Jumbotail: The shop for shopkeepers

Karthik Venkateswaran has done his time in the trenches, literally, crouched behind sand bags, waiting for hell to break loose.

“Hum taabhi phi boriyo ke peeche baithte the, hum aaj bhi boriyo ke peeche baithte hai [we sat behind gunny bags then, and we sit behind gunny bags even now],” grins Venkateswaran, who retired from the Army about a decade ago. He looks at Ashish Jhina, who nods in agreement. Jhina, on his part, had shed his pinstripes and spent months crisscrossing the bumpy terrains of India’s hinterlands in trucks ferrying gunny bags stuffed with grains, while working on projects on the public distribution system for his former employer, Boston Consulting Group (BCG).

What Venkateswaran and Jhina are alluding to are the sacks of staples moved every day at their maiden venture, Jumbotail, a startup that lets neighbourhood retailers buy staples and fast moving consumer goods (FMCG) online.

Jumbotail wasn’t a business conceived out of whack, over a drink or two. It was, in fact, an idea that Venkateswaran and Jhina had been nurturing long before their paths crossed at Stanford University in 2009, and took years to crystallise. During his stints in Manipur, Siachen and Uri among others, Venkateswaran had seen from close quarters how far local farmers were from the sunshine and rainbows. Similarly, Jhina, who hails from a family of apple farmers in Himachal Pradesh, had experienced their travails first-hand. Both had inferred that they should begin with aggregating farmers and giving them direct access to the market by cutting out intermediaries.

Only to be proven wrong.

On intermittent breaks from duty, while working with farmers in his hometown Madurai, Venkateswaran realised his approach was flawed. “The supply side wasn’t the right starting point, though a lot of people were working on aggregating famers. Because, once you have aggregated supply, you are desperate to sell it. The Indian demand is so fragmented that more than 90 percent of the demand flows through approximately 10 million neighbourhood stores,” says the chief executive officer of Jumbotail.

At his apple orchards in Himachal Pradesh in 2014, a similar realisation was dawning upon Jhina, who had quit BCG by then. “I thought of trying out all the things that people say might work to improve farmer livelihoods and try them out quickly. We figured that getting farmers together, selling directly to consumers or large chains, etc, won’t work,” says Jhina, the chief operating officer. “The realisation was that we will have a finished product at hand, but who do you sell to?”

So, when Venkateswaran and Jhina chanced upon each other at a common friend’s wedding in Delhi, in 2014, they agreed that a business worth its salt should look at aggregating demand. It wasn’t until another year that Jumbotail was launched in its current form, after they burnt their fingers chasing hotels, restaurants and cafes—tough nuts reluctant to try new products.

“Our motivation was to aggregate demand quickly. There is no difference between say 2,000 hotels and 2,000 neighbourhood stores buying one bag of rice every day. With stores, we have aggregated the same amount of demand with far less friction,” says Venkateswaran.

Avers Jhina, “Our initial idea was to do business-to-business [B2B], and food and grocery as a category was certain. We didn’t focus on neighbourhood stores because there was a blind spot. We were under the impression that there is a good distribution network for such stores, so what would they need? Also, the neighbourhood stores weren’t technologically equipped.”

In 2015, when Jumbotail was still an idea, getting stores to embrace online purchases was a tall order. Data wasn’t cheap. Smartphones weren’t ubiquitous. According to Statista, in 2015, India was home to 199 million smartphone users and about 260 million internet users. By all means, neighbourhood store owners, with average monthly sales of about ₹5 lakh, weren’t exactly at the helm of the smartphone and internet revolution. Besides, they had been doing business with wholesalers and distributors for years, with minor hiccups but nothing serious enough to sever ties.

“On the grocery side, building revenue based on a sub-5 percent margin structure is a hard task. There is a lot more variability in business-to-consumer [B2C] pricing that customers can live with, but, in B2B the shopkeepers will try to get the lowest price and they will want credit. Also, it is hard to break relationships, as the distributors have been working with them for many years,” says Rahul Chowdhri, investor at Stellaris Venture Partners.

Also, Venkateswaran and Jhina wanted to build the business the “right way”. For instance, they could have cut themselves some slack and deployed executives to take orders from the stores, at least until buying online became a habit. But they insisted on taking orders only on the app. Luring retailers with hefty discounts wasn’t an option either. They would instead make money from commissions from sellers and logistics, and working capital loans to buyers, apart from running promotions and loyalty schemes for brands.

In return, retailers buying on Jumbotail would have the luxury of ordering inventory without having to visit the wholesalers and haggle, or wait for their sales executives’ periodic visits. Jumbotail would deliver in 24 to 48 hours. Also, they got to access a vast collection without having to deal with multiple vendors of different products. Most importantly, they got all of what they ordered at one go. Jumbotail claims an order fulfilment rate of about 95 percent against an industry average of 60 to 70 percent.

“Early on, we used to get calls to place orders. But we declined to accept those. Shopkeepers often said they had exhausted their phone’s data packs. We would recharge their phones and add the cost to the final bill to get them into a habit of ordering on the app,” recalls Jhina. “We never wanted to build a business based on a sales force running around. Our hypothesis was, we will take less business if we have to, but we will take it in the right way.”

