Indonesia’s unicorns face growing pains

INDONESIA'S ONLINE SERVICE BRANDS COME OF AGE

For the past several years, Indonesia’s unicorns have all been on all roll—expanding rapidly to serve a rising middle-class while building the engine to serve the country’s new digital economy. That growth still continues for some, but the initial ‘good to have’ challenges around higher customer expectations and the need to keep scaling exponentially has suddenly been replaced by greater, more fundamental challenges to these businesses under Covid-19.

In recent news from Traveloka, Bukalapak, Tokopedia and Gojek, many of the growth stories are being replaced by news about layoffs, executive exits, declining business activity or new funding to shore up balance sheets.

Our survey with Nielsen occurred in the early stages of Covid in February and March, yet even so it signaled consumer brand perception is shifting and the shine may be coming off these digital stars somewhat. Ride-hailing, delivery and payment super-app Gojek slipped two spots to 30th overall in Indonesia. Online travel booking service Traveloka dropped five positions to 36th overall. And more severe were the drops seen by ecommerce sites Bukalapak (down 26 positions to 100) and Tokopedia (down 53 spots to 426).

Indonesia’s ecommerce battleground

Ideally, everything should be looking up for online shopping sites like Ant Financial and Emtek-funded Bukalapak and Alibaba and Softbank-supported Tokopedia. They have strong backers, they’re early movers in a growth market with a rising middle class and Covid has become the ultimate catalyst for brands to shift offline sales to online.

But some of these advantages may be overstated. “Shifting to online shopping is a privilege of the upper middle class,” says independent brand consultant Bayu Asmara, who runs DKK Consulting. “The majority of the people are suffering. As they lose their income, all online purchases become a luxury. People focus on basic daily necessities such as groceries and food. Unlike Amazon in the US, I don't think people in Indonesia go to Bukalapak or Tokopedia to purchase groceries and daily consumption products.”

Rene De Paus, strategy director at Superunion in Jakarta agrees that shoppers are becoming more prudent and focused on basics like groceries where Bukulapak and Tokopedia are less strong. And while the rural majority still shops offline, urban dwellers are increasingly turning to players like Hypermart for daily household items, or food specialists like HappyFresh for groceries.

And not all shoppers who are turning to online sources during the pandemic are impressed. Forrester data shows many Indonesian shoppers have issues with delayed delivery, products out of stock and hygiene of packaging. “Many retailers couldn’t deliver a good online shopping experience and failed customer expectations, which accordingly resulted in negative consumer sentiment,” says Forrester senior analyst Xiaofeng Wang who serves B2C marketing professionals.

Moreover, if consumers are disappointed by one ecommerce platform, they can now easily switch to other options, since there are also serious regional entrants to contend with in the market. “Local Indonesian ecommerce platforms like Tokopedia and Bukalapak are facing more intensive competition from regional players like Shopee and Lazada, and the latter is winning consumers over,” Wang says. She points to Forrester’s ‘Consumer Technographics’ data which shows Shopee Indonesia’s penetration has increased from 55% to 68% from 2019 to 2020 and Lazada from 39% to 40%; while Tokopedia dropped from 60% to 54% and Bukalapak dropped from 43% to 36%.

Tokopedia & Bukulapak offices

The competition aren’t the only ones applying pressure either, as those deep-pocketed investors can wield a double-edged sword. Last year Bukalapak announced it was laying off 10% of its two thousand employees with investors reportedly demanding more focus on profitability. A few months later in December, founder and CEO Achmad Zaky stepped down, announcing that former bank executive would be taking up that role. Six months after that, Bukalapak’s other co-founder from 2011, Muhamad Fajrin Rasyid, announced he too was leaving to join a state-owned telecom, handing over duties to the company’s board of directors.

Tokopedia, meanwhile, continues to draw from deep wells as it braces for recession with a fresh $500 million injection this past June from Singapore sovereign wealth fund Temasek. But it has run into other difficulties after announcing in May that it had been hacked and was investigating the potential leak of millions of users’ personal details. In June, it was reported that the private data of 91 million Tokopedia uses was being openly traded online.

Traveloka’s travails

Over at Traveloka, the online travel service company has suffered the most direct hit from Covid. Last month, it said it had cleared up nearly $100 million in flight ticket refunds, or 90% of the 1 million requests that came in since the pandemic. It did so by shifting more than half its workforce onto this task. That announcement followed another $250 million fundraising at the end of July to bolster its balance sheet after business levels fell to their lowest rates since it began.

