Solve. New Consumer Internet In Indonesia - Redseer
Solve. New Solve. New Consumer Internet in Indonesia Final Report February 2022 Bangalore. Delhi. Mumbai. Dubai. Singapore. New York 2021 RedSeer Consulting confidential and proprietary information
CONTENT Key discussion points 1 Macro – Favorable tailwinds in Indonesia and Southeast Asia 2 On demand services – Sizeable opportunity by 2025 3 E-commerce – The rise of convenience economy 4 E-wallets – A foundation for FinTech offerings RedSeer 2
CONTENT 1 Macro – Favorable tailwinds in Indonesia and Southeast Asia 2 On demand services – Sizeable opportunity by 2025 3 E-commerce – The rise of convenience economy 4 E-wallets – A foundation for FinTech offerings RedSeer 3
Indonesia and SEA have favorable macro backdrop and digital trends With a young population and a fast-growing economy which is increasingly digitized Supportive Macro And increasing digitization Population Growth - Indonesia, US, China, SEA Digital Penetration as % Total Population 2015-2025P, % Indonesia has one of the fastest growing populations globally and a median age of 30 years vs 38 years for China and USA 2.0 1.5 Indonesia US SEA China Indonesia Smartphone 2015P-2025, % SEA Smartphone China Smartphone 120 Indonesia Internet Digital penetration in Indonesia and SEA is converging with or even leading China SEA Internet China Internet 80 1.0 40 0.5 0.0 2015 -0.5 2020 0 2015 2025 2020 2025 Nominal GDP (USD Bn) – Indonesia and Southeast Asia Low Penetration of Traditional Financial Services Creates Opportunities for FinTech 2016-2020 2020 figures Indonesia SEA 2016A 2017A 2018A 2019A 2020A 850 932 1,018 1,086 1,058 2,432 2,646 2,859 3,009 2,869 Outlook 2020-25 High single digit growth Penetration Indonesia SEA China U.S. Banking1 62.0% 61.9% 87.0% 93.0% E-wallet2 2.9% 2.2% 43.0% 6.1% Cashless transactions3 32.0% 30.0% 59.0% 72.0% Note(s): 1. as percent of population aged 15 and above, 2. as percent of consumer expenditure, 3. as percent of transactions Source(s): RedSeer Analysis, Desk Research, United Nations RedSeer 4
Millennials and Gen Z will shape the future of digital economy in SEA GenZ and Millennials have 50% of the overall population split, carrying forward the key digital purchase decisions Low Media Age of the population High By Country, in 2020 Indonesia Globally, Indonesia is one of the youngest country with a low median age 30 China 38 Baby Boomers USA 38 Singapore 42 Thailand 40 Malaysia Philipines Vietnam SEA 1946-64 30 26 Behavior/ Context Idealistic Collectivist Techno-skeptic Gen X Millennials 1965-80 1981-96 Desire to own/possess Competitive Tech-novice Experience seekers Tech-savvy Individualistic Gen Z 1997-2012 Tech dependent Realistic Social Expect Customization Digital Consumption Ordering Frequency E-wallet share 33 31 By 2025, Gen Z will make up for 30% of the total workforce1 At present 50%2 of the GenZ consumers like to ensure that the platforms/brands they are using are aligned with their values – Sustainable and Conscious Note(s): 1. Working population taken under consideration people between the age group of 21 to 65. 2. RedSeer Consumer Survey Source(s):RedSeer Analysis, United Nations RedSeer 5
Indonesia to remain the key contributor to SEA on demand services, e-commerce and e-wallet services On demand services1 Total Market Size In USD Bn 27.2% 26.2% 4.1 12.6 2018 5.4 43.6 Key Themes Indonesia SEA 18.0 USD 18.0 Bn 13.6 2020 Size of Indonesia’s on demand services TAM by 2025. Indonesia’s share to rise to 41% by 2025E. Relatively high share of SEA pie expected to remain across Mobility, Food delivery and Logistics services. 2025 E E-commerce Total Market Size (GTV)2 In USD Bn 231.0 25.3% 26.6% 44.6 17.7 26.7 2018 USD 137.5 Bn 137.5 Is the e-commerce market size in 2025. Significant contributor to SEA. Within this e-grocery category is expected to be one of the key growth drivers across the region 71.0 2020 2025 E E-wallet Total Market Size (GTV) In USD Bn USD 70.1 Bn 127.4 31.5% 28.0% 70.1 Is the estimated size of e-wallet space in Indonesia. Consumer adoption of digital payments will help bolster the growth of FinTech in Indonesia. 17.8 37.1 2.5 8.3 2018 2020 2025 E Note(s): 1) On demand services include Mobility, Food delivery and Logistics, 2) includes both social commerce and formal e-commerce Source(s): Primary Research, RedSeer Analysis RedSeer 6
CONTENT 1 Macro – Favorable tailwinds in Indonesia and Southeast Asia 2 On demand services – Sizeable opportunity by 2025 3 E-commerce – The rise of convenience economy 4 E-wallets – A foundation for FinTech offerings RedSeer 7
