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Equity Research

Thematic

Tuesday,17 September 2019


Consumer Internet
Amazon & Gojek, a potential strategic fit
We touched base with Redseer Consulting during its presentation, as it put
Formal Online Gross GMV retail ecommerce into perspective and explained why Amazon and Gojek would need
(ann. USDBn) each another. Broader e-tailing, ewallets, foodtech, and logistics are the next
opportunities, but are very much in the early stages. Key levers should move
ecommerce activity and their penetration to a higher level.
The partnership will add value to Gojek and allow Amazon to tap a rare
opportunity. Amazon and Gojek potential synergies were analyzed by Redseer
following the news of a potential partnership between the two. By no means will
Amazon be left uninspired with the current opportunities in Indonesian retailing,
largely owing to the very low online penetration, sub 5%. Amazon will likely
pursue the partnership to use the local platforms allowing it to test the market,
while Gojek will use Amazon’s experience in foreign markets to expand into new
sectors incl. e-tailing, groceries and logistics. Gojek apparently needs some extra
support as its leadership in ride-hailing and foodtech is being challenged, while
OVO is breathing down its neck in eWallets. The potential Dana and OVO
partnership may worsen Gojek’s ewallet outlook if it happens.
Being in the early stages, many retail opportunities seen. Strong local players
have nurtured the B2C “e-tailing” scene but If we are to limit ourselves to one
takeaway from Redseer’s presentation, it is that we are still in the early stages in
Indonesia’s consumer internet era. Redseer puts into context the next
Indonesian e-wallet market growth ecommerce opportunities which are expected to blossom by 2023-25 predicting
(in USD Bn GTV terms) GMV to grow to USD21bn (+55%) in FY19 and to USD80bn by 2025 (+25%cagr).
These are the elogistics, ewallet payments, foodtech and cross border trade.
Ecommerce at a tipping point; structural changes are due. The existing e-tailing
market challenges give way to structural changes to come. Firstly, most e-tailing
categories in Indonesia have sub 5% online penetration. Growth of e-tailing was
led by electronics and mobile, but Redseer expects this to democratize to include
FMCG, fashion and home amenities and appeal further to shoppers even outside
Java. Secondly, the consumer experience is not optimal on the delivery front.
Tokopedia, Shopee, Bukalapak, and Lazada will drive in-house elogistics to better
control the consumer experience. Thirdly, E-tailers are also expected to bring a
lot of the C2C informal market to their marketplaces expecting the B2C market to
grow. Lastly, penetrating the unbanked consumer segment requires fintech
innovation and COD payment schemes to help drive adoption.
Source : Bloomberg
The opportunities; Online cross border trade: Redseer says the cross border
market 2018 of USD1bn GMV will show twofold growth in 2021 as Lazada,
Shopee, Ebay, Amazon, and the Chinese players are expected to sell goods from
abroad. Foodtech, the next big thing: Foodtech is largely underpenetrated and
sees opportunities to improve the food supply chain. Also, cloud kitchen is
another flexible concept to address the gaps in the food chain. In-house as well
as 3PL elogistics: Along with in-house logistics, there are opportunities for
existing 3PL providers such as J&T and JNE among others, whose shipments may
rise by 30% cagr 2018-25. Express logistics is a key sector subset, contributing 12%
of the market and poised to grow 40% cagr. Massive supply of digital payment
services: The Leader in 2018, Gojek, is being challenged by OVO, while SOEs
consolidated under Linkaja are making a more concerted effort.
x Niko Margaronis What to watch; Redseer’s identified areas of synergy may provide the roadmap
(62-21) 5091 4100 ext. 3512 for a win-win solution to emerge in a partnership. The opportunities appear
niko.margaronis@danareksa.co.id enticing for Amazon, and we will see whether this partnership materializes or
whether Amazon seeks another entry option. Competition is strong for Gojek and
a deal may offer more than a quick win solution, depending on the specifics.

See important disclosure at the back of this report


General overview of Indonesian ecommerce. Consumer internet in Indonesia
heralds many opportunities starting from e-tailing, which in turn relies on other
opportunities such as logistics, ewallet payments, and foodtech. All indicators
point to the fact that Indonesia is a great opportunity for e-tailing. The consumer
internet presents many opportunities; the greatest being e-tailing with sub 5%
penetration across the broader category of FMCG. It would be worth reiterating
here the key points from Redseer’s presentation during the conference call.

