Hyperlocal: The Strategy Behind Grab's Rise in Southeast Asia

As Grab prepares for its history-making SPAC listing, numerous profiles of Grab CEO Anthony Tan have been published. Several features describe a man who works so hard that he reads business case studies while exercising.

In Grab, Tan leads a sprawling multinational in one of the world's most complex, fragmented and increasingly competitive regions. Studying how other companies dealt with adversity is one way he stays ahead of his peers.

History rhymes, after all; and when solving today's problems, the past can often be our best source of inspiration.

There's one particular business case that he surely must have come across, as it has enough parallels to Grab that it could act as a compass for Tan's decisions.

If he read it while running on the treadmill, one can imagine him stopping the machine to take notes.

To better understand the rise of Grab and how they came to dominate Southeast Asia, we must first take a brief detour to learn about a man named Sam Su, the China fast food wars, and how KFC became a beloved brand in China.

Hyperlocal Lessons From The China Fast Food Wars: How KFC Bested McDonald's

It's 1987. China has just begun to open its markets to the world.

When a large new country like China opens up to foreign investment, multinationals try to estimate its Total Addressable Market, and make a call on whether the juice is worth the squeeze.

Sensing the opportunity, the leadership teams of McDonald's and Kentucky Fried Chicken plotted their entry. The China fast food wars had begun.

One Country, Two GTM Strategies

McDonald's approach was a tried-and-true strategy based on a series of answers to a set of rational questions. In which cities would our business model by viable? How do we maintain our high standard for execution, so far away from the mothership? How can we mitigate risks to give ourselves a margin of safety?

And so, the rollout of McDonald's unfolded in a predictable fashion. Their first restaurants opened in large commercial centers. They flew in executives who had launched the brand in other countries. They kept their menu largely the same.

Sam Su and the KFC team had a different approach, since their strategy was founded on the answers to a different question:

What is the best way to realize the TAM in this market?

This led them down a divergent path. They didn't know it, but they would execute one of the finest hyperlocal go-to-market strategies in recent history.

Instead of commercial centers, KFC prioritized smaller cities. Instead of expats, they were led by people who had personal connections to China. Instead of a standardized product, Su's team freely changed the menu to match local tastes: a typical American KFC menu had 29 items; a Chinese KFC menu had 50.

A look at the number of KFC and McDonald's outlets in China leaves little doubt to which strategy was superior in realizing the market opportunity:

When they were plotting their entry, McDonald's and KFC likely arrived at similar TAM estimates. But it was KFC's hyperlocal strategy that gave them the ability to actually realize that TAM:

This gives us our first lens by which to view Grab's growth:

When you take a hyperlocal go-to-market strategy, the insights, cultural nuances and market-specific knowledge you gain along the way give you the confidence to invest more aggressively than your competition, increasing your chances of winning in the market.

Grab's First Act: Using Hyperlocal To Go On Offence

It's impossible to discuss Grab without talking about their early competition vs Uber.

In Uber, Grab faced a competitor with a bigger war chest and a few years' head start in experience: a lifetime in startup land. They were outgunned by capital, and – for anyone who remembers using Grab in their early days – operationally outclassed. It's hard to imagine now, but back in 2014, plenty of people were waiting for Uber to squash Grab, the same way they steamrolled EasyTaxi and Hailo (Never heard of them? Exactly.)

However, Tan and the Grab team understood the same thing that drove Sam Su and his team at KFC:

If you commit to a hyperlocal strategy, you can rapidly adapt your offering to better meet market needs. Over time, these adaptations sum up to a defensible moat. This moat unlocks a part of the TAM that is inaccessible to your competition, allowing you to invest and execute with greater conviction. You get more juice out of the same squeeze.

Uber's momentum up to this point was thanks to a series of assumptions that had so far proven true for every market they'd entered: everyone uses smartphones. Everyone pays with credit cards. Cars are the only way to get around. Passengers are comfortable riding with strangers.

These assumptions soon clashed against the on-the-ground realities in Southeast Asia.

When Grab first launched, it had to teach drivers in many of its markets how to use smartphones. The company held sessions every two weeks to train them to use the app. Most riders didn’t have credit cards, so from the very start, Grab accepted cash. It took Uber two years to begin accepting cash in some parts of the region. (Wired)

How To Compete With a Global Giant: Solve Hyperlocal Problems With Urgency

Grab's hyperlocal approach, combined with a pace of execution that some alumni called "a constant state of emergency," allowed them to iterate faster and offer better solutions to the market. Some features would have a yearlong head start.

Grab's hyperlocal advantage played out in promotional stunts as well. When Uber ran its #UberIceCream campaign in 2015, it was quickly followed by the #GrabDurian campaign, which was such a huge hit that it continues to this day.

At the time, Uber's engineering superiority gave them the ability to do things that Grab could not yet do, like charge the rider precisely the right amount once a trip had completed.