Demand drivers of Digital Services in Indonesia – Significant time spent online, increasing need for convenience, and Covid-catalyst for supply Average time spent on the internet Key Takeaways 2020 figures 8.5 Consumers can meet their daily necessities through food and grocery delivery services, logistics services, e-commerce, and digital payments. Hours / Day Individuals also began to recognize that digital services such as mobility, delivery and e-commerce offer alternative sources of income. As a result, there has been an exponential increase in the number of driver-partners on platforms offering on demand services, as well as merchants on e-commerce platforms. Indonesia among the world’s most digitally engaged populations 63% and 20% higher than the hours per day spent by the populations in China and the U.S., respectively Source(s): RedSeer Analysis COVID acted as the biggest adopter for people to start to choose digitization and other digital products acting as a boost to the overall digital economy in Indonesia RedSeer 8
On demand mobility to remain a preferred customer choice for convenient transport On demand mobility services market size Key Themes GTV in USD Bn, Indonesia Low private car ownership Home to some of the world’s most densely populated cities, Indonesia struggles to keep at pace with the infrastructural requirements of the population, this combined with low private car ownership has paved the way for on demand mobility, thereby resulting increased penetration of the same. 5.5 Cars/1000 population: 58 (ID), 202 (China), and 750 (US) 36.7% Congested city and limited public transport makes it necessary to go for online / on demand mobility Jakarta is one of the world’s most densely populated cities where an average person loses 126 hours in traffic congestions; this calls for the need to use shared mobility services especially as public transport infra remains weak. 2.1 1.2 Rising need for transportation as the economy grows Indonesia accounted for USD 25 Bn personal consumption expenditure on personal land transport which is expected to double by 2025 in line with growing economy and per capita incomes. 2016 2017 2018 Source(s): RedSeer Analysis 2019 2020 2021 2025P RedSeer 9
Food delivery to benefit from structural tailwinds from both consumers and merchants, resulting in sustained growth momentum in the segment Food delivery services market size Key Themes GTV in USD Bn, Indonesia Indonesia is one of the largest and fastest growing online food delivery markets, accounting for 40% of the total SEA market This is mainly due to factors like growing and evolving consumer demands, increasing number of merchants joining the platforms and the rise of cloud kitchens 10.5 Time starved consumers are increasingly replacing home cooking and dine-outs with food delivery, more so post COVID - 3% of all food consumption in Indonesia will be via food delivery in 2025 23.2% Supply side for food delivery is strong - Many restaurants in Indonesia are partnered with food delivery platforms , with greater diversity of restaurants being a key lever in driving consumer adoption 3.7 1.9 2016 2017 2018 Source(s): RedSeer Analysis 2019 2020 2021 Fast delivery and overall robust experience playing a key role in market growth – Our surveys suggest that this plays a key role in driving high customer satisfaction as also reflected in growing basket size 2025P RedSeer 10
On demand logistics market is expected to grow rapidly in the foreseeable future. E-commerce expected to be an important growth driver On demand logistics services market size1 Key Themes USD Bn, Indonesia Slow growth of infrastructure in Indonesia has led to increased frequency of time delays and high cost in moving goods from one part of the country to another. 2.0 On demand logistics is enabling shipping of e-commerce (Formal Social) and nonecommerce (point to point) goods in less than 6-8 hours of placing the order. Changing consumer behaviour is also contributing to the evolving practices within this segment such as – ‘On Demand Logistics’ which allows players to deliver goods to consumers within a few hours of placing the order. 29.8% New-Age players have stepped up and helped solve these logistical challenges and emerged as an exciting alternative to traditional methods. 0.6 0.2 2016 2017 2018 This is extremely helpful especially in case of e-grocery deliveries which involves fresh items to be delivered to the consumers. 2019 2020 2021 2025P Note (s): 1. Includes revenues from total parcel volumes flowing through first, middle and last mile deliveries for B2C and C2C use cases RedSeer 11
CONTENT 1 Macro – Favorable tailwinds in Indonesia and Southeast Asia 2 On demand services – Sizeable opportunity by 2025 3 E-commerce – The rise of convenience economy 4 E-wallets – A foundation for FinTech offerings RedSeer 12
