(From left) Sankar Bora, Co-founder & chief operating officer of DealShare, Sourjyendu Medda, Co-founder, Chief Commercial Officer of DealShare, Vineet Rao, Co-founder & CEO, DealShare and Rajat Shikhar, Co-founder & Chief Product Officer, DealShare
Sugar for Rs19 a kilogramme. There are not too many grocery buyers who’d say no to such a deal. Add to that free delivery, no minimum orders, and an assortment of local brands, and DealShare has a winning proposition. The company, on its part, is conscious that it is serving a very different consumer. These are lower-income buyers in large towns and value-conscious consumers in smaller towns who have rarely, if ever, shopped online before. The only time they’ve ventured online is usually for buying a mobile phone.
This buyer is usually not technologically savvy. They are at ease with local brands they trust and are unwilling to pay a premium for national brands. Delivery times can be stretched, as long as the products arrive in good condition. And once comfortable, they will tell their neighbours, friends, family and acquaintances about the new website they are buying from. They don’t care much about mass marketing, as word of mouth is as important for this consumer.
This part of the retail industry has not proved to be a happy hunting ground for organised retail. Over the last decade, there have been several business failures—companies like Subhiksha or Big Bazaar have gone broke. Others like Aditya Birla’s More have had to pivot their model. While high rentals, people and logistics costs are to blame, there is also a case to be made out for these companies spreading themselves too thin. They failed to cluster their operations effectively to spread costs more evenly.
Online players—Grofers, Bigbasket, Milkbasket—have also had to pivot their business models multiple times. At first, order fulfilments were done from neighbourhood stores. Supplies were restricted to once a day. Then the warehouse-based inventory model came in, thus increasing costs. Minimum order sizes that started at Rs500 were progressively brought down to Rs200, before being eliminated completely. Eventually they all merged with a bigger rival—Zomato, Tata Digital and JioMart respectively.
Importantly, all these failures have not been for want of a market. The Boston Consulting Group estimates India’s retail industry at $800 billion, of which organised players have an 8 to 10 percent share. This market is growing at 25 percent a year. It is estimated that retailers who are purely online have a sub-1 percent share, but growth rates are in excess of 50 percent. So while there is a large market, it is one that has proved hard for an organised player to cater to and make money.
In April 2018, DealShare set out to address this challenge. In the four years since they’ve shown that their model has been able to scale. In the process they’ve attracted marquee investors—Matrix Partners, WestBridge Capital, Unilever Ventures, Tiger Global and Abu Dhabi Investment Authority, among others—taking their valuation to $1.7 billion. “We invested in DealShare as is it is focussed on the mass market—in the belly of that market,” says an investor who has put in money multiple times in the company. He declined to be named, citing his firm’s global policy.
Serving the mass market
It was in 2018 that childhood friends Vineet Rao and Sourjyendu Medda got together to set up a retail business, along with Sankar Bora. Rao and Medda had spent the last decade working at retail and consumer companies (Metro Cash and Carry, and Britannia for Medda, and Microsoft for Rao), while Bora had more than 23 years of experience in businesses such as Myntra and Aeon Learning. They were joined later by Rajat Shikhar.
That was also the time when social commerce was making its presence felt. Chinese company Pinduoduo was a pioneer in this space and showed how a business could be built through word of mouth. With this in mind, DealShare was launched in Jaipur on WhatsApp groups. “We wanted to leverage the deep penetration of mobile and social media to launch a retail business,” says Rao.
Their initial hypothesis was that top brands and consumers accounted for no more than 10 to 15 percent of the market size in India. Existing players were trying to organise this end of the market, leaving the rest of the market free of competition. But these consumers were very different, and serving them was going to be a challenge. Over the course of 2018 their hypothesis evolved.
First, the consumer cared about getting a good deal. That deal was what they were most excited about and this translated into them telling their contacts about the service. This viral marketing of the business contributed to zero marketing spends and almost no customer acquisition costs. (Till this day, DealShare doesn’t advertise). Tarun Davda, managing director at Matrix Partners saw this first-hand when he got himself added to a few WhatsApp groups in 2018. The orders just took off through Jaipur as people started telling others about the service. By the end of the year DealShare was servicing 2,000 orders across the city.
As the model evolved, the company started thinking about what they needed to do to scale the business. Internally they asked themselves: “What do we need to do to build DMart on a mobile phone?” They’d have to challenge a lot of the assumptions of the retail business to make the model work.
Medda, who’d spent time in organised retail, realised that consumers cared about brands, but these were not necessarily national brands. Good quality, local brands were just as acceptable. “The reason why the top brand thesis doesn’t resonate is because the per capita income is limited. The real need of mass consumers is to increase family affordability,” says Medda.