Cut to 2019, and one thing is certain: Neighbourhood grocery stores that once looked vulnerable to the onslaught of modern retail and ecommerce are here to stay. A 2019 report by the Indian Brand Equity Foundation estimates that the Indian retail market will grow from $672 billion in 2017 to $1,200 billion in 2021. And while modern trade (supermarkets and hypermarkets) almost doubled to $26.67 billion between 2016 and 2019, it is still a small fraction of the overall pie.

“People have accepted that in India, it isn’t going to be only department stores but a combination of them and the mom-and-pop stores. Across grocery and FMCG, it is almost a $600 billion opportunity. Such a large market cannot have a winner-takes-it-all,” says Rutvik Doshi, managing director at Inventus Capital India.

Besides, the market has changed. The number of internet and smartphone users in India are north of 500 million. People are now more comfortable with online transactions than ever before. “Importantly, this behaviour [buying online] is transitioning to business people also, because neighbourhood shop owners are themselves buying on ecommerce marketplaces [Amazon, Flipkart, Snapdeal, Shopclues],” says Sameer Brij Verma, managing director at Nexus Venture Partners.

Avers Sachin Chhabra, founder of Peel-Works, which started in 2010 as a software-as-service business focussed on consumer packaged goods companies, before launching a B2B marketplace called Taikee in 2017, “We always had the plan to start B2B retail. But the best time to be in this business is now.”

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Four autumns since its launch, Jumbotail has approximately 21,000 retailers—20,000 of them in Bengaluru and the rest in Hyderabad—buying on their app. The company, armed with its own fulfilment centres and supply-chain network, gets at least 80 percent of its revenue from sticky customers. These are shopkeepers who get anywhere between 9 and 30 deliveries a month. For such stores, says Jhina, Jumbotail, which is on track to end 2019 with $100 million in sales run rate, account for 20 to 30 percent of their procurement. About 15 percent of the firm’s sales comes from its private brand in staples, Jumbo Farms. Overall, Jumbotail sells about 3,500 items.

But, Jumbotail isn’t the only startup to have spotted a goldmine in neighbourhood grocery stores. Vying for the same pie are the likes of Peel-Works, Shopkirana, Gram Factory and Udaan, a unicorn with a valuation of $2.3 billion that has got about $680 million in funding. Also in the fray are heavyweights such Reliance Industries, Metro AG, Walmart and Amazon, among others.

Metro Cash and Carry, for instance, has launched an app that allows retailers to purchase online, keep a tab on inventory, and facilitate digital payment. The Indian unit of the German-headquartered Metro AG, which operates 27 stores across the country, clocked about ₹6,100 crore in sales in FY18. Similarly, Walmart India, which clocked sales of about ₹3,600 crore in the same period, is expected to significantly ramp up its presence in India. Then comes, Reliance Industries’ highly anticipated “new commerce”, which, according to its chairman Mukesh Ambani, will be a “user-friendly digital platform designed for inventory management, customer relationship management, financial services and other services”.

While large conglomerates are likely to push for adoption of point-of-sales (POS) systems, Sumit Ghorawat, co-founder of ShopKirana, says digitising neighbourhood stores with POS is no cakewalk, irrespective of the size of the facilitator.

“For a POS to succeed, a retailer has to do everything on the POS, not just the sales part. They have to make an entry [in the system] while receiving inventory, as well for the actual inventory to show up on the system. From a technology standpoint, this is a lot to ask of a retailer,” says Ghorawat. “The entire store will be digitised in the future, but it will happen one step at a time. Putting a POS is easy, but ensuring diligent usage is very difficult.”

Harminder Sahni, founder and managing director at Wazir Advisors, a retail consultancy firm, says it is imperative for a retailer to source from a single supplier for POS to live up to its full potential. Large corporates could look at moulding themselves into that one large, overarching supplier. But, that’s a tough task. “Every neighbourhood store is an individual business. If every store in a neighbourhood keeps the same supply at the same price by procuring from the same vendor, it will look as if they are looking for an employment with the vendor, but that is not case.

For one vendor to become everything—from the supplier to the keeper of data—is a challenge as every retailer will look for options,” he says.

All said, there is no denying that large conglomerates will look to sweep the market. Venkateswaran and Jhina are the kinds who would rather build a bulwark early than wait for the storm to hit them. Consequently, Jumbotail is also toying with ideas that will let them strengthen its hold over mom-and-pop stores and upgrade them to modern convenience stores, fully powered by Jumbotail.

The company has launched a retail operating system called Goldeneye, which allows integration with third-party POS, and comes with a procurement portal that is fully integrated with the Jumbotail marketplace. With this, store owners can not only see their inventory levels, but also live prices, margins, offers and alternatives or substitutes to products that are unavailable on the Jumbotail marketplace. In addition, Goldeneye allows store owners to track incoming deliveries, payments, and credit balances.

Jumbotail will also tap retail chains with 5-15 stores. Procuring from Jumbotail will allow them to run the storefronts without bothering about warehousing and supply chain. Also, Jumbotail will help its network of stores to list on online platforms such as Swiggy or Dunzo, which translates into additional business.

In fact, at Jumbotail, they will do anything to live up to their tagline, “Jai jawaan, jai kisaan, jai dukaan [hail the soldiers, hail the farmers, hail the shops]”.