Examining GudangAda’s unprecedented numbers

Updated on July 21 with clarifications.

Within just a few months, GudangAda has skyrocketed to become one of the most well-funded tech startups in Indonesia. After raising US$10.5 million in seed funding in February, the company raised US$25.4 million in a series A round held three months later from prominent investors such as Sequoia India, Pavilion Capital, Alpha JWC Ventures, and Wavemaker Partners.

The company hopes to make it easier for wholesalers and retailers in the fast-moving consumer goods (FMCG) industry to buy and sell from one another. Through its app, which resembles online marketplaces Tokopedia and Shopee, users can transact, pay, and get their goods delivered, either through the sellers’ or GudangAda’s couriers.

The company is making some bold claims. Despite starting only at the end of 2018, it says it has already processed US$1 billion in transactions in the past 12 months, even as the Covid-19 pandemic swept the country. It charges 0.5% to 2% commission for each transaction, which means a potential annual revenue of US$20 million.

It also tells Tech in Asia that it has acquired 80,000 big retailers and almost all of the FMCG wholesalers – around 20,000 of them – in Indonesia. The startup has repeated the claim to various media outlets, stating in an emailed press release that it has “nearly full market coverage of the nation’s FMCG wholesalers.”

And investors are convinced by the stunning growth that GudangAda is touting. “Look at the number of wholesalers and retailers already on the platform. Look at the amount of GMV they process. Look at how little time they took to get here. Nobody even comes close. That’s why it’s so hard to replicate,” says Paul Santos, managing partner of Wavemaker Partners.

However, a GudangAda business development executive tasked with acquiring wholesalers and big retailers in a third-tier city in Indonesia tells Tech in Asia on the condition of anonymity that his team has acquired only less than half of the wholesalers in his area. “There are still many stores that we have to onboard,” he says.

We also approached the owners or senior employees of 8 big retailers and 5 wholesalers in some parts of the Greater Jakarta Area’s FMCG sector. None of them have used the app and 10 of them haven’t heard of it. 

Tech in Asia reached out to GudangAda multiple times for this story, which took close to a month to complete. Following an hour-long phone interview and two follow-up queries totaling over 25 questions (which we received answers for), we sent another list of questions, this time focusing on the feedback we received from employees and wholesalers.

GudangAda declined to participate further due to the sensitive nature of some of its data, instead saying that the 20,000 figure it has touted refers to the number of “verified registered merchants”. 

After the story was published, a company spokesperson further disputed our results. 

He questioned Tech in Asia’s definitions of wholesalers and retailers, which may not be in line with GudangAda’s, and challenged the seniority of the people we spoke to and whether they truly know about the real situation.

He added that, based on the geographical scope and sample size of the merchants that we talked to, the results do not amount to a representative view.

Finally, the spokesperson said that GudangAda’s numbers have undergone due diligence by a Big Four accounting firm and were verified by prominent global investors.

Two businesses that Tech in Asia spoke to know of peers that use the startup’s services, while another wholesaler admits to being approached by a GudangAda salesperson. Industry players say there often isn’t a distinction between retailers and wholesalers; merchants typically serve both businesses and consumers.

Wavemaker Partners declines to give exact figures but says that “majority of GudangAda’s merchants are active monthly.”

The company’s gross merchandise volume (GMV) figure also seems extraordinary. Here’s Tech in Asia’s benchmark of GudangAda’s achievement against other B2B marketplaces:

Based on these numbers, GudangAda appears to be over 14x more capital-efficient than its peers. How exactly did it achieve this? Did it rely on transactions from a handful of large players to hit the number?

In response, Wavemaker Partners says that the company has set and achieved a goal of reaching 15,000 FMCG wholesalers, and that was the key to hitting US$1 billion in GMV.

“It’s also a dynamic business where the target moves, and we find ourselves discovering new wholesalers all the time. When we do, we try to bring them onboard too,” the VC says in a statement.

GudangAda itself refuses to discuss how it achieved the metrics, except to say that it defines GMV as “all transactions that have occurred on its platform”; Tech in Asia, however, is unable to independently verify its claims.

