Descriptions

For the switch to B2C, Tanihub had to quickly restructure its warehouses. The frequently ordered items needed to be placed so that pickers can reach them immediately. Tanihub has six warehouses in several cities and they were initially laid out to handle some 100-150 bulk orders a day, which can take a longer time to pack. Now, they were peaking at 2,000 to 3,000 of individual orders a day.

By buying directly from farmers and introducing a higher level of transparency into the system, Tanihub can keep prices more stable.

Right now, it sells 5kg of medium-grade rice for IDR 57,000 (US$3.8)— IDR 11,400 (US$0.76) per kg—on its platform, with free shipping for orders above IDR 100,000 (US$6.70). The market price in Jakarta for the same grade is currently at IDR 13,900 (US$0.93) per kg.

Adapting to circumstance

Some innovations Tanihub has introduced in its supply chain have helped it get there:

Farmers like to work with Tanihub because it’s one destination that buys the whole range of products—from grade A to F—from them at a fair price. Indonesian farmers don’t use the best seeds and don’t have the best fertilisers or techniques, according to Wineka. This results in varying quality: some apples may have a different colour; the skin of an avocado could have a mark; an egg might not be the right size. In the conventional system, a buyer would give the farmer a fixed, usually low, price for the entire harvest, no matter what quality. Tanihub sorts the harvest by grade and pays the farmer accordingly. A Grade-A apple fetches more, but Tanihub also buys the lesser apples and sells those to food processing companies.
Like Sayurbox, Tanihub also organises its own logistics because it’s more reliable and provides transparency in the whole chain. Tanihub has six warehouses near the cities it services, and several packing facilities near its farms. Farmers let Tanihub know a few days ahead of the harvest how much to expect; and Tanihub informs them when there’s a demand surge or lull for certain products from its clients.

A lasting change

Venture-capital backing also means startups like Tanihub and Sayurbox can afford to resist the heavy price fluctuations, while simultaneously offering farmers and customers a better deal.

“For some commodities where Sayurbox has secured good supply sources, they are able to pay farmers higher prices and sell at a slightly lower price than comparable modern markets, and make better margins too,” says an early investor in the firm who asked to remain anonymous.

Profitability, however, will only come at scale, the investor adds. Which is why harnessing the Covid-19 opportunity just right is so important for these companies. Never have the costs of customer acquisition been this low.

Tanihub secured US$17 million in venture capital amid the pandemic. Sayurbox hasn’t disclosed funding, but it’s reportedly backed by Indonesia’s largest e-commerce platform, Tokopedia.

Both companies are experimenting to reach new buyers. Tanihub is learning to harness the B2C space, while Sayurbox is currently trying to capture resellers. The latter is offering a model in which one person can buy in bulk to supply to a group of people in a neighbourhood.

“Earlier in the year, the Ministry of Agriculture assured there’s enough supply of rice and other staples to last through August, but in the last few days the President warned that provinces are seeing deficits.”

FELIPPA AMANTA, CENTRE FOR INDOENSIAN POLICY STUDIES

The price rollercoaster started around January and February. The skyrocketing garlic price, for example, was because there were delays in shipments from China, from where the bulk of the import comes. Indonesia imports 95% of its garlic, which doesn’t grow well in tropical climates.

Even domestic products are impacted, although to a lesser degree. The average price of rice across Indonesia during the first week of April rose to IDR 11,900 (US$0.79) per kg, a 1.28% increase from December 2019, according to research by the Centre for Indonesian Policy Studies (CIPS).

In provinces that have imposed partial lockdowns, which includes Jakarta, rice prices are even higher—averaging IDR 13,500 (US$0.90) per kg in traditional markets.

The problem isn’t bad harvests—they were good and are expected to remain reasonably good this year, says Felippa Amanta, a food security expert at CIPS. It’s an accumulation of little things. The pandemic is throwing more sand into the already creaky machinery of food distribution.

There are fewer people working in facilities like storages or slaughterhouses; there are fewer surveyors inspecting goods arriving at the ports, which causes jams and delays.

In theory, food distribution should go ahead without disruption, says Amanta, because it is exempt of all work and travel restrictions. However, regional travel restrictions do make logistics unpredictable. Some cities introduced curfews, which means trucks have to wait overnight before they can offload.

“We don’t have figures, just anecdotes,” says Amanta. “We’re hearing that truck drivers are simply afraid of going around, and some local communities aren’t allowing food distribution coming into the region because they are afraid.”

This has meant there are also fewer trucks on the road than before the pandemic.

Closer to the source

Sayurbox hasn’t faced these logistical challenges, says Hernis. Its trucks are registered with authorities and drivers carry documentation as proof that they’re transporting food.

Agritech startups like Sayurbox attempt to reduce some of the friction in the supply chain by building relationships with farmers and linking them directly with the end-buyer. In Sayurbox’s case, these are individual customers in the Greater Jakarta area. The startup chose to focus on this demographic first.

Five-year-old Tanihub, another agritech company from a similar cohort, chose to focus on enterprise clients: food processing firms, resellers, hotels, and caterers. The company is present in several cities.

Tanihub’s model was initially more adapted to bulk orders, says Pamitra Wineka, its president and co-founder. But the startup was affected by the pandemic. After movement restrictions set in, its B2B arm saw less and less activity because businesses, especially in the hotel and restaurant sector, were winding down. Tanihub’s B2C arm simultaneously saw more demand.

