SINGAPORE (BLOOMBERG) - Farmers in Cameron Highlands, a cradle of Malaysia's farming industry, dumped hundreds of tons of produce in March after Covid-19 lockdowns shuttered wholesale markets and restaurants across the nation. They also gave Alibaba a chance to crack a difficult arena.
Lazada Group, the South-east Asian subsidiary of Alibaba Group Holding opened a virtual store to link farmers and homebound Malaysians. The uptake surprised even the e-commerce giant: consumers bought an average of 1.5 tons of cabbages, carrots and spinach each day. On the fourth day, 3.5 tons of veggies were sold in less than half an hour. By the third week, about 70 tons had been delivered from farms to doorsteps across the country.
Fresh groceries - now one of the top three categories on Lazada Malaysia - weren't even an option there three months ago. Before the coronavirus outbreak, Lazada had dedicated grocery arms only in Singapore, Thailand and the Philippines; after the outbreak, it's expanded to Malaysia, Vietnam and Indonesia. It's keen to maintain that momentum, backed by 30 fulfillment centres across 17 cities in the region.
"Covid-19 is a catalyst of digital transformation in South-east Asia," Lazada Group chief executive officer Pierre Poignant said in an interview. "When consumers build a habit, it doesn't easily go away. E-commerce will become a way of life."
Demand for fresh groceries has surged globally, but the spike in Malaysia opened a window in particular for China's largest online commerce company into a lucrative market after years of building one of the region's largest delivery networks.
Since March, more agricultural entrepreneurs, fisheries and local businesses have started to pivot brick-and-mortar business to e-commerce, according to Lazada Malaysia chief operating officer Shah Suriye Rubhen. The festive period of Ramadan, in a country where more than half the population is Muslim, has also galvanized demand and farmers have responded by increasing their assortment of goods on offer.
"Local SMEs are realizing that digitizing their business is the way forward to remain sustainable in the long-term, diversify their revenue stream, and market to the increasingly growing internet economy," Shah said.
Alibaba's unit may have scored in Cameron Highlands, but the wider Southeast Asian market remains heavily contested.
Lazada, started in 2012 by Rocket Internet before Alibaba eventually bought full control of the company, was the first e-commerce outfit to serve six countries in Southeast Asia. But its fiercest rival Shopee, a unit of Singapore's Sea Ltd, has expanded aggressively in the past year and overtaken Lazada as the most visited website in 2019, according to research firm iPrice Group.
In Indonesia, the largest and most promising market in the region, Alibaba-backed Tokopedia ranks as the top e-commerce company based on web traffic, followed by Shopee, Bukalapak and Lazada. Blibli is the online grocery leader, while "Shopee, Tokopedia and Lazada are playing fast catch-up," said Roshan Raj, a Singapore-based partner at research firm RedSeer Consulting.
It's not just the e-commerce giants - the resurgence in online grocery has attracted new entrants from adjacent industries. Singapore's Qoo10 was particularly swift to act when the government ordered bubble tea shops to temporarily shut along with other non-essential services, offering DIY bubble tea kits. Even meal delivery firm Foodpanda started grocery delivery.
At home in Singapore, Lazada's Lazmall, where brands sell directly to consumers, has recently attracted big names like Under Armour. in Singapore and Thailand, Starbucks and 3M Co in Indonesia and department store chain Robinsons, which is shutting one of its three Singapore outlets in August.
"There are brands that I would not have imagined would come to e-commerce," Poignant said.
The 41-year-old Frenchman, a co-founder who took the helm last year, says Lazada is interested in grocery deals, including acquisitions and joint ventures, in South-east Asia. "We are very open to that," he said, adding the company isn't in concrete discussions at the moment. His firm last month teamed up with Indonesia's Rumah Sayur Group to source vegetables from 2,500 farmers in West Java.
Lazada acquired Singapore e-grocer RedMart in 2016. It struggled to meet demand and had to temporarily suspend new grocery orders in April to make adjustments. Poignant said changes made to RedMart helped the company serve 50 per cent more customers each day a month later.
"South-east Asia's e-commerce market is likely to move from a subsidy game to a quality game," said Lai Chang Wen, CEO of Singapore-based Ninja Van, which helps e-commerce clients deliver more than a million packages daily in the region. "This shift will be pivotal and have a lasting impact."
Poignant argues Alibaba's technologies will help differentiate Lazada, starting with live-streaming. He said Lazada is the only player in South-east Asia that allows consumers to immediately buy items they see on a stream. By the end of June, Lazada plans to host more than 1,000 daily sessions, up from 4,000 per week now. In April, some 7,000 new live stream accounts were created, up 70 per cent from the pre-pandemic era.
Alibaba's artificial intelligence technology is another asset. Lazada has more than 100 people working on personalizing its experience, part of Lazada's 9,000-strong workforce across six countries.
For the Chinese e-commerce behemoth, Lazada is the single most important piece of its globalization strategy. It aims to serve 300 million South-east Asians by 2030, up from 65 million now, according to Poignant.
Underscoring that ambition, Alibaba last week struck a deal to buy half of Singapore's AXA Tower, valued at $1.68 billion. Poignant says the 50-storey landmark, already home to 3,000 Lazada staff, has very good feng shui. The cylindrical structure was inspired by a stack of coins and originally built as the country's Treasury Building in 1986. Prime Minister Lee Hsien Loong once had an office in the building, Poignant added.
"South-east Asia is an absolutely critical market for Alibaba," he said.