A desire to combine Malaysia’s agricultural richness with IT yielded an online grocery business called Pasarborong.com in July 2000. Armed with ambitions and idealism that the business will take off and investment recouped in a year, Pasarborong Online’s CEO Nik Rushdi Nik Hassan believes that his plan to build an “institution”-based agriculture or a related business will succeed.

At its launch, Pasarborong (which means wholesale market in Malay), offered 400 wet and dry grocery items to working mothers and busy housewives in affluent neighbourhoods.

Reception was not exactly wild but Pasarborong was able to build a following to assure it stays in business amid the dotcom meltdown. “On average, each order is about US$40 with many spending up to US$105 a week on groceries,” said Rushdi, adding that delivery is provided free of charge for orders above US$26.

Unfortunately, while consumers were supportive of the online grocery delivery service, Rushdi was forced to hold back initial expansion plans in order to raise an additional US$1.3 million through a combination of venture capital funds and bank loans.

Pasarborong began with a capital injection of US$52,700 from its nine shareholders and operated at a burn rate of US$9200 a month.

“We have not recovered our management costs that include developing the Web site, only the operational costs [were recovered]. Sustaining an online grocery business requires volume sales which we were not able to generate very quickly,” said Rushdi.

But does this mean that home delivery of groceries is dead? Pundits do not think so but are cautious about its growth. “To sustain in this business, volume is key and Malaysia is lagging in many areas. Hence we are slower than the rest. But it works well if they serve a niche market or cultivate a niche group of customers,” said a consultant who declined to be named.

An e-commerce study released in July by Taylor Nelson Sofres (TNS) Interactive found that the proportion of Malaysians shopping online had hardly shifted in the past year. The study revealed that only 4% of local Internet users shopped online and 37% feared credit card abuse.

TNS Malaysia’s General Manager Siti Norbaya Abdul Manaf, however, disclosed that Malaysians are ready to buy online with 14% of polled candidates stating plans to shop online in the next six months. And further 10% of Internet users bought goods in physical stores after researching them online.

In the US, Forrester Research predicts that despite its slow start, the market for online grocery delivery will grow from US$600 million in 2000 to US$7.2 billion in 2005. Much of this, they say, will come from new services offered by existing companies.

Norbaya concurred with Forrester’s findings, adding that the online grocers here will need to offer compelling services to grow their business. “Online retailers have to build consumer confidence and offer a more rewarding online shopping experience than what is presently available.”

After 18 months of sheer grit and minimal promotional activity, Pasarborong secured funding from the Demonstrator Application Grant Scheme (DAGS) provided by Malaysia’s National IT Council. It also signed up with Maybank in September enabling it to build a proper e-commerce infrastructure online.

The Web site’s engine, which currently runs on the Linux platform, was developed by local Web design firm Intrix Avante for US$132,000.

“Owing to tricky logistics, we could only deliver goods in 12 housing estates [in Kuala Lumpur] within the Lebuhraya Damansara Puchong corridor, Subang Jaya, Bangsar and Damansara Heights. With additional funding, we plan to open stores and offer delivery services as initially planned in upscale suburbs in city centres such as Ampang, Kuala Lumpur city centre and Melawati,” said Rushdi.

Click to store
Pasarborong’s drawcard is its goods that are priced 10% lower than those of supermarkets. The Web site has new promotions every two weeks as an added attraction.

Rushdi said that all seafood, meat and vegetables from the wet market are cleaned, packed and are guaranteed fresh. “We have had instances of bad fish in a pack which we replaced but such instances of food being stale are rare.”

The online grocer is also not deluded into offering products that do not move fast. The current inventory stands at 1000 “necessary and fast-moving” staple items including coffee, sugar, rice, onions, garlic and canned food in addition to perishables, a long shot from 10,000–30,000 stacked within supermarket aisles.

“We found that there exists a market segment for staple items that people prefer to have delivered to their homes instead of driving through heavy traffic and battling for parking space at supermarkets,” he said.

Although more than 20% of its 500 regular customers buy US$50 worth of perishables weekly, Rushdi acknowledged the need to set up physical shops to anchor the current online store.

“We learnt over the years that although there is a market for e-commerce, there is a need to complement that business with an actual store. We were hurt by the lack of marketing and even if the media knows who we are, it does not mean that the customer does.”

Rushdi declined to reveal locations of the new stores but said that a few will be operating by the end of the year. There is currently a physical outlet in Damansara, which acts as a packaging and distribution centre.

There are plans to nurture relationships between its pool of customers with fishermen and farmers who provide the perishables. Rushdi is sure that by creating an efficient supply chain for a group of selected fishermen and farmers, he is able to bring the customer closer to the source.

“Funding from DAGS will be used to set a supply chain to iron out the inefficiencies that exist from the point where the products are handled from port to customer.”

Though Pasarborong does not see the company recovering its cost for another year, Rushdi is hopeful that being in a “recession-proof” business will be worthwhile. “We believe that there are savvy consumers out there—we just need to reach them.”

Perhaps then its original ambition of raking in over US$50,000 in revenues by next year will not be far-fetched.

Anita Devasahayam can be reached at anitadm@pc.jaring.my