17 October, 2024
Quick commerce targets e-commerce turf in India
Even as quick commerce startups are retreating, consolidating or shutting down in many parts of the world, the model is showing encouraging signs in India. Consumers in urban cities are embracing the convenience of having groceries delivered to their doorstep in just 10 minutes. The companies making those deliveries — Blinkit, Zepto and Swiggy’s Instamart — are already charting a path to profitability.
Analysts are intrigued by the potential of 10-minute deliveries to disrupt e-commerce. Goldman Sachs recently estimated that Blinkit, which Zomato acquired in 2022 for less than $600 million, is already more valuable than its decacorn food delivery parent firm.
As of earlier this year, Blinkit held a 40% share of the quick commerce market, with Swiggy’s Instamart and Zepto close behind, according to HSBC. Flipkart, owned by Walmart, plans to enter the quick commerce space as soon as next month, further validating the industry’s potential.
Investors are also showing strong interest in the sector. Zomato boasts a valuation of $19.7 billion despite minimal profitability, processing around 3 million orders a day. In comparison, Chinese giant Meituan, which processes more than 25 times as many orders daily, has a market cap of $93 billion. Zepto, which achieved unicorn status less than a year ago, is finalizing new funding at a valuation exceeding $3 billion, according to people familiar with the matter.
Consumers are buying the quick commerce convenience, too. According to a recent Bernstein survey, the adoption was highest among millennials aged 18 to 35, with 60% of those in the 18 to 25 age bracket preferring quick commerce platforms over other channels. Even the 36+ age group is adopting digital channels, with over 30% preferring quick commerce.
While India’s rapid urbanization makes it a prime target for quick commerce, the industry’s unique operational model and infrastructure needs could limit its long-term growth and profitability. As competition intensifies, the impact of quick commerce is likely to be felt more acutely by India’s e-commerce giants. But what makes India’s retail market so attractive for quick commerce players, and what challenges lie ahead?
The opportunity for quick commerce in India
India’s e-commerce sales stood at $60 billion to $65 billion last year, according to industry estimates. That’s less than half of the sales generated by e-commerce firms on China’s last Singles Day and represents less than 7% of India’s overall retail market of more than $1 trillion.
Reliance Retail, India’s largest retail chain, clocked a revenue of about $36.7 billion in the financial year ending in March, with a valuation standing at $100 billion. The unorganized retail sector — the neighborhood stores (popularly known as kirana) that dot thousands of Indian cities, towns and villages — continues to dominate the market.
“The market is huge and, on paper, ripe for disruption. Nothing done so far has made a material dent in the industry. This is why any time a new model shows signs of functioning, all stakeholders shower them with love,” said a seasoned entrepreneur who helped build the supply chain for one of the leading retail ventures.
In other words, there’s no shortage of room for growth.
One of the factors behind the quick commerce’s fast adoption is the similarity it has with the kirana model that has worked in India for decades. Quick commerce firms have devised a new supply chain system, setting up hundreds of unassuming warehouses, or “dark stores,” strategically situated within kilometers of residential and business areas from where large numbers of orders are placed. This allows the firms to make deliveries within minutes of order purchase.
This approach differs from that of e-commerce players like Amazon and Flipkart, which have fewer but much larger warehouses in a city, generally situated in localities where rent is cheaper and farther from residential areas.
The unique characteristics of Indian households further contribute to the appeal of quick commerce. Indian kitchens typically stock a higher number of SKUs compared to their Western counterparts, necessitating frequent top-up purchases that are better serviced by local stores and quick commerce rather than modern retail. Additionally, limited storage space in most Indian homes makes monthly bulk grocery shopping less practical, and customers tend to favor fresh food purchases, which quick commerce can easily accommodate.
According to Bernstein, quick commerce platforms can price products 10% to 15% cheaper than mom-and-pop stores while maintaining about 15% gross margins due to the removal of intermediaries. Quick commerce dark stores have rapidly expanded their SKU count from 2,000 to 6,000, with plans to further increase it to 10,000 to 12,000. These stores are replenishing their stocks two to three times a day, according to store managers.
