Digital FMCG

OVO-partnered Indo startup charts street stalls’ path to online success

Jakarta-based Warung Pintar has pushed thousands of “mom and pop” shops into the 21st century by digitising their businesses. The startup has raised $35 million to date and tells FinanceAsia it’s keen for more investors to come in.

Warung Pintar - ‘smart stall’ in the Bahasa language - is combining the latest in data analytics and mobile payments to bring Indonesia’s street shops online.

“This is an expansion year for us,” Warung Pintar chief executive Agung Bezharie Hadinegoro told FinanceAsia in an interview, as the startup looks to consolidate its operations within the archipelago's street stall market.

“The opportunity is here, and we see smaller players trying to [cash in],” the chief executive said. “So, we need to win the battle in Indonesia.”

Roadside stalls in Indonesia compete with convenience store chains like Alfamart and Indomaret to capture the fast-moving consumer goods (FMCG) market, which includes cosmetics, processed foods, drinks and basic dry staples.

“The FMCG industry is [...] one of the most attractive with over $10 billion in sales,” a 2017 HSBC report said, adding that as the country’s middle class grows, the bank forecasts a rise in sales.

Indeed, the prize for capturing the micro-business market is lucrative and its consumer base growing by the day; Indonesian’s burgeoning middle class now exceeds 115 million, World Bank data suggests.

Fintech companies are looking tap this opportunity, which has until now been restricted by warungs’ low-tech business dealings. Warung Pintar scored a competitive edge by joining forces with Grab-backed mobile wallet OVO to provide vendors with electronic payment options. 

It’s a long-term investment for both parties in the country’s nascent internet space. “Less than 10% of our consumers use digital payments now, but it’s growing,” Hadinegoro said.

While the vendor is tied to the OVO wallet, they can accept payment from any rival wallets including the government-backed LinkAja, Gojek’s GoPay platform and local upstarts like DANA.

Founded in 2017, Warung Pintar raised $27.5 million in a B round of funding last year, with contributions from LINE Ventures, Pavilion Capital and East Ventures. This brought total funding to just over $35 million to date.

“We have a good runway,” Hadinegoro acknowledged. “But we are looking at how to grow faster and bigger. This might mean bringing on new investors as partners.”

So far, the startup has put the capital towards expanding supply chain capabilities and broadening its geographic base. Currently available in five major cities in Indonesia, Hadinegoro hopes to nearly quadruple that figure by year’s end.

To make this goal a reality, Warung Pintar is building a platform specifically for warung owners. “We are working with OVO to build a wallet that can be used to pay for inventory and procurements,” Hadinegoro said.

The startup expects to launch a full-version of the service by mid-2020. A pilot project testing the software is already underway.

More than a makeover

The startup revamps the appearance and operations of street stalls; a coat of electric yellow paint, wi-fi for customers, digital point-of-service (POS) and mobile phone charging stations are among the features provided.

But the changes are more than cosmetic. Warung Pintar aims to bring the shop’s accounts entirely online. “In the past, [shop owners] would write their sales on the back of cigarette packs,” Hadinegoro said. “It’s not efficient.”

Profits are at stake. With digital tools, stall owners can cater more accurately to the customer's preferences by leveraging existing data on consumer trends and collecting more.

Warung Pintar envisions an ecosystem of warung businesses managed entirely through apps.  “What we offer is a way for you to record sales, inventories and so forth in an app that is connected with our procurement,” he added.

The startup claims to boost profitability of these stalls by 41% on average and as of February 2020 more than 10,000 have joined while thousands more have applied. 

The majority of small business owners in Southeast Asia will be turning to non-traditional financing solutions in the future compared with 29% today, a February 2020 Grab and Bloomberg report found.

“It’s hard for banks and financial institutions to give loans to micro businesses due to the size of the transaction and speed of repayment,” Hadinegoro noted.

So far, several hundred warungs have applied for financing through Warung Pintar, according to the startup.

This jibes with Warung Pintar’s ambitions to be involved in every step of the supply chain. To diversify income streams, the startup has started operating warehouses with goods it sells on to street stalls.

“We are building more modular supply chain capabilities,” the chief executive said. “We inject our products into local warehouses, and this enables a distribution centre for warungs.”

Battle of the minimarts

As a whole, the Indonesian shopping industry is expected to grow 34.6% this year on the back of increasing internet penetration, according to a JP Morgan report.

But modern trade channels have come to dominate Indonesia’s commerce landscape and for many small family-owned stalls, it’s a battle for survival.

In 2017, more than a fifth of Indonesians selected warungs as their preferred supply channel according to Deloitte’s annual consumer survey, with mini-marts a close second at 18%.

The 2019 edition of the same survey found that mini-marts had overtaken their street stall equivalents - with 21% of customers ranking mini-marts as their shopping option of choice compared with 19% for warungs.

For many roadside stalls, companies like Warung Pintar is their best bet for growth.

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