Penetration enablers. Redseer expects the growth in penetration to be driven


based on specific levers:
- Online penetration is sub 5% in most categories. The growth of e-tailing
has largely been driven by electronics and mobile, but it is expected to
democratize and include more categories in FMCG, fashion and home
amenities which should appeal to shoppers even outside Java. Annual
GMV stood at USD13.5bn based on the 1Q/2Q19 results and will rise by
+55% in FY19. Given the underlying economics, GMV will grow to
USD58bn in 2023 and to USD80bn by 2025 +25%cagr.

Exhibit 1. Formal Online e-tailing in Indonesia

Source : Redseer Consulting

- Further growth of in-house logistics to control the experience. Suppliers


will adopt more in-house logistics with the goal to control a larger part of
the consumer experience. Thus, the likes of Tokopedia and Shopee are
seen investing heavily on that front to improve the experience. Redseer
points out that consumers have experienced bottlenecks in recent years
with room to improve in terms of speed and the cost of the deliveries.

Exhibit 2. E-tailers launching inhouse logistics to better control the experience

Source : Redseer Consulting

www.danareksa.com See important disclosure at the back of this report


- Driving the C2C market to the formal online sector: The key
characteristics of the market is that there is a lot of market activity still
handled on Consumer to Consumer basis C2C informal market as there is
a sizeable portion of ecommerce transactions still going through social
media. We expect the pie of the formal business to consumer (B2C)
market to grow for the likes of Tokopedia, Bukalapak and the rest.

- Driving financial innovation with COD: Indonesia has relied mostly on


bank transfers and mini marts to settle payments. Cash on delivery COD
has been key to process payments in India and COD is seen to be the key
mechanism to break the trust barrier and bring the next mass of
consumers online.

So many opportunities in online retail. Consumer players and e-tailers will likely
pursue growth given the following market opportunities:

Opportunity; Online cross border trade. The contours of the Indonesian


ecommerce scene is cross border trade, and Redseer points out the trade between
China and Indonesia at the B2B and B2C level. Redseer sees that the cross border
market of USD1bn GMV is driven by the organized players of Lazada, Shopee and
others, a small amount from Ebay and Amazon, while Chinese players look for an
outlay away from the saturated Chinese market. There is a lot of underlying
demand; thus GMV may increase ~twofold by 2021.

Exhibit 3. Online cross border trade, an increasingly large opportunity

Source : Redseer Consulting

Opportunity; 3PL logistics. Apart from the increased focus on strengthening in-
house logistics expecting growth of >50% cagr CY18-25, the opportunity lies for
existing 3PL providers J&T and JNE, with shipments expected to rise by ~30% cagr
2018-25 still commanding 60-70% of the market. Express logistics is another key
subset to lead the growth in logistics, contributing 10-15% to the total market but
with 40% cagr. Amazon is a pioneer in express logistics and given the fact that e-
tailing penetration is only 5%, it most probably will be seen as a greenfield
opportunity to capture.

www.danareksa.com See important disclosure at the back of this report 3


Exhibit 4. Inhouse and 3PL logistics to tap the expansion in E-tailing

Source : Redseer Consulting

Exhibit 5. Total e-tailing shipments, actual and projected

Source : Redseer Consulting

Opportunity; Foodtech attractive opportunity as ride hailing moderates. Ride-


hailing has led the growth in on-demand services creating a large inventory of
consumers they can target. The next adjacent market to push is foodtech.
Foodtech players push hard on improving the supply by growing the number of
restaurants involved in this space. Additionally, the cloud kitchen would be a
flexible concept to address the gaps in the online food value chain. Together with
e-tailing food, foodtech is the next play to watch in the consumer internet.
Opportunity; Digital payment services. Growth of digital payments is both
exciting and necessary to integrate all the ecommerce segments. Gojek was a
significant leader in 2018 but OVO is pushing hard partnering with Tokopedia and
Grab, while SOEs are consolidating under LinkAja for a more concerted effort to
tap online payments. News breaking out of an imminent partnership between
OVO and Dana implies OVO may become a stronger player commanding a bigger
share and ability to better tie ecommerce services. For sure, Amazon would want
to use this lever to better tap ecommerce. Redseer expects this space to grow by
70-80% cagr CY18-23.

www.danareksa.com See important disclosure at the back of this report 4


Exhibit 6. Influx of epayment services

Source : Redseer Consulting

Understanding Amazon through their learning and approach in various markets.