Battling e-commerce
Zepto, Blinkit and Swiggy’s Instamart are increasingly expanding beyond the grocery category, selling a variety of items, including clothing, toys, jewelry, skincare products and electronics. A TechCrunch analysis finds that the majority of items listed by Amazon India in its bestsellers list are available on quick commerce platforms.
Quick commerce has also become an important distribution channel for major food brands in India. Consumer goods giant Dabur India expects quick commerce to drive 25% to 30% of the company’s sales. Hindustan Unilever, the Indian arm of the U.K.’s Unilever, has identified quick commerce as an “opportunity we will not let go.” And for Nestle India, “Blinkit is becoming as important as Amazon.”
While quick commerce doesn’t need to expand beyond the grocery category, which itself is more than a half-trillion-dollar market in India, their expansion into electronics and fashion is likely to be limited. Electronics drive 40% to 50% of all sales on Amazon and Flipkart, according to analyst estimates. If quick commerce can crack this market, it will pose a significant and direct challenge to e-commerce giants. Goldman Sachs estimates that the total addressable market in grocery and non-grocery for quick commerce companies in the top 40-50 cities is about $150 billion.
However, the sale of smartphones and other high-ticket items is more of a gimmick and not something that can be done at a large scale, according to an e-commerce entrepreneur.
“It doesn’t make any sense. What quick commerce is good at is forward-commerce. But smartphones and other pricey items tend to have a not-so-insignificant return rate.… They don’t have the infrastructure to accommodate the reverse-logistics,” he said, requesting anonymity as he is one of the earliest investors in a leading quick commerce firm.
Quick commerce’s current infrastructure also doesn’t permit the sale of large appliances. This means you cannot purchase a refrigerator, air conditioner, or TV from quick commerce. “But that’s what some of these firms are suggesting, and analysts are lapping it up,” the investor said.
Falguni Nayar, founder of skincare platform Nykaa, highlighted at a recent conference that quick commerce is primarily taking share from kirana stores and would not be able to keep as much inventory and assortment as specialty platforms that educate customers.
The quick commerce story in India remains an urban phenomenon concentrated in the top 25 to 30 cities. Goldman Sachs wrote in a recent analysis that the demand in smaller cities likely makes it difficult for fresh grocery economics to work.
E-commerce giant Flipkart will launch its quick commerce service in limited cities as soon as next month, seeing an opportunity to woo customers of Amazon India. The majority of Flipkart’s customers are in smaller Indian cities and towns.
Amazon — increasingly scaling down on its investments in e-commerce in India — has so far shown no interest in quick commerce in the country. The company, which offers same-day delivery for some items to Prime members, has questioned the quality of products from firms making “fast” deliveries in some of its marketing campaigns.
As brands increasingly focus on quick commerce as their fastest-growing channel and more consumers embrace the convenience and value proposition of 10-minute deliveries, the stage is set for a fierce battle between quick commerce and e-commerce giants in India.
India's open commerce network expands into digital lending
Since its launch in 2022, India’s Open Network for Digital Commerce (ONDC) — a government-funded nonprofit that provides a set of APIs for tech companies and others to build new financial services for shoppers and businesses — has grown to enable 12 million monthly transactions in areas like food delivery and mobility and new services from the likes of Google and Uber. The network also helps connect Indian startups and enterprises in grocery, food delivery, and logistics domains to flight Amazon and Flipkart. Now that number stands to rise with an infusion of fintech: The ONDC is expanding into financial services, starting with APIs for digital lending.
On Thursday, the ONDC introduced credit as a new offering to offer unsecured loans to salaried and self-employed individuals.
The new APIs are significant because they underscore how India, one of the biggest developing economies in the world, is using a government-backed framework to boost both digital inclusion and tech-fueled GDP.
They also help increase efficiency. The ONDC claims that, unlike traditional loans that require a few days to complete the transaction, digital loans through the network will be delivered in six minutes.
