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COVID-19 whets appetite for e-commerce in Southeast Asia, but bottlenecks remain

The COVID-19 pandemic has led to the rapid adoption of online shopping in China, but consumers in neighboring Southeast Asia are largely relying on brick-and-mortar stores as local e-commerce services have struggled to meet the high demand.

Thailand, Indonesia, Singapore, Malaysia, the Philippines and Vietnam are all under various levels of lockdowns to curtail the community spread of the novel coronavirus. Singapore is among the latest in the region to announce a lockdown, with Prime Minister Lee Hsien Loong on April 7 urging residents to stay indoors and shop online.

In the week of March 22, weekly downloads of shopping apps in Thailand jumped 60%, according to data from mobile analytics firm App Annie. The country declared a state of emergency on March 26 after nearly a week of partial lockdown. Indonesia, Vietnam and Singapore, which were under stay-at-home advisories at that time, each recorded a 10% jump in weekly downloads. In contrast, downloads in the Philippines, which enacted a lockdown on March 17, fell 25% during the week.

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Internet penetration in Southeast Asia has grown strongly in recent years. The region's internet economy grew 40% year over year in 2019 to $100 billion in gross merchandise value across the e-commerce, online travel, online media and ride-hailing sectors, according to a joint report by Google, Temasek Holdings and Bain & Co.

Yet it still has some way to go to catch up with China. In 2019, in-store spending comprised 54% of all retail spending in Singapore and 51% in Malaysia, compared to just 39% in China, according to data from eMarketer.

Delivery bottlenecks

In Thailand, strong growth in downloads of apps of traditional retailers, such as the Charoen Pokphand Group Co. Ltd.-operated 7-11 convenience store chain and The Central Group's Big C hypermarkets and Tops supermarkets, suggests that the services may now be growing in familiarity beyond the Bangkok metropolitan area, where they have largely focused on until now, said Simon Kemp, founder and CEO of Singapore-based marketing consultancy Kepios.

In Singapore, online delivery slots have been hard to come by on Lazada's grocery arm RedMart and NTUC Fairprice Co-operative Ltd since February after the government raised the alert level for the coronavirus to code orange, the second-highest level in its public health system. Amazon.com Inc. has been largely below the radar since its debut in 2017, analysts said.

Singapore's RedMart and Malaysia's Jaya Grocer briefly suspended online orders in early April, while Tops supermarkets in Thailand warned on its website that deliveries were limited during this period.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Singapore-based delivery service Ninja Van, which provides last-mile delivery to marketplace sellers, said that although parcel volume has increased during the lockdown, safety measures have hit productivity and the company has incurred extra costs. Ninja Van co-founder and CEO Lai Chang Wen said the company would be monitoring the impact of the safety measures on the long-term financial health and the sustainability of the business.

"Cuts in passenger flights mean that if we want to ship cargo through the air, freighter planes are our only option and space on those flights comes at a huge premium," Lai said.

As a result, some e-commerce companies are adopting new ways to improve their delivery capabilities. Online grocers in Singapore have roped in ride-hailing drivers to help with deliveries. In Malaysia and Thailand, certain orders of essential items on Alibaba Group Holding Ltd.-owned Lazada are being fulfilled by Tesco PLC's Asia unit, which Charoen Pokphand Group has agreed to acquire.

Lazada has started offering logistics assistance to help farmers in Malaysia sell their produce on its platform. On their part, customers have resorted to shopping during the early hours to reserve delivery slots.

Growing appetite

Lazada and Shopee have remained the top two apps by downloads in all major markets in the region, while there has been a strong increase in downloads in Malaysia and Indonesia of Alibaba's cross-border e-commerce platform AliExpress. The e-commerce giant's business-to-business platform Alibaba.com showed some momentum in the Philippines and Malaysia.

"With the widening of COVID-19 crisis, fears of delays [in] delivery and supply shortages in necessities may have prompted the rising of B2B e-commerce platforms," said Donny Kristianto, a senior market insights manager at App Annie.

The growth in downloads of AliExpress and Alibaba.com also coincided with the period when manufacturing and business activities in China resumed.

Given the logistical challenges in the region, the popularity of marketplace-driven platforms such as Shopee suggests that smaller merchants may be more efficient in fulfilling orders during this period than those that operate a central warehouse model.

"Consumer-to-consumer has picked up very nicely in Southeast Asia. It's a distinctive model that delivers very fast, and gives sellers [an] advantage," said Satish Meena, senior forecast analyst at Forrester Research.

In the Philippines, an archipelago of more than 7,600 islands, its geography has traditionally posed a challenge for the last-mile delivery, resulting in high shipping costs and slow delivery times. Even before the lockdown was imposed, deliveries typically took nearly 12 days for areas outside of Manila. The higher cost of mobile data and relatively underdeveloped online shopping market is an additional hindrance.

"Philippines is the most under-penetrated market [in the region], not just because of its mobile data. [There is] under-investment in e-commerce," said Meena.

While e-commerce penetration is growing across the region, Kemp said local supermarkets look set to remain the preferred destination for many essential daily goods for the time being.

"Online shopping is already a big shift, you don't want to be doing too many changes," he said. "Brand recognition will play a big role. The first choice is to seek out local supermarkets that will deliver for you. You know the range that they stock, you're comfortable with the brand and you trust the ecosystem."