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HappyFresh CEO: Southeast Asia ripe for growth in online grocery services

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HappyFresh CEO: Southeast Asia ripe for growth in online grocery services

? Partnerships between online services and retailers can leverage consumers' brand loyalty

? Data technology can help personalize services to improve the online shopping experience

? Understanding a country's culture and infrastructure crucial before entering a new Asian market

HappyFresh was founded in October 2014 as the first online grocery delivery service in Southeast Asia, and currently operates in Indonesia, Malaysia and Thailand. Its on-demand services are offered through a marketplace-style app, with trained personal shoppers selecting items from supermarkets to be delivered to customers within one hour.

The Jakarta-based startup partners with grocery retailers and charges customers a small delivery fee under its asset-light business model. HappyFresh has so far raised more than US$25 million from two rounds of funding, with investors such as Dubai private equity firm Samena Capital and Vertex Ventures, the venture capital arm of Singapore's Temasek Holdings (Pte.) Ltd.

On the sidelines of the eTail Asia 2018 conference in Singapore, S&P Global Market Intelligence spoke with Guillem Segarra, CEO of HappyFresh, about the market potential and challenges for his business. Below is an edited transcript of the interview.

S&P Global Market Intelligence: What is the growth potential for online grocery delivery in Southeast Asia?

SNL Image

Guillem Segarra, CEO of HappyFresh
Source: HappyFresh

Guillem Segarra: If you look at the market, online grocery delivery in Southeast Asia is not even 2% of all the online players that do grocery delivery. The number in China 10 years ago was 0.5%, and it's more than 12% today. We believe the changes will happen in Indonesia, Thailand, Malaysia and the rest of Southeast Asia. The growth potential for the next five years will definitely go up to a good 7% to 8%.

What is important here is that grocery accounts for 40% of the household spending for every single home. Transportation is 12% and fashion is 15%, so every percentage point is huge in terms of market share.

What makes HappyFresh different from other grocery startups in the region such as RedMart and Honestbee?

We have three core competencies. The first is our partnership network. Customers are very loyal toward supermarket brands — if someone shops at [Singaporean chain] FairPrice, they will always go to FairPrice. Our platform covers more than 40 to 50 retailers across Southeast Asia, including the big names such as Tesco PLC, Carrefour SA and Lotte. That's something RedMart doesn't have, since they operate in a pure inventory model.

Secondly, our technology is much more advanced ... we have been focusing not only on the front end for the groceries, but also on the back end, especially in providing services to our retail partners. What consumers might not see is that we work closely with our partners. We have integration on lifetime of the stock and pricing. At the same time, we provide services like inventory management, segmentation and forecasting for them.

The third one is that our business model is profitable. For some of our partners, our contribution of the total revenue they generate is almost 10%.

Which new technologies are you interested in adopting, and how does that tie to consumers' changing behavior?

We want to make grocery shopping unique for customers — that's what our technology is leaning toward. For millennials, since we have a phone and know everything is happening around the block, we become very entitled — we want things to happen now, and the way we want it. The industry needs to cope with that.

These changes for me are really about bringing technology to enable every single use case and collect data so that I know exactly who you are and give you what you want, without wasting your time. For example, 70% of our customers place more than five orders, and we know with 90% accuracy when and what they are going to order. By knowing that, we can tailor our services to give them the best product at that particular time, and the best experience. So it's really about taking the data, the personalization and the customer [into consideration] all together, and find applications to make the shopping experience better.

Can you describe the typical HappyFresh customer?

The majority of our customers are women, especially young professionals. We are talking about [age] 25 to 35, tops 40-year-old professionals, with or without a child. The millennial generation is taking the top spending power and more into services like us. The basket size is about US$50 to US$60 per order in Indonesia, Malaysia and Thailand. [They normally place orders] one to two times a week.

Are there any expansion plans in the pipeline?

For the moment, we believe we still have so much to do in our core markets — Indonesia, Thailand and Malaysia. Yet we have our supermarket partners that are really willing to go to other markets with us. But so far, at least this year, we are not thinking along these lines yet.

In 2016, HappyFresh withdrew from Taiwan and the Philippines after less than a year in those markets. Can you share the challenges that the company faced?

The way people consume goods are very different. In some countries, people have domestic helpers or drivers, so then convenience is less perceived as a matter [of concern]. Then you have Taiwan, where supermarkets are ubiquitous.

We came to Taiwan with a set of assumptions on what the cost would be and what the basket size would be, and we missed some of them. The market didn't react as we wanted it to. The Philippines was slightly different — the assumptions were right, but the overall context was quite complicated.

Southeast Asia is very diverse. The biggest [lesson] we had by going to the Philippines is that knowing each country culturally and structurally — the infrastructure, in particular — is very important before going there.

You said during a panel at eTail Asia that the retail industry will likely see more changes in the next 10 years than the past 15 years. What are the biggest changes that you are expecting?

I think the key measure in brick-and-mortar stores will move from sales to the time that customers spend there, meaning that you won't focus much on how many products you have sold. Engaging and branding will matter much more than sales, which will happen ultimately through online [channels].

We have a very clear example with Apple Inc. Apple stores are pretty much everywhere, but the majority of their sales still come from online. Customers go to their stores to touch the product or solve problems. Brick-and-mortar stores will serve more like a showroom in the future.