How Indonesian neighborhood retailers can accelerate into the digital economy
Platform technology services that are addressing local pain points have begun to resonate with Indonesian consumers and retailers, as they are able to attract the unbanked population of the country. In Southeast Asia, more than 70% of the adult population is either ‘underbanked’ or wholly ‘unbanked’, according to the 2019 e-Conomy SEA report co-produced by Google, Temasek, and Bain & Company.
As accessible as digital banking and other tech-driven disruptions have made the Indonesian marketplace, a lack of understanding and resistance to all these new-fangled technological upgrades still throws off one of the largest segments in developing territories – the traditional cottage industry, known as warungs in Indonesia, tiny hawker-like stalls or outlets selling anything from meals to souvenir trinkets.
In an economy as large and as spread out as the Indonesian archipelago, consisting of thousands of small to large islands, traditional retailers are the preferred choice for many low and middle-income households, and can make up as much as 70-80% of Indonesia’s economy.
“They are not only a central pillar of their communities and Indonesian life, but also incredibly cost-efficient,” says Nipun Mehra, the founder and CEO of Ula, a mobile app that allows Indonesian warungs to purchase stock online, helps them source for better financing, and moreover aids with their inventory management and logistical support like last-mile deliveries. “They [the warungs] are small enterprises, mostly family-run within self-owned premises, making their operational costs extremely efficient – but their cash flow constraints and inventory, as well as delivery issues, limit their full potential.”
Those “issues” can pile up for small retailers, causing their operational necessities to become time-consuming and inefficient. Mehra gave some examples of how warung traders could face hurdles to replenish their supply chains: they likely have to travel to meet suppliers or wholesalers in person, often having to shut down business for the day and putting themselves at infection risks in crowded areas. Goods pricing can also be opaque, needing to haggle with multiple suppliers for a better deal.
“If they get deliveries to their stores, they are often unreliable. They have limited visibility with regards to when the products are going to arrive and they don’t always arrive on time. Sometimes, they also receive damaged goods,” Mehra informed Tech Wire Asia. “Finally, retailers don’t have access to traditional banking systems and rely almost exclusively on cash, limiting their working capital and ability to manage their cash flow.”
Just as digital payments and micropayments have taken off across the archipelago, an app like Ula looks to address pain points that are specific to the conundrum faced by Indonesian warungs. “Digital adoption is accelerating across retailers, and at Ula, we believe there is a real opportunity to revolutionize traditional trade via technology-enabled platforms that combine the cost efficiencies and neighborhood relationships of traditional retail with best practices and technology of modern retail,” Mehra opines.
Alan Wong, Ula’s other co-founder and chief technology officer, believes that an end-to-end digital solution like the Ula app is able to support and enable traditional retailers like warungs to get started on their digital transformation journey. “A holistic solution like Ula (which besides a centralized e-commerce platform, provides additional support including doorstep delivery and financing options) is able to streamline the supply chain network, making the entire process more efficient and hassle-free for traditional retailers. This allows retailers to be more productive with their time and focus on growing their business, instead of trying to alleviate their many pain points.”
“Most traditional retailers are not used to using apps in their day to day lives and don’t feel comfortable using them for even essential purposes such as stocking up their stores,” muses Wong. “The key to unlock this is through simple and approachable solutions that add real value to and build trust with end-users.”
Additionally, many traditional Indonesian retailers reside in areas with limited mobile connectivity, and use entry-level smartphones that have low computing power and storage capacity. “As such, mobile apps designed for traditional retailers must be optimized to minimize mobile plan costs, be compact to be reliably downloadable in areas with limited connectivity, and lightweight enough to provide a smooth shopping experience without taking up lots of storage on users’ phones,” the CTO elaborated. “For instance, our Ula app is packaged at 4.28MB as compared to our peers’ apps which are usually around 13.4MB.”
The digitalization of these Indonesian small businesses has been helped along by the pandemic, and now “most of them are now embracing technology and innovation to grow their business, and they’re seeing the benefits both from a business and safety perspective first-hand,” said Mehra. “For example, online delivery service has allowed these retailers to avoid crowded areas such as wholesale markets while ensuring access to goods.”
Wong agreed, adding that the future of Indonesian warungs means to have the right tools to build and grow their business easily from the palm of their hands. “Moving forward, typically manual tasks, from sourcing, ordering, payments to delivery of inventory, will be done digitally through their smartphones,” he pointed out. “Digitalization will improve the lives and livelihoods of traditional retailers by freeing up their time so that they can concentrate on growing their business.”