SOURCING for products at the best wholesale prices may not be the easiest thing to do for a small business owner. Be it running a convenience store, local cafe or even a florist, those who are unable to obtain stock from their wholesalers would often resort to purchasing items from hypermarkets at a consumer price.
Macro Tech Ventures Sdn Bhd co-founder Lennise Ng says mom-and-pop stores often find it difficult to access wholesale prices for products due to their smaller order volume and limited access to wholesalers.
“More often than not, suppliers’ agents would go to the retailers store to take stock. They would then place orders on behalf of the retailers.
“As these suppliers would visit a store once or twice a month, it makes it harder for the retailers to manage their own inventory or stock up when there is a surge in demand,” she explains.
This gap between brand owners and retailers was the catalyst for Ng and co-founder Aizat Rahim to set up Dropee, a business-to-business e-marketplace that connects suppliers with retailers. This is a simple and novel way of bridging suppliers and retailers electronically.
Dropee’s dashboard allows users to track their orders frequency to better manage inventory
Users who sign up to their platform are able to source products directly from the list of wholesalers, manufacturers and principals.
Digitise sales order
The platform also makes it convenient for both suppliers and retailers to digitise sales orders, track inventories and fulfilment of goods as well as to access real-time analytics reports.
Currently, Dropee has over 200 brands with 3,000 stock-keeping units (SKUs) on their platform while servicing over 300 retailers.
They are working with likes of Red Bull, FNA Group, Nestle, Coca-Cola, Mars and Ferrero as suppliers while retailers such as Shell Select, Giftr, Honestbee and GrubCycle are actively using their platform to source for products.
Aizat and Ng started Dropee in October last year as they were then facing similar issues with their family businesses. Aizat’s family was in the confectionery trade while Ng’s family dealt with textiles. Though different industries, both had to tangle with similar problems of dealing with too many middlemen in the supply chain.
“We tried to digitalise our family business by reaching out to more online businesses. (However) we realised that many online business owners operate on a part-time basis and have inconsistent sales,” says Ng.
Their initial plan to introduce drop-shipping by brands to online sellers did not materialise owing to poor demand. They scrapped the idea and re-engineered the business. The result was the creation of Dropee.
The low adoption of technology amongst small business owners was apparent when Ng and Aizat reached out to their customers.
“We have talked to retailers on how they can digitalise their business processes. One retailer proudly claims he has joined the digital movement. But when asked further, the retailer says he places his stock orders through WhatsApp, instead of phone calls,” laments Ng.
What goes into a store
A mom-and-pop-styled retailer would typically carry 1,500 to 2,000 SKUs. “Right now, we are able to cover 60 to 70% of that, with plans to help them cover over 80% of SKUs,” says Aizat.
Doing so would then reduce the hassle for retailers to source through multiple channels. Retailers can also manage orders through a single platform.
The best performing segment on Dropee is beverages, such as canned drinks or bottled drinks. Many of these orders originate from food and beverage (F&B) outlets, mini markets, event organisers to corporate purchases.
“Beverages are transacted daily and move very fast. We also have a technology category that offers items such as headphones and speakers,” explains Aizat.
The average transaction ranges around RM2,000 to RM3,000. To-date, their largest transaction amount is RM25,000.
“Wedding seasons are a good time for us as we see event organisers and wedding planners purchasing chocolates as wedding favours. Florists also use our platform in a similar fashion to purchase chocolates that are bundled together with their flowers,” explains Ng.
Dropee’s revenue model is to charge both suppliers and retailers a monthly subscription fee. Retailers can choose between a basic package, allowing them to order via the platform or a premium package. The premium package comes with analytics dashboard which provides them with information on their orders and also an auto-order function among others.
Retailers may face inventory issues when there is a surge of customers
Moving forward, Ng reveals they are in talks with local banks to introduce a micro-financing option on their platforms. This move is to help retailers gain access to capital to increase their inventory and cash flow.
She adds aside from introducing a beta version of its micro-financing option on their portal, they are aiming to cross the 1,000 retailers mark by the second quarter of next year.
“We are already working closely with 50 principals, carrying over 200 brands. We are halfway there as there are about 100 principals in the entire market.”
Aside from the fast-moving consumer goods market, they are keen to explore the perishable and fresh produce market segment.
“Though those items [fresh produce] have a shorter shelf life, the purchase lifecycle is shorter at once or twice a week as F&B operators replenish those items frequently,” adds Aizat.
That said, plans are also underway to expand their reach to other states, such as Penang and Melaka.
Disconnect between brand owners and retailers
IN a conventional fast-moving consumer goods (FMCG) supply chain, the middleman typically takes a high markup from the price offered by the brand owner or product supplier.
It is common for the many layered network of middlemen of wholesalers and distributors, to enjoy a 400% markup on FMCG goods before selling them to retailers.
Macro Tech Ventures Sdn Bhd co-founder Aizat Rahim says high markups by middlemen often cause retailers, especially mom-and-pop stores, having to contend with slim margins. This sometimes caused them to sell retail products at a higher price compared to large chain stores.
According to Aizat, fresh produce would usually be marked up 1,000%, while pharmaceutical products could be marked up as high as 3,000% and 4,000%!
This is further compounded by the increase in the price of goods when the location of the retailers are further than the distribution hub of the suppliers.
Aizat made a trip to Melaka to conduct his own market survey and was shocked at how the prices of goods differ than those sold in the Klang Valley. “In KL, the price of a popular energy drink is between RM2.80 and RM3. But in Melaka, it ranges between RM4 and RM5.
“When I spoke to convenience store owners, they say their cost price is generally higher compared to what wholesalers charge in KL.”
As a result, store owners would usually make trips to KL to stock up on provisions, as opposed to relying on the existing network of wholesalers who service their location.
He adds the same could also be seen in Penang as wholesalers are believed to drive up prices owing to high demand.