E-commerce continues to ride strongly on the back of multiple growth levers across demand, supply and the enabling infrastructure Key Trends driving the e-commerce Growth Gaps in the un-organized offline retail Offline retail landscape in Indonesia is highly fragmented with the market dominated by small “mom and pop” stores. Online Shopper Growth Rapid growth in smartphone adoption and increasing internet penetration has resulted in an increase in the online shopper base, the ability to explore a variety of platforms and categories, thereby increasing the shopper base. Improvements in Enabling Infrastructure There has been a rapid increase in the number of payment methods available to a consumer beyond the traditional Cash On Delivery (COD) modes. E-wallets and BNPL options have eased pain points related to payments. Emergence of On Demand logistics has improved the delivery experience. Complementary Sales channel for Merchants Catering to the conscious consumer of today Source(s): RedSeer Analysis E-commerce channels have proven to be an alternative source of income for the offline merchants and now due to the pandemic it has become the primary sales platform for many merchants. There is a strong latent demand for a wider assortment of products and higher price transparency. The e-commerce marketplaces are suitably placed to cater to this demand due to their access to sellers of all sizes. RedSeer 13
Indonesia’s e-commerce market is one of the fastest growing globally and accounts for more than half of the SEA e-commerce market E-commerce market size Indonesia’s e-commerce is set to grow due to multiple drivers GTV in USD Bn, Indonesia Indonesia is a promising e-commerce market in SEA. Rising Internet penetration and increasing digitalization have been driving e-commerce growth and % online penetration 137.5 Consumption driven economy. Indonesia is a high consumption nation with PFCE being 55-60% of the GDP. Young Demography. 25.3% Indonesia has one of the youngest populations with a median age of 30, with GDP per capita expected to sustain a rapid growth 44.6 Growing digital economy A booming digital ecosystem witnessing high adoption of FinTech products and services; 60-70% smartphone penetration. 17.7 the emergence of “convenience” theme 2015 2016 2017 Source(s): RedSeer Analysis 2018 2019 2020 2021 RedSeer surveys indicate rising consumer preference for products being delivered in a timely and convenient manner. Supply-side is stepping up by offering hyperlocal capabilities to cater to this trend. 2025P RedSeer 14
E-grocery category has exceeded USD 5 Bn in GTV in 2020 and is likely to exceed USD 25 Bn GTV by CY25 E-grocery market size Key Growth Drivers GTV in USD Bn, Indonesia Grocery Focused Players (Examples) Several Players have stepped up their partnerships with grocery suppliers / manufacturers (dry and fresh) and strengthened their logistics capabilities. E-commerce and e-grocery players have increased their in-house logistics capabilities while also partnering with third-party logistics (3PL) players to have strong delivery capacity for e-grocery in swift and reliable manner. 25.3 E-grocery Sub-segments 38% 170% 5.1 Fresh Food Staples FMCG Packaged Food Meat and Fish Beverage 0.7 2018 2019 Source(s): RedSeer Analysis 2020 2021 2025P RedSeer 15
CONTENT 1 Macro – Favorable tailwinds in Indonesia and Southeast Asia 2 On demand services – Sizeable opportunity by 2025 3 E-commerce – The rise of convenience economy 4 E-wallets – A foundation for FinTech offerings RedSeer 16
Growth in e-wallet has been driven by multiple supply factors. It has been an important first step towards expanding into other FinTech services Key factors driving the e-wallet Growth Key Impact of E-wallet growth Concerted Push towards e-payments Foundation for other FinTech services Rapid Digitization has accelerated the adoption of Digital payments in the economy, many schemes have been launched to further support the concept of cashless economy, this has helped complement other sectors like e-commerce, mobility and food delivery The deep insights gained on the back of data received by ewallet providers have allowed them to better appreciate the customers' credit profiles and then leverage those to offer new financial services. Accordingly, many e-wallet players are branching into financial services such as lending, insurance and digital wealth management. Ease of Use The reason why adoption of e-wallets have been fast and hassle free is that it is easy to understand and use for a non tech savvy user. Further, various exciting offers are available from time to time. Many players have started offering the BNPL service with exciting offers and discounts to help boost the usage Smooth integration with other services like Mobility and Food delivery Easy to link to bank account and debit cards Source(s): RedSeer Analysis, Primary Research RedSeer 17
