After a wave of fresh companies entered the Southeast Asian market over the last few years, it appears that the online grocery delivery phenomenon has stuck.
Among them RedMart, HappyFresh, honestBee, GoFresh and PurelyFresh are competing with each other to get from your phone to the fridge.
HappyFresh, a Jakarta-based company that raised US$12 million in September, recently told e27 it expects to launch in Manila by next week.
The move means the company will operate in five countries (it currently operates in Malaysia, Indonesia, Thailand and Taiwan) and six cities (with Indonesia operating in both Jakarta and Surabaya).
With the update, e27 spoke with HappyFresh Co-founder and CEO Markus Bihler to learn what it takes to expand regionally, and also whether the fundraise changed his leadership strategy.
(Spoiler alert: It didn’t).
The edited excerpts are below:
HappyFresh recently said the online grocery market is set for double-digit growth and could be worth SG$19.9 billion (US$13.6 billion) by 2020. What makes you think so?
Grocery as a category is the largest part of household spending for most households in Southeast Asia, normally tied with rent. It is huge relative to other expenditure markets. And it is the most frequently re-purchased – two, three, four times a week.
But also it is the most under-penetrated.
So if we talk about growth rate — [we are talking about] growth from an extremely low base — [HappyFresh] thinks below one per cent on Southeast Asian grocery markets are online.
That compares with 20 and 30 per cent for electronics, books and some parts of apparel. And it also compares to 10- plus per cent of the grocery market already [being] online in places like London, San Francisco and New York.
We believe the biggest growth driver in the online grocery market is the shift from offline to online, which we have seen in every other category across the world.
Have you seen any reaction from the traditional grocery stores?
I think we see two reactions. Those who decide to put more focus on their in-house solutions and those who put more focus on finding the right partner. And the latter is something we have seen over the last months.
Retailers have actively reached out to us and started to talk about partnerships with HappyFresh to allow them to grow their geographic coverage and reach new customer groups.
When you expand into new markets, how do the logistics look like?
In this case, it is both a new city and a new country. So, the first two steps are — one, find an experienced local management team to run the country. In this case we have found a management team with over 20 years of experience in e-commerce, logistics and marketing in the Philippines. Because we firmly believe that national teams need to be lead by national managers; two, at the very beginning we focus on finding supermarket partners.
Is there anything different you are doing for the move in to the Philippines?
No. We have the same specific model across the region — which is a two-tiered system with personal shoppers and drivers. Personal shoppers are full-time employees of HappyFresh, trained in our in-house HappyFresh academy and stationed at our partner stores.
And then we have a fleet of drivers, also full-time employees, on bike and we put the delivery on the back of the bike.
A follow up question, you mentioned full-time employees. Why did you choose that route over, say, the contract model of Uber?
To keep churn down and have more time for quality training.
So foodtech in India has been hit hard in the last few months. Have you seen anything like this in Southeast Asia? And does it cause any worry?
I think what we have seen over the last three to six months in the Southeast Asia market, across the region, is a flight to quality and a flight to sustainability.
I think every company out here will have to prove that they have a long-term sustainable business model and they are quality leaders in their industry.
If that has been the trend in India, then I think we have also seen it out here in Southeast Asia.
What is the demographic of the average HappyFresh user?
The majority of our customers are locals, not expats. And the majority of our customers are women.
Within that, the majority are mothers of young families who have a full-time or part-time jobs themselves.
So we cater to mostly single-generation households with income earners who value the convenience of the service.
How does the competition within the industry affect your approach?
We focus on what we have under control — which is assortment, quality, pricing and operations.
And in the overall industry, I welcome every player in this industry that educates the market on the benefits of online shopping.
Again, only one per cent of the market is online and every player in the industry will help broaden the pool and help educate the public.
What have you personally learned, I am curious, after US$12 million funding round? Has it been different running a company with a big investment?
I have learned every day since we started the company, the type of learning hasn’t changed since taking additional external funding.
The lesson we are always promoting is: be humble.
If you are a foreigner coming into the region in Southeast Asia, you need to empower local, experienced management team, who have local experience in their country. And give them operational independence and allow for national approaches to problems.
Number two is building long-term relationships. It is the basis for doing business anywhere in the world, but especially in this part of Asia. And that cannot be rushed.
So, as a partner, focus on quality, focus on sustainability and focus on reliability. Good things will happen.
What are some challenges you have faced in the last six months?
The key challenge in a fast-growing company is the balance between doing the right thing for tomorrow and doing the right thing for next year.
And that can actually stand in conflict because you will have to walk before you run. But, you will also have to build in [means] to sustain growth momentum and not be in a position to rebuild the foundation again and again.
The number two challenge, as always, people — finding, enabling and growing the right people.
Giving them a career path and [reasonable] growth perspective in [today’s] short-term-focussed world is a challenge. People have less patience, want quicker career paths and want faster developments than ever before.
So I think these are the two main issues.
Also Read: SAIF, Sequoia put US$10M in grocery delivery firm PepperTap
If you have a good year, what do you hope it will look like?
The focus for 2016 is clearly to build the breadth and depth of operations in our cities.
In addition we have a long-game of product features in the pipeline which will mainly focus on personalisation and ease of shopping, so our customers will have a quicker and more intuitive supermarket accessibility.