In their conversations with local manufacturers, who would serve third-party orders for national brands, a similar refrain came up: “We would love to sell under our own name but lack the marketing wherewithal”. DealShare partnered with them and started selling on their site. In time, consumers realised that these brands are just as good—some local brands on the site now come with a ‘DealShare certified quality label’. A recent search for dish washing liquid showed a DealShare-certified brand at Rs77 versus Rs212 on Amazon for delivery in Mumbai.
Another important learning was that ecommerce sites in India have usually been copy-pasted from the West. Less affluent consumers find them intimidating. They also find the abundance of choice difficult to deal with. The team set out to create a simple and easy-to-use site on the web and mobile.
Go to Dealshare.in and the fonts are large. The menu is neatly divided into sections for various types of groceries—snacks, fruits, cleaning supplies, home and kitchen and fashion. The check-out is a simple two-step process, with no options for coupon codes (all discounts are upfront) and credit/debit card offers.
At present, the company has an 80 percent conversion rate, meaning a user who downloads the app has an 80 percent chance of placing an order. Engagement rates are also high, with monthly active users opening the app 10 to 15 times a month to order to check for deals.
Medda was also clear that the assortment has to be kept very limited—no more than 600 to 800 stock keeping units (or SKUs), compared to the 4,000-7,500 SKUs that larger online retailers offer. This helped them eliminate the complexity of managing different pack sizes in their warehouses as well as stock outs.
While getting the viral marketing loop in place and the assortment right was a challenge, the team faced an arguably bigger task in getting the goods to consumers. Grocery deliveries have been the bane of ecommerce deliveries in India. Margins in most products are no more than 6 to 8 percent. Setting up an extensive delivery network is time-consuming and costly.
With increased competition, companies no longer insist on minimum order sizes. Big Basket, which, till last year, had a Rs600 minimum order requirement, now doesn’t.
Companies like Big Basket, with an extensive warehouse network, find themselves competing with Swiggy Instamart and Blinkit, which have a dark-store network closer to customer homes. The likes of Big Basket and Amazon have been forced to offer the option of 2-hour deliveries in the hope that customers will stay loyal to them.
The team at DealShare was clear that they did not want to compete in this race to the bottom. Last-mile deliveries can burn a lot of cash and they set about addressing this challenge as they knew this had the potential to break the business over the longer term.
An additional challenge they faced was that lower income consumers would order multiple times a month. So, while a middle-class household would place one Rs3,000 order a month, these consumers would place five Rs600 orders. “It is not that they can’t buy, but it is a cash flow issue and they want to stagger their purchases in a month,” says Davda of Matrix. These consumers are not time-sensitive; they’re willing to wait a few days for their orders, as long as prices are low.
Last-mile deliveries, while being expensive, are also time-consuming; finding local addresses in a warren of lanes can take time, and it’s best to employ locals who know the area. The team came up with the idea of DealShare Dost. These are local entrepreneurs who run a business and employ people for it. There is invariably some downtime during the day when they can make deliveries. If the company were to employ them, they’d have to pay them minimum wage, along with provident fund dues, making the model unviable. So tie-up with local entrepreneurs who can deliver.
Another learning was that while it costs a lot to ship goods individually, it is much cheaper if they are delivered in bulk. Think of shipping a table from Delhi to Mumbai, and it would cost Rs5,000-10,000. In contrast, the furniture of an entire house can be shipped across the cities for Rs1.5 lakh. Similarly, if goods are sent to the local delivery areas in bulk and the sorting is done just before delivery it would be a lot cheaper. In cities where DealShare has a substantial mass of orders, this is now their preferred mode of delivering. They have no plans to build their own delivery fleet.
Scaling up, and the road ahead
In its fourth year of operations, DealShare turned unicorn. In late January this year, it raised $165 million from Tiger Global and Alpha Wave Global, valuing it at $1.6 billion.
On the operations front, it serves 20 lakh monthly active users, with an average bill size of Rs600 (box says Rs500). Kiranas also order from their website, with an average bill size of Rs15,000, taking the monthly weighted average to Rs1,100 per user or Rs500 crore a month, taking annualised sales to Rs7,500 crore, just shy of a billion dollars. They have 100 warehouses leased, totalling 30 lakh sq ft.
Importantly, the company has achieved this by keeping its costs in check. According to Davda, the bane of Indian ecommerce has been the low GMV achieved for every dollar spent. He estimates that DealShare has spent $1 for every $10 in GMV it has achieved. The company is still not profitable, as it focuses on scaling up. Investors point out that DealShare’s success is by no means certain and it all depends on how they continue to execute.
The founders certainly have big, hairy, audacious goals. Over the next five years, Rao says he would like the company to achieve $10 billion in annualised sales, with an Ebidta margin of 5 to 6 percent. The cash it generates will depend on how much they invest in the business. And that’s not bad for a company that started out of Jaipur and till today prides its ‘small-town DNA’.