The company adds that it did not feel any negative impact from the pandemic. People still need to buy FMCG products, and there have been no restrictions on product movement in the country so far.

“For any interested parties, whether for investment or partnership, we can always open data access for verification after signing of NDA,” it says in a statement.

Connection with “old money”

Investors appear to be putting their trust in GudangAda. According to Wavemaker Partners’ Santos, the biggest driver of the startup’s growth is founder Stevensang’s experience, as he is a “trusted member” of the FMCG distribution ecosystem who has come up with a solution that addresses industry-wide challenges.

Stevensang (he goes by one name) is a FMCG business executive who has had more than 25 years of experience in the sector. Before retiring in 2017, he was the CEO of PT. Arta Boga Cemerlang, the sole distributor for the Orang Tua Group, which is owned by Husain Djojonegoro, the 19th richest person in Indonesia. The group mainly produces FMCG products such as wafers, biscuits, candies, and batteries, among others.

This connection to “old money” puts Stevensang in a unique position. “In my past experience, I did a lot of business trips and met many big players, wholesalers, and big retailers. I got their contacts from those activities,” the founder tells Tech in Asia.

He started the company near the end of 2018 with his own money, plus funding from other founders whom he prefers not to disclose. During GudangAda’s first year, he tried to re-establish his relationships with merchants by doing a “tour” across the country.

GudangAda Business Model

Stevensang is also well-connected to FMCG executives, many of whom were his “former subordinates,” he says.

This is why many of GudangAda’s employees came from PT. Arta Boga Cemerlang and the Orang Tua Group, including its head of operations and chief of business development, and even those in positions such as area sales manager and team supervisor.

“I didn’t ask them to join me, but they just came to me and requested to join,” Stevensang explains. Today, the company has around 350 employees who mostly work in tech and marketing.

Improving a manual process

FMCG wholesalers and retailers have long been relying on salespeople going door to door to buy or sell products. Even though their salaries have been increasing, “their productivity has been declining. It lowers the merchants’ profit,” Stevensang says.

GudangAda is trying to replace them with an app that pools buyers and sellers, along with their products. Launched in January 2019, its goal is to make B2B transactions more efficient: Retailers can find any product through the app rather than reaching out to different wholesalers, and a wholesaler can also stock up by buying products from other wholesalers.

According to Jianggan Li, founder of venture builder Momentum Works, GudangAda’s success depends on its ability to cut transaction and operational costs for both wholesalers and retailers.

He adds that B2B platforms in the past have been too focused on simply matching buyers and sellers. In contrast, since it has started to onboard wholesalers and big retailers to its app, GudangAda is taking a more hands-on approach by deploying its own salesforce.

The same approach has been used by B2B ecommerce startups such as Growsari in the Philippines, which has hired salespeople to visit stores and engage their owners, with the ultimate goal of encouraging them to register on the platform and place orders through it on a regular basis.

Former and current employees tell Tech in Asia that GudangAda generally has two kinds of salespeople: Those who roam their assigned areas and approach wholesalers and big retailers from door to door, and those who stay in a wholesaler’s store and approach buyers who drop by.

GudangAda focuses on acquiring wholesalers first as that allows the company to quickly access the entire supply chain. “It acquires the largest wholesalers, who then acquire the next level of wholesalers, and so on. And ultimately, the wholesalers are now acquiring the retailers,” says Abheek Anand, managing director of Sequoia India, a GudangAda investor.

While GudangAda is still focusing on wholesalers and big retailers, it’s starting to allow manufacturers to list their products directly on the app. To maintain trade fairness in the platform, the company has limited its users only to those who actually have an FMCG business; one of its salesforce’s tasks is to verify whether a store is real or not.

Everyone can download the app, but one has to put in a code provided by a GudangAda salesperson to register. “We have to do it to prevent speculators who want to buy products at a cheaper price and sell them at abnormal prices,” Stevensang says.