Indonesia FinTech services are following the evolution path seen in other countries i.e. services evolving from payments to digital banking Evolution of FinTech Services for Consumers and Merchants InsurTech, Wealth Management and Digital Banking Source: RedSeer Analysis Also helps players cater to affluent consumers Digital financial services help buoy consumer spending as use-cases expand. This also incentivises merchants to move online thereby creating a flywheel effect Innovative InsurTech, WealthTech and Digital banking models are key to increasing awareness and financial literacy in an underpenetrated market like Indonesia Lending BNPL, and its seamless integration with e-commerce players is changing the way consumers perceive credit Digital Payments Digital payments paved the way for digitization of other financial services RedSeer 18
Digital Payments likely to witness strong growth in both consumer and merchant segments, leading to adjacent opportunities in broader FinTech Rising propensity for digital paymentsin in Indonesia Indonesia asas seen in E-Wallets and Payment Gateway and cloudand POS cloud growth POS growth Rising propensity for digital payments seen in e-wallets, payment gateways E-wallet market size Rising Merchant Digital Payments 70.1 GTV in USD Bn, Indonesia 31.5% 17.8 USD 130 Bn 2x Size of Indonesia Payment gateway Market GTV by 2025, more than 2x of 2020 Growth in GTV of cloud-based PoS platforms over 2020-25 COVID-19 has hastened the adoption of digital modes of payments for merchants. Payment Gateway market will grow on back of e-commerce growth and SMBs moving online. Merchants also exploring digital channels to accelerate sales and reach. 2.5 2016 2017 2018 Source(s): RedSeer Analysis 2019 2020 2021 2025P RedSeer 19
In Summary A dynamic and fast-growing economy, a young population, and improving access to the internet continue to drive rapid adoption of digital services in Indonesia and Southeast Asia. Indonesia stands out in terms of the scale and size of its opportunity over the next few years. We expect digital services to deepen and widen to cater to the emerging consumer needs. Speed and convenience are emerging as key-value props for consumers in on demand services. Recovery is expected in mobility (from a weak base), while structural tailwinds persist for food delivery and on demand logistics. In aggregate, Indonesia's on demand services are estimated to grow at 27.2% CAGR between 2020-25 to reach USD 18.0 bn. E-commerce likely to see further growth, aided by segments such as e-grocery. Meanwhile, legacy categories are likely to witness growth on the back of growing preference for fast and convenient deliveries, higher penetration outside tier-one locations, and continued digitalization of offline stores. We estimate e-commerce to grow at 25.3% CAGR between 202025 to reach USD 137.5 bn. E-wallets serve as a strong foundation for new FinTech offerings. While digital payments will remain a core use case, new offerings such as credit/BNPL, insurance, and investments are likely to emerge as valuable add-ons over time. Merchant digital payments are likely to grow rapidly as well. We estimate e-wallets to grow at 31.5% CAGR between 2020-25 to reach USD 70.1 bn. Source(s): RedSeer Analysis RedSeer 20
Authors Roshan Raj Behera has 15 years experience in investment advisory and consulting services. He leads the Southeast Asia practice for RedSeer. He has significant experience in sectors like Consumer Internet, Logistics, FinTech, and On demand services. He’s an expert in Commercial Due Diligence, Market Entry and Competitive Positioning. In his earlier roles, he was an equity research analyst at leading global investment banks. He has completed his PGDBM from IIM Ahmedabad and Bachelor of Technology from IIT Madras. He can be reached at roshanb@redseerconsulting.com Roshan Raj Behera Partner Samarth has been involved in Due Diligence, Strategy and Market expansion projects focusing on the Indian sub-continent and Southeast Asia. He has worked in sectors ranging from automobiles, metaverse and crypto, e-commerce and D2C. Prior to RedSeer, Samarth has worked with organizations like ITC, Axis Bank and United Nations. Samarth has completed his MBA from IIM Kozhikode. He can be reached at samarth@redseerconsulting.com Samarth Mehta Associate Consultant Tejal has been involved in Commercial Due Diligence, Benchmarking and Landscaping Projects across Southeast Asia and India. She is an expert in Consumer Internet sector with a special focus on E-commerce, Social Commerce, and new age segments like Gaming, EdTech and eHealth. In her prior role, she worked in the Business Development role at AXA France (India Reinsurance Branch). She has Bachelor of Science in Statistics from Lady Shri Ram College for Women. Tejal Chhabra She can be reached at tejal@redseerconsulting.com Business Analyst RedSeer 21
Thank You Solve. New query@redseer.com linkedin.com/company/redseer-consulting facebook.com/redseerconsulting redseer.com Bangalore. Delhi. Mumbai. Dubai. Singapore. New York twitter.com/redseer 2021 RedSeer Consulting confidential and proprietary information
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