However, Grab's hyperlocal perspective allowed them to re-frame this perceived disadvantage into strength:

"For the longest time, the industry was based around pricing at the end of the ride, not the beginning of the ride. But a lot of the aunties and uncles in Singapore, culturally, were quite averse to that notion. And so we innovated with upfront fixed pricing." (Ming Maa, Grab President)

Travis Kalanick's Uber was famous for rapid execution, but Anthony Tan's Grab, with its autonomous country teams executing simultaneous hyperlocal product and marketing, was just too much to keep up with. Uber wasn't afraid of getting into murky legal waters, but neither was the Grab team, and they knew how to navigate the dynamics of Southeast Asia.

Eventually, with Grab's continued traction, and after securing a few rounds of significant capital injection, Uber – perhaps urged by Softbank – grew weary of the war of attrition and merged their operations with Grab.

To understand Grab's second act, we turn again to lessons from Sam Su.

How KFC Became Part of Chinese Daily Life

Once KFC was an established – beloved, even – household name in China, Sam Su's hyperlocal strategy provided resilience over the long term.

Local competitors inevitably joined the China fast food wars, but most could not compete with the machine that KFC had built. Recall that KFC prioritized tier-2 and tier-3 provinces and cities across China, and in doing so, built a robust nationwide supply chain, giving them better control over costs and the agility to respond to demand.

Setting up in smaller provinces also meant that KFC built a vast grassroots network of supporters across the country, banking goodwill from politicians at all levels who felt that KFC helped put them "on the map" and from citizens who made their careers at the company. KFC had embedded themselves in the national psyche.

This was put to the test in 1999, when the Chinese embassy in Belgrade was bombed by the United States, and American businesses in China were being vandalized. Incredibly, Chinese KFC managers were able to successfully defuse anti-American protests by arguing that it was essentially a Chinese company; after all, its supply chain was largely Chinese and the company had over 23,000 Chinese employees.

Let's go back to that TAM diagram.

It turns out that there are deflationary pressures preventing companies from realizing more TAM:

Once you get to a certain size, a hyperlocal strategy helps you defend your gains.

Grab, Act Two: Hyperlocal as a Defensive Strategy

Almost immediately after acquiring Uber's assets, the story around Grab turned from "plucky startup competing against American giant" to "big tech company."

In 2018, this was not a positive association. This was the era of the Cambridge Analytica scandal, coupled with an increasing public awareness in data security after report after report of privacy breaches at tech companies.

Globally, the narrative was shifting from tech being leaders of innovation to being these scary, East-India-Corporation-like monoliths who had too much power. Many companies felt the change in the air and the need to get on the good side of governments. Facebook hired a former UK Deputy Prime Minister to lead their global affairs team. Gojek's co-founder joined the Indonesian government.

This in part explains Grab's consistent push for CSR campaigns across Southeast Asia. Like Sam Su's KFC, Anthony Tan's Grab has worked hard to embed itself into the local psyche.

(To be clear, I don't doubt the sincerity of these campaigns. One just has to also acknowledge that they also happen to align perfectly with Grab's business interests.)

Grab continually needs to have a seat at the table with lawmakers and regulators in Southeast Asia. It's critical to ensure the continuity of privileges like operating at airports and business license renewals.

It's already working. When the Malaysian government needed to distribute Covid-19 relief aid to its citizens, they used GrabPay to deposit funds into users' e-wallets. Singapore granted Grab a license to open a digital bank, one of only 4 companies to get awarded.

Where Does Grab Go From Here?

One last time, we look to Sam Su's KFC to see how history might rhyme once again.

Today, KFC is still powerful in China – it's still the market leader in its category – but a combination of outside forces, unforced errors and stronger competition has blunted its dominance.

It's likely that Grab will run into a combination of all those problems.

Stifling regulations are always a threat. And everyone is vulnerable to unforced errors; consider the breathtaking amount of data Grab has on its users. Imagine the nightmare caused by something like a data leak or security breach.

Grab's third act will be about how they navigate a cohort of battle-hardened competitors that are also familiar with hyperlocal strategies:

Gojek. Despite Grab currently having 21,000 employees just for Indonesia – Gojek has roughly 23,000 employees in total – it's unlikely Grab will become the market leader in Southeast Asia's most coveted market.

Foodpanda. In theory, Grab should have wiped out Foodpanda by now. But Foodpanda is founded by Rocket alumni, who have hyperlocal execution hardcoded into the company's DNA. Foodpanda will be a thorn in Grab's side for a while, especially since most of Grab's revenue today comes from delivery.

Sea Group. SeaMoney could play spoiler to GrabPay's ambitions of becoming the leading digital bank/e-wallet in Southeast Asia. With Garena and Shopee, Sea has a dominant position in digital transactions, an area where Grab is particularly weak.

These challenges help explain why Grab needs that history-making SPAC.

The company's Act Three looks just as hard – and definitely more expensive – than Act One and Two.

The next strategy deep dive will be on Sea Group/Shopee. If you'd like a heads up when that's published, subscribe to the blog.

Thanks to Alfred Lua, Yi Ning Lim, Zishuang Cheng and my friends from the Grab ecosystem for reviewing drafts of this post.

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