Matching buyers and sellers is just the first step. GudangAda has also developed a logistics service that will deliver goods from the sellers’ stores to the buyers. However, it is still in the early stages. A company salesperson assigned to a third-tier city in Indonesia says that the service hasn’t been launched yet in some areas, though she is aware that it is already operating in a second-tier city.

In the near future, the company plans to provide financing products to merchants and a subscription-based software as a service (SaaS) product that can help retailers manage inventory and financial statements.

Stevensang emphasizes that GudangAda is an independent company and isn’t owned by his former employer, the Orang Tua Group. To avoid conflict of interest, he doesn’t want any manufacturers or principals to become investors in his company.

He adds that big FMCG manufacturers in Indonesia such as Mayora, Wings, Gudang Garam, Orang Tua, and Indofood have their own supply chains, which are exclusive to their products. Thus, any investment from them will create the assumption that GudangAda’s platform will prioritize certain products over others.

Obstacles remain

As the fourth largest country in the world by population, Indonesia is a big market for FMCG products. According to Wavemaker Partners’ Santos, the market is valued at over US$50 billion, with an annual growth of 8%.

The biggest challenge for the company is getting big distributors to switch to digital ordering methods fast enough. And according to Hadi Kuncoro, the CEO of Power Commerce who has experience in both conventional and ecommerce supply chains, that change will take some time.

“Startups who can succeed in this industry are the ones who have long runways that allow them to wait for the change to happen. Otherwise, they have to tap into a more profitable business, such as sourcing products from manufacturers and selling them directly to retailers,” Kuncoro says.

Existing and former employees of GudangAda tell Tech in Asia that they face difficulties in onboarding customers. One of the main reasons for the customers’ hesitancy is that GudangAda’s only payment option currently is through bank transfer. Most customers prefer to pay in cash upon delivery or when they go to the stores themselves to pick up the goods, especially since the company doesn’t provide delivery service in most of the markets it serves.

Another issue is that merchants often resort to making transactions on a personal basis in order to avoid paying tax. They’re afraid that buying or selling on GudangAda would mean officially transacting as a business – which would put them under government scrutiny.

A wholesaler who has heard about GudangAda says that he would consider using the app if the price and tax treatments are good. “Our problem is [having] a big GMV but a small margin. We don’t want to use a bank account, only cash, because we don’t want the tax office to detect our transactions. Our margin is around 5% to 12%, so a 10% tax is quite big for us,” he explains.

Working with incumbents, not against them

Stevensang is aware of the merchants’ doubts, but he says that they are open to solutions as long as GudangAda doesn’t disrupt, bypass, or eliminate the traditional supply chain. Unlike other B2B ecommerce startups, GudangAda isn’t doing an end-to-end service; instead, it’s looking to make existing players in the supply chain more efficient.

He also points out the fact that most owners of wholesale and retail businesses are handing them over to the more tech-savvy second generation.

GudangAda employees say that some store owners are willing to try the app because of its similarity to popular B2C marketplaces Tokopedia and Shopee.

GudangAda founder and CEO Stevensang / Photo credit: GudangAda

Ultimately, the startup’s approach of marrying a marketplace with logistics and financial services is similar to Udaan’s, which also runs a B2B ecommerce marketplace and was once crowned “India’s fastest unicorn.” The company started by facilitating transactions between merchants before expanding into logistics and loans.

Stevensang admits there are several things that he has picked up from Udaan, such as successful fundraising measures, fast scaling and execution, and launching a logistics arm early; the latter is crucial because according to an ex-employee, sellers are typically too busy to deliver the products themselves, and this makes buyers hesitant to place orders.

The founder adds, “However, there are also parts that we have to avoid, such as high cash burn, not charging for too long, unfocused categories expansion [that are] only retracted later, and rushing into lending with huge nonperforming loan (NPL) losses.” GudangAda is also saving cost by not providing warehousing. Instead, it assists sellers in sending their items directly to buyers.

Stevensang declines to reveal the company’s runway, but says that it will fundraise again toward the end of the year or next year.