B2B e-commerce the future of FMCG retail in Indonesia

14 April 2021 Consultancy.asia 4 min. read

Retailers in Indonesia are rethinking their supply chains, with B2B ecommerce platforms taking preference over traditional distribution models. A new L.E.K. Consulting report details how the market is modernising. 

Key here is the distinction between general trade and modern trade. The former refers to small, standalone stores that make up the traditional retail market in Indonesia. The latter describes more franchised, branded and organised supermarkets that are up and coming across the country.

As it stands, general trade dominates Indonesia’s fast moving consumer goods (FMCG) segment, occupying over half of the market’s $50 billion in sales. Several factors play into this dominance, as highlighted by experts at L.E.K. Consulting

General trade vs modern trade in Indonesia’s FMCG landscape

For one, independent retailers have a strong personal relationship with local customers and communities, particularly in rural areas where they remain the primary source of FMCG goods. The government also supports the general trade segment through infrastructure ­– to ensure equitable access. 

As a result, FMCG brands keep general trade in high regard as a source of current and future revenue. That said, this dominant segment is gradually being knocked off its perch in Indonesia. The momentum is with modern retailers, who have grown their sales at a compound annual growth rate (CAGR) of 10% between 2015 and 2020 – taking their market share from 40% to 46%.

Convenience chains and mini markets are rapidly expanding to new neighbourhoods, giving modern trade a stronghold on Indonesia’s urban landscape. Helping things along for modern trade is their organised supply chains, which are optimised and geared for speed and cost-efficiency.

FMCG supply chains: general trade vs modern trade

An independent store owner purchasing an FMCG product is the last point in a long line of producers, distributors, wholesalers and semi-wholesalers. Modern retailers receive products directly from distributors, if not the producer itself. Cutting out the middle-men in the supply chain, retail chains invest in their own warehousing and distribution centres.

What results is a cheaper and speedier way to bring fresh produce to the consumer. Lacking the resources to build such in-house capabilities, traditional retailers have been losing out. Until now, L.E.K Consulting highlights the up and coming segment of online B2B marketplaces – where independent retailers can make their supply orders with the click of a button. 

Gotoko, Mitra and Grab Kio are some examples of B2B ecommerce platforms that link traditional retailers directly with distributors through convenient models, cutting out time and costs from the supply chain. An alternative model is exemplified in Gudangada, which makes the intermediaries in the traditional supply chain easier to deal with, rather than eliminating them altogether. 

B2B ecommerce supply models

Partnering with B2B marketplaces can put general trade back in a competitive position, leveraging all its inherent advantages to shut modern retail out of the market share. Many of these platforms have emerged in the last year or two – recognising a high-growth market opportunity. 

Online boom

The fact is that market conditions have aligned perfectly to boost online procurement. Digital literacy is on the up in Indonesia and across the Asia Pacific, further turbocharged by the pandemic-induced shift to online consumption. In the backdrop, delivery and logistics infrastructure is significantly improving in Indonesia, driven by myriad new innovative startups. 

Then there is the quality of B2B ecommerce platforms, which offer high visibility, price comparisons, stock availability, a wider selection of products and tools for optimised restocking. Sealing the deal is the fact that store owners no longer have to lose time visiting wholesalers in person.

The upshot from all this is that B2B ecommerce is a highly enticing prospect for Indonesia’s multi-billion dollar general FMCG trade segment – a glittering market opportunity for those interested.