B2C was never Tanihub’s strength, says Wineka. The firm introduced it mostly for branding, so that there’d be a reason for people to know Tanihub.

Commissions, though, make sense for Udaan. For an order of Rs 5 lakh (US$6,619), Udaan could pocket up to Rs 50,000 (US$661) simply to facilitate the transaction. This is apart from the flat fee it charges for logistics, interest on lending, and value-added services like banner ads. Amazon, for instance, charges a 16.5% commission in its business-to-consumer (B2C) mobile accessories category, though it should be noted that margins are higher in B2C.

The stages of a scaling sprint

The high commissions took a toll on Udaan’s retailers and suppliers, a former zonal manager in the clothing category said. Seller interest in the category dropped by almost half, the former manager added. In a Facebook group titled ‘All India Udaan Sellers’, several members stated that the commission was not brought up with them beforehand.

In an earlier story on Udaan, We spoke to a seller who was charged a 6% commission by the company. He said he planned to mark up his products by 6% to make up for this. That is precisely what has happened as Udaan rolled commissions out across its platform—sellers passed the commission on to buyers. For buyers, it’s a double whammy, as they also pay the platform’s logistics fees.

Sharma, who has been on Udaan for two-and-a-half years, says he stopped buying mobile accessories after this change. “Sellers increased their rates to sell on Udaan. 80% of the retailers dropped out from the category after that. I can’t buy anymore, 10% is very high,” he says.

The commissions also led to an uneven marketplace, with each seller choosing to price the product differently. In other B2B firms like ShoeKonnect and Paytm’s* B2B arm, sellers must get their updated pricing approved by the platforms’ business development managers, a Delhi-based seller of Udaan said. Not so with Udaan. Not only can prices be changed on a daily basis by sellers, there is no minimum order mandated on the platform.

The logic of logistics

Udaan’s other great monetisation hope was logistics. The company’s logistics arm, Udaan Express, delivers 60-70% of all orders across 800 cities, four former and current executives said. The remaining orders are outsourced to third-party logistics providers like Delhivery and Ecom Express.

The company also currently has 25-30 warehouses pan-India, three former and current employees said. Owning warehouses and handling inventory means that Udaan is further from Chinese B2B giant Alibaba, and closer to e-commerce leader Amazon. This isn’t great for profit margins, as evidenced by the fact that asset-light Alibaba has higher profit margins than Amazon. In fact, for the year ended March 2019, expenditure on logistics and cash collection (for credit) was Udaan’s single-largest expense at Rs 254 crore (US$33.6 million).

Udaan, though, believes that owning a logistics play improves the experience it offers. Not only does it make for a smoother supply chain, it also allows for economies of scale thanks to warehouses as pickup is streamlined.

Udaan implemented a flat logistics fee for each category—around Rs 100 (US$1.3) for clothing and Rs 30 (US$0.40) for fresh produce, said one Delhi-based buyer.

Vickers’ other exits include real estate investment firm Cambridge Industrial Trust, which went public in Singapore in 2005. It subsequently sold to a joint venture between the National Australia Bank and Oxley Capital in 2008. That sale saw Vickers make a 26X return with an internal rate of return (IRR) of about 190%.

But it was in 2009 that the firm began to morph into the deep-tech-focussed entity it is today. This happened after Tan realised the hard science knowhow abundant in his team. Out of a team of 23, eight have a doctorate in hard sciences. Tan himself has a bachelors, a masters of philosophy and a PhD in engineering—the latter two from the University of Cambridge.

Mediocre fund performance

Towards the end of March, a full-page story on Vickers’ US$200 million fundraise appeared in Singapore’s Business Times newspaper. Along with it, there was a table of its funds’ performance, taken from the firm’s website.

It is unusual for a global venture firm to display its fund multiples and IRR like this, says a venture funding consultant who asked not to be named. But while Vickers’ transparency could be applauded, the contents of the table didn’t make for particularly good reading.

Armed with this expertise, Tan realised Vickers was better than most at understanding whether a technology would work, as compared to evaluating consumer-focussed companies.

After Vickers’ pivot to deep tech, Tan realised that the firm’s projected returns moved from single-digit multiples to double-digits. “Our write-off rate used to be about 21% and now it’s about 9%,” he told us in an interview.

More IPOs

Vickers might also have another exit up its sleeve that could materialise by end of the year, says Tan. However, it is also dependent on public market sentiments as the unidentified company plans to go public in China.

While financial data platform Preqin declined to share specific fund performance details with us, others are decidedly unimpressed. The co-founder of a regional VC firm says that the performance of Vickers’ second and third funds was “horrible”.

The firm debuted with a US$9 million fund. According to investment data reviewed by us, the fund has a distribution to paid-in capital (DPI) of 214.6%. In other words, it returned 2.1X of the first fund to its limited partners over the fund’s 15-year existence.

Fund II, which was closed in 2006 at US$32.7 million, has only generated a DPI of 104.3% as of September 30, 2019. For Fund III, which was closed in 2009 at US$62.5 million, the DPI was 16.9%.

“For a fund that is 11 years old, it should’ve been shut down and be done with already because a normal fund life is about 10 years,” says a regional venture capitalist who requested anonymity because he didn’t want to discuss a fellow investor publicly. “Second, this fund has only returned 16.9% of money to LPs—that’s quite a disaster.”