August 7, 2017 4:21 pm JST

Online wholesaling lets SE Asian food shops cut out middlemen

Farmers also command higher selling prices through the win-win innovation

SADACHIKA WATANABE, Nikkei staff writer

Using Limakilo, this Indonesian shop owner can replenish quality food stocks cheaply and efficiently.

TOKYO -- Online platforms are revolutionizing how farmers supply produce to mom-and-pop businesses across Southeast Asia, letting both parties bypass shadowy intermediaries who often offer less than the best in prices and quality.

Buying high, selling low

At a tiny shop on the outskirts of Jakarta, the female proprietor orders 700,000 rupiah ($52) worth of vegetables every two or three days through Limakilo.id, a portal that empowers farmers to sell directly to stores. "The quality is better than what I can get from a wholesaler, and they sell fast," the 42-year-old said.

Limakilo, the startup behind the platform, has built a network connecting over 50 farms with nearly 1,000 shops in the Jakarta area since debuting in 2015. It handles over 30 types of vegetables and foodstuffs. The company maintains in-house inventories of in-demand, quality-checked produce like peppers and shallots. Orders made by 6 p.m. are delivered the next day.

"Farmers can sell produce at prices 15% higher than they could with intermediary merchants, and consumers can buy them 15% cheaper," said Limakilo CEO Walesa Danto. The company monitors market prices daily, undercutting those quotes on its website.

Squeezed by a complex web

In Indonesia, farm produce often goes through layers of distributors, wholesalers and other middlemen before reaching consumers. Price tags get padded at each layer, meaning farmers are usually forced to sell cheap.

Lengthy shipping times also hurt the quality of the fresh products, leaving farmers and consumers at a further disadvantage.

Small shops account for over 80% of all Indonesian sales by value among retailers that stock everyday necessities and food products, 2016 data from Euromonitor shows. Large chain stores also have a lesser presence in Thailand and Malaysia, where small shops control more than half the share as well.

But those shops have been dependent on middlemen -- despite the complexities, long delivery times and extra costs.

Online platforms are expected to simplify the process and upend the old order.

Invest in your suppliers

TaniHub, which launched in 2016, also connects about 600 farms with shops. One tomato farmer in Indonesia's West Java Province is already a satisfied contract holder.

"In the best of times, their purchase prices are quadruple what I used to get," the 39-year-old said. "My monthly income grew over 20%."

The company has branched out into developing better farmers. In January, TaniHub's founders created TaniFund, a crowdfunding platform that counts Bank Bukopin and state-run Bank Negara Indonesia as partners. It will provide financing to about 10 contract farmers who wish to purchase agrochemicals and farm equipment. In return, TaniHub holds the right to sell the entire yield online, sharing profit among the startup, investors and the farmers.

This setup resolves TaniHub's difficulties in securing steady supplies of produce, as several farmers would prioritize conventional wholesalers due to debts or longstanding relationships. The company will sign on more contract farmers with the goal of taking in sales of 30 billion rupiah this year.

Disrupting the restaurant business

Consumer spending in Southeast Asia is biased toward food and drinks. PricewaterhouseCoopers says the proportion in Indonesia, Thailand and the Philippines tops 30% when fresh food and restaurant dining are included. It is within that setting that internet wholesalers have emerged to service small and midsized dining establishments.

Freshket, established in Bangkok only last year, procures vegetables and meats directly from farmers and sells them to food courts. Proprietors who operate one to three such establishments, where the average price per customer hovers around 500 baht ($15), make up the core clientele.

Client retention reportedly stands at 80%. Freshket sets prices a little high, but it focuses on the produce's quality, CEO Ponglada Paniangwet said. The company began refrigerated shipping in June.

With transaction volume growing 30% by value every week, Freshket aims to attract 200 stores in Bangkok by the end of this month, or quadruple the number in January.  

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