Still, co-founder and CEO Ferry Unardi has remained upbeat, emphasising how Traveloka is adjusting its strategy towards domestic travel and offering new products. Observers like ICT consultant Shailendra Soni at Frost & Sullivan APAC give the brand full marks for adapting by selling flexible vouchers for hotel stays and promoting flights and vacations that bundle Covid-19 tests and emphasise hygiene factors.

But with rivals like Tiket.com on its heels (rising a surprising 18 spots in our Indonesion top 100 brand ranking), Soni suggests Traveloka could diversify beyond Covid-related insurance packages and safer places to travel to move the brand towards home-based escapes from daily life, by offering staycation options like massages and other locally-based indulgences. De Paus agrees Traveloka may need to look at non-travel options, but also needs to truly own the domestic travel space by catering to road trips and camper van essentials.

Gojek going gangbusters

Like Traveloka, the Gojek brand has been actively expanding beyond Indonesia into more Southeast Asian markets. Just last month, it re-launched Gojek services under its unified brand in Thailand and Vietnam with a slickly produced, big-budget campaign (see ad below) that reflected its coming of age in the region.

But like some of the other unicorns, Gojek has also inevitably fallen victim to some growth pains as it took on many new staff and added new services too quickly, Asmara says. Problems with service quality began to show, he says, as drivers became unhappy with the commision split and incidents of bad behaviour emerged. Competing with rivals to be first-to-market as a true super-app, Gojek moved beyond rides, food delivery and payment services into new branded lifestyle services from housecleaning (GoClean) to massage (GoMassage) to stylists (GoGlam), some of which have had to close down under Covid.

In doing so, Superunion’s DePaus argues Gojek has made itself ubiquitous and has successfully become ‘everyone’s brand’. Through all its service offerings, it has formed a massive merchant network of 125,000 businesses in Indonesia, making it easier to defend its home turf and stay ahead of rivals in its home market.

At the same time, growth brings new challenges. “I see their biggest challenge at home is the brand becoming diluted by the various services they offer. Gojek’s brand is about smart solutions for everyone, and this is simple but not easy to prove,” De Paus says. “I think it’s hard for them the stay relevant for specific niches and not just because of Covid, but also to gain enough mass to justify the service.”

All that expansion also costs money. Soni and De Paus point out that Gojek’s cash burn and lack of profitability in recent years are coming to a head under Covid and it has had to retrench staff. Already in February, CEO Kevin Aluwi committed to slowing down spending to focus on customer experience around existing services.

Grab vs Gojek

The influence of a key competitor like Singapore-based Grab can’t be overemphasized, forcing Gojek to both expand quickly and focus on CX at the same time. App users are fickle and will quickly switch between them depending on which is cheaper or easier to use—which continues to change based on constant services updates and personal preferences. In Indonesia, like in many Southeast Asian markets, users have both apps and use them alternately for different things. Grab has certainly eroded Gojek’s lead in car-hailing services, notes Frost & Sullivan’s Soni, while Gojek maintains its lead in bike-hailing services and has a strong merchant network.

Brand perception-wise, Gojek has suffered some negative publicity around its systems being more susceptible to driver fraud and from higher numbers of layoffs than Grab. Our brand ranking, undertaken in February and March, had both brands neck-and-neck in Indonesia, with Grab at #31 and Gojek at #32. Both had slipped this year, through Grab (-4) moreso than Gojek (-2) which closed the gap between them.

Both brands have been equally hard hit by Covid, Soni says, suffering 50% to 80% declines in rides for drivers and their income, resulting in many employees shifting to delivery services. Safety and security have become key issues under the pandemic, and while Soni points to Gojek’s well-received J3K initiative to keep drivers and passengers healthy, hygienic and protected, Grab has been equally visible in emphasizing safety (see video above).

In the end, Gojek is better known in the market, has had a longer head start in the market and therefore has garnered more business. “GoJek has broad base of customers in comparison and as such has pockets of consumers untouched by Grab and other brands,” Soni says.

Yet while all these unicorns brands have a home team advantage in Indonesia, it’s clear that when it comes to brand perception, home teams aren’t always the winners with consumers.