Amidst the astonishing rise of e-commerce across Southeast Asia, quick commerce has become the latest red-hot market. But for all the attention it’s getting, are retailers actually paying close enough attention?
Known for the promise of ultra-fast fulfilment that delivers goods within ten to twenty minutes, the instant delivery bandwagon arrived at a time when the region’s online retail market was riding on a digitalization tailwind.
Unlike traditional grocers that manage a wide range of products, quick commerce businesses run a small number of stock-keeping units (SKUs) — normally between 1,000 and 4,000.
On-demand instant shopping comes with a small basket size, and businesses often depend on premium sales prices as well as service and delivery fees.
The profitability of the model hinges on having a high order volume and high customer density within the service area. However, intensifying competition often shrinks margins, while other economic factors — such as rising inflation and a possible economic recession — could quickly turn consumers off.
And there are more pronounced pain points that players have to overcome, such as manual and inefficient logistics operations, consumers’ reliance on cash payment, and sometimes, a lack of consumer trust.
Breathtaking e-commerce boom
Southeast Asia’s e-commerce sector recorded over USD 50 billion in sales in 2020, but is projected to spike to USD 143 billion by 2025, according to data from research firm Forrester. In 2020, grocery was the fastest-growing shopping segment with a growth rate of 97% year over year.
Although brick-and-mortar retailers or even e-commerce players have been banking on an omnichannel strategy to meet rising consumer demand, there are plenty of challenges that retailers have to overcome to stand out in the e-commerce battle, with Southeast Asia’s online grocery penetration rate still at a low 2%.
But with challenges come opportunities. With a myriad of leading tech firms venturing into the space across the region, including Foodpanda, Grab, and Tokopedia, the rise of quick commerce has pushed traditional and digital retailers to explore the integration of online and offline channels to ramp up their presence in the market.
One key to success lies in efficient supply chain management that enables the business to achieve profitability and establish market dominance. Innovation in the technologies and applications supporting demand forecasting, inventory planning, and dark store fulfillment are another crucial driver moving the industry forward.
Using technology to improve efficiency
The ability to maximize operational efficiency is critical to scaling the business. Not only must omnichannel retailers ensure product availability for both brick-and-mortar and online channels — they also have to manage potential returns for non-grocery items and optimize the availability/spoilage ratio for fresh produce, among other challenges.
Today, technological innovation has become a keystone element of any successful strategy for building market dominance. Innovation — from inventory management software to robots that automate the picking process — is crucial in order to gain an accurate understanding of consumer demand and maximize efficiency and margins in dark stores and warehouses.
With more new entrants joining the e-commerce fray, the industry is expected to see even fiercer competition. As consolidation among small players becomes inevitable, companies have to build healthy, sustainable business models while driving measurable improvements to their planning capabilities via data-driven technology.
The Southeast Asian market offers boundless potential. Google and Bain’s e-Conomy report estimates that by 2030, the e-commerce economy is estimated to reach USD 1 trillion in gross merchandise value (GMV).
Quick commerce will certainly be a part of it, but it has to be done right.
Writer: Kristie Davison, VP Sales, Asia-Pacific, RELEX Solutions