- The Amazon effect in the US. Amazon is the global leader in ecommerce
among others and has followed various strategies for expansion in
different markets. In the US it focused first on building an ecosystem
around e-tailing building successful use cases with omnipresence and
hyperlocal food shopping, and business verticals for apparels and
clothing. At the backend they established strong in-house logistics
integrated with the promise to optimize the consumer experience.
Furthermore, Amazon established Amazon Pay for digital payments as
part of a broader online offering, an important aspect for Amazon
prioritizing first for many of its foreign set ups to create broader services.
- Amazon effect in India & Mexico. India and Mexico are cash heavy and
credit deficient countries. Amazon launched its Amazon pay in 2016 in
India along with the digital payment revolution with a massive marketing
budget to push use cases and create an inventory of future consumers.
Foodtech, a much more broader online concept has grown very fast in
India and Amazon is expected to launch its own product very soon. All the
while in 2016 Amazon launched Amazon Prime with massive success up
to 35% of the consumer base shopping on Prime. A similar story is for cash
heavy Mexico where Amazon pushes hard on Amazon debit cards.
- Amazon effect in Brazil & Mexico. Whereas in Brazil, Amazon did not find
a suitable player to acquire and was forced to build an ecosystem and e-
tailing services from scratch, while only in 2019 it built its own warehouse
for its delivery service. In the Middle East, Amazon bought the local
ecommerce player who fulfilled all the requirements for digital payments
and logistics for Amazon.
- In SE Asia, Redseer sees familiar tactics employed by Amazon which is
building logistics infrastructure + warehousing in Vietnam and Singapore,
while in Thailand and China, cross border ecommerce are currently
pursued by Amazon.

Indonesia’s on-demand services, notably Gojek and Grab. Ride hailing, foodtech,
ewallets, new markets. Indonesia is a heavily contested market with Gojek and
Grab in core services incl. transportation, on demand product delivery, on
demand home service, and epayments mainly. Grab may be seen expanding its
service portfolio, and given how Grab is contesting Gojek in existing services a
www.danareksa.com See important disclosure at the back of this report 5
partnership with Amazon will help fend off the competition with Grab. Gojek has
an edge in bike taxis but in 4-wheel taxis competition is more intense. Grab is also
more aggressive in foodtech by offering lower commissions to merchants and by
giving higher discounts to restaurants thus challenging Gojek on profit margins.
Moreover, where Gojek has been a leader in ewallet services, OVO has been
aggressive bringing the race closer.
If OVO+Dana does take place, it may drastically change the dynamics. At the same
time, Gojek has expanded into new categories of groceries, online medicine even
live streaming where it needs increase penetration. Gojek faces challenges on all
4 fronts and a partnership with Amazon would provide the necessary support.

Exhibit 7. Local contest between Gojek and Grab

Source : Redseer Consulting

Mapping synergies between Amazon and Gojek. In terms of the synergies


between Amazon and Gojek, each one has built capabilities in transportation and
logistics. Thus AZ may enrich learnings from ride hailing while GJ may significantly
improve its express logistics with Amazon Prime Now (a strong area of AZ). Also, in
groceries and the daily needs category, Amazon has built expertise and has been
very effective in the US and India and Gojek may apply the learnings from foreign
markets to boost penetration (<10%). Grocery opportunities are usually quite large
in every country and Indonesia should be no exception. Thus, AZ would have a
strong motive to enter the market. Another area for potential synergies is
payments, where GJ has established leadership and the Indonesian trajectory is
very exciting, while Amazon sees payments very important in any market as they
seek to control more parts of the ecosystem. Moreover, Gojek may benefit from
Amazon’s wide experience in Live streaming services, a fairly new market for
Gojek. Most importantly online retail presents a great opportunity for
collaboration, as Gojek may add etailing to its super-app benefiting from the
learnings from Amazon, while Amazon may use Gojek’s infrastructure to establish
a local presence.

www.danareksa.com See important disclosure at the back of this report 6


Exhibit 8. Synergies mapping between Gojek and Amazon

Source : Redseer Consulting

Scenario approach for Amazon’s market entry. Redseer built a hypothetical


pathway which Amazon may follow to target Indonesian consumers. At first AZ
would try to tap merchants, consumers, logistics and payments using Gojek’s
platform and establish an etailing service. Secondly Amazon would launch a cross
border etailing store using Gojek infra. Over time Amazon would build its
knowledge on the market allowing it to build its own infra in terms of logistics and
payments to support its own e-tailing offerings. Eventually that would allow them
to launch services in foodtech.
Exhibit 9. Scenario approach for Amazon’s market entry

Source : Redseer Consulting

www.danareksa.com See important disclosure at the back of this report 7


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