Shopee doesn’t want to leave anything to chance: It quietly launched a food delivery business in Indonesia in 2021 and is rapidly expanding in other countries. But as Simon explains, this expansion also comes with risks.

-- Nikita

THE BIG STORY

What could go wrong for Shopee?

Image credit: Timmy Loen

Shopee dominates ecommerce in Southeast Asia, but it can’t afford to rest easy as the competition gets fierce and its rapid expansion carries risks.

THE HOT TAKE

Why India’s q-commerce firms are turning to private labels

Photo credit: Zepto

Here’s what happened:

• Two of India’s leading quick commerce firms, Swiggy’s Instamart and Zepto, are set to launch private labels.
• Zepto plans to sell staples, general merchandise, and cooking essentials under its own brand by the second or third quarter of this year.
• Swiggy’s Instamart will introduce its first private label through cleaning supplies next month.

Here’s our take:

Tapioca, sweet potato, banana, or perhaps jackfruit? The mom and pop store down my street has plenty of chips to choose from, including a shelf of unbranded packets. His wife made these, he says. “These are cheaper and better.”

Launching private labels is a road well traveled. For instance, Amazon sports a number of private labels, including AmazonBasics.

But private labels in the hyperlocal delivery space are a relatively new trend, though several of Instamart and Zepto’s competitors - like Reliance Retail-backed Dunzo - already have their brands in place. At least two quick commerce companies in the US - Gopuff and Buyk - launched their private brands this January.

Despite the thrill of having ice creams, groceries, and plant pots being delivered quicker as superfast deliveries become the norm, the spotlight remains firmly on the trend’s economic sustainability. Margins in the grocery delivery space are notoriously wafer thin.

This is where private labels offer the proverbial ray of hope. Selling in-house products can make for fatter margins than expensive third-party brands. Zepto’s Aadit Palicha says that its private labels will add 3% to the firm's operating earnings margin.

At Milkbasket, another grocery delivery firm, private labels contributed 20% to 22% of the startup’s revenue in 2020. Acquired by Reliance Retail in late 2021, the startup expected those numbers to double as it added more private labels.

At least one company, however, is going against the grain.

BlinkIt (previously known as Grofers), backed by Softbank and Zomato, had experimented with private labels as far back as 2016. A few years down the line, private labels made up as much as 50% of BlinkIt’s gross merchandise value. But as the firm pivoted to quick commerce late last year, it scaled down its private labels.

For representation purposes only / Image credit: 123rf.com

While it’s unclear why BlinkIt did this, private labels have their own set of challenges, including manufacturing, quality control, and consumer perception. The last is of particular concern because in-house brands being markedly cheaper than premium-priced products might suggest that the former are inferior in quality.

Southeast Asia’s consumer segments, demographically similar to India’s, are willing to try new brands across categories, according to a recent report by McKinsey. With price tags of private label brands being 10% to 20% lower than national brands, the McKinsey report says such brands increased margins for firms over a five-year period.

Palicha believes the trick for successful private labels is to choose categories where customers have the least amount of brand loyalty and can be easily swapped with substitutes.

But the road to promising revenues is paved with speed bumps - the latest being reservations from the Confederation of All India Traders (CAIT). The trade organization has been asking for a tighter leash on ecommerce.

Ecommerce marketplaces shouldn’t own brands or create private labels, says CAIT’s Praveen Khandelwal. The argument comes at a time when India is finalizing its policy on ecommerce.

CAIT says marketplaces should be neutral and treat all sellers on an equal footing. Across platforms, private labels are often displayed more prominently than others.

The stakes are high in the tussle between the CAIT and ecommerce portals - India’s quick commerce market is expected to touch US$5 billion by 2025, according to a RedSeer report.

That said, business isn’t as forgiving as Wordle. The quick commerce firms may not get many chances to get private labels just right.

-- Nikita

NEWS YOU SHOULD KNOW

Check out Tech in Asia’s coverage of Asia’s ecommerce scene here.
 

1️⃣ Reebelo, a Singapore-based online marketplace for refurbished products, has raised US$20 million in a round that also saw participation from Lazada co-founder Maximilian Bittner. Currently present in Singapore and Australia, the startup has earmarked the fresh funds for international expansion and ramping up hiring.
 

2️⃣ Society Pass, a Vietnam-based tech firm incorporated in the US, has made its first foray into the Philippines by acquiring Pushkart, a popular online grocery delivery firm in the country.
 

3️⃣ Duoduo Maicai, the online grocery vertical of Pinduoduo, the China-based ecommerce giant, may launch a delivery pickup service similar to Alibaba’s Cainiao Yizhan. Duoduo has reportedly partnered with some of China’s popular courier service providers, including China Post, ZTO Express, and Yunda Express.
 

4️⃣ Grow Commerce, an ecommerce roll-up firm based in Indonesia, has raised US$7 million in a seed funding round. Founded in 2021, the firm was previously known as Berrybenka when it was a fashion ecommerce portal.
 

5️⃣ Dmonstudio, the fast-fashion platform reportedly launched by TikTok to compete with Shein, ceased operations on February 11. The platform, which reportedly lasted only for about 101 days, said it will still provide after-sale services to users who’ve bought items from the startup.

FYI

Image credit: Timmy Loen

OpenSea’s NFT Free-for-All

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