lalamove will use the funding to expand its on-demand delivery services from current 45 cities to 100 cities by end of year. Currently, Lalamove operates in Hong Kong, Singapore, Bangkok, Taipei, Manila and 40 cities in mainland China.

Currently, Lalamove’s on-demand delivery service extends to the food industry. By extending same-day delivery to other industries, the startup hopes to attract more ecommerce companies and online retailers.  Regional director of city operations at Lalamove commented,

We choose to test the new service in Bangkok as it marked the highest growth in 2016 in terms of usage and the service value outside China – Santit Jirawongkraisorn

Read the rest of the story here.

 

2. Ant Financial makes its first investment in the Philippines through Mynt

Mynt is a wholly-owned subsidiary of Globe Capital Venture Holdings Incorporated (GCVHI) under Globe Telecom and Ayala Corporation. The deal represents Ant Financial’s first-ever investment in the Philippines and gives Mynt access to the digital payment giant’s know-how in using technology to provide equal access to financial services.

Read the rest of the story here.

 

3. Online lenders will face new regulations in Indonesia

Indonesia’s financial services authority (OJK) is working on new rules for online money lenders.

What will the new regulations do? The rules will put a cap on the the maximum amount balance sheet lenders can hand out. The aim is to keep the loan size small so online balance sheet lenders would fill a gap rather than compete directly with banks.

The regulations concern online lenders who give out loans from their own capital.

Read the rest of the story here.

4. Community Chatter: Omise to launch new e-wallet platform in Q4

Source: Omise founder, Jun Hasegawa’s twitter

Payment platform Omise is set to launch a new e-wallet feature, Omise Go which will be powered by ethereum. It will be a platform for payments, remittances and more for the unbanked population.

Read more about Jun Hasegawa in eIQ’s SPARK40 list of ecommerce professionals here