The network has onboarded nine lending service providers, namely EasyPay, Paisabazaar, Tata Digital, Invoicepe, Cliniq360, Zyapaar, IndiPe, TyrePlex and PayNearby, as well as lenders Aditya Birla Finance, DMI Finance and Karnataka Bank, to provide loan facility to consumers.
Gradually, the ONDC plans to expand digital credit by adding more fintech players, including MobiKwik, Rupeeboss and Samridh.ai, and banks and financial institutions, such as HDFC Bank, IDFC First Bank, Faircent, Pahal Finance, Fibe, Tata Capital, Kotak Mahindra Bank, Axis Finance, FTCash and Central Bank of India.
Lending service providers and lenders on the network will use the ONDC protocol as a standardized framework to get a broader reach. While fintech platforms will get access to multiple lenders through the framework’s integration, lenders will get a number of distribution points.
“The idea of an open network eventually is that every catalogable product or service should be available on the network using this protocol by itself. It doesn’t have to go through multiple integrations,” said T Koshy, MD and CEO, ONDC, at a press event in Mumbai.
The network will use Indian government-backed services such as Account Aggregator for data, DigiLocker or Aadhaar for KYC, eNACH or eMandate for repayment and Aadhaar eSign to disperse money after verifying the debtor.
An initiative of the Indian commerce ministry, the ONDC includes a list of commercial banks among its investors, including those that will work on the digital lending service. The data coming through the network will help lenders limit instances of bad debts even while expanding their loan books.
The vast size and broad demographic reach of the Indian market make it challenging for the economy to avoid “irresponsible lending” when it scales credit access.
“We need to put responsible guardrails whenever we are scaling up. And thankfully enough, we’ve not had accidents. … But when we open it up for lending and at scale, it is very, very likely that we will have irresponsible lending also coming in,” Nitin Chugh, DMD at SBI, cautioned while speaking with Koshy during a fireside chat at the event. “Underwriting will have to be responsible, and once you open it up, financial services for the entire set of participants, we will have to have those guardrails in place so that people stay responsive.”
By the end of September, the ONDC plans to expand digital lending on its network to GST invoice financing loans. The network also aims to introduce purchase financing for individuals and sole proprietors and working capital lines for private companies. Furthermore, ONDC has insurance and investments as the other key financial offerings to provide through its network over time.
Can quick commerce leapfrog e-commerce in India?
Even as quick commerce startups are retreating, consolidating or shutting down in many parts of the world, the model is showing encouraging signs in India. Consumers in urban cities are embracing the convenience of having groceries delivered to their doorstep in just 10 minutes. The companies making those deliveries — Blinkit, Zepto and Swiggy’s Instamart — are already charting a path to profitability.
Analysts are intrigued by the potential of 10-minute deliveries to disrupt e-commerce. Goldman Sachs recently estimated that Blinkit, which Zomato acquired in 2022 for less than $600 million, is already more valuable than its decacorn food delivery parent firm.
As of earlier this year, Blinkit held a 40% share of the quick commerce market, with Swiggy’s Instamart and Zepto close behind, according to HSBC. Flipkart, owned by Walmart, plans to enter the quick commerce space as soon as next month, further validating the industry’s potential.
Investors are also showing strong interest in the sector. Zomato boasts a valuation of $19.7 billion despite minimal profitability, processing around 3 million orders a day. In comparison, Chinese giant Meituan, which processes more than 25 times as many orders daily, has a market cap of $93 billion. Zepto, which achieved unicorn status less than a year ago, is finalizing new funding at a valuation exceeding $3 billion, according to people familiar with the matter.
Consumers are buying the quick commerce convenience, too. According to a recent Bernstein survey, the adoption was highest among millennials aged 18 to 35, with 60% of those in the 18 to 25 age bracket preferring quick commerce platforms over other channels. Even the 36+ age group is adopting digital channels, with over 30% preferring quick commerce.
While India’s rapid urbanization makes it a prime target for quick commerce, the industry’s unique operational model and infrastructure needs could limit its long-term growth and profitability. As competition intensifies, the impact of quick commerce is likely to be felt more acutely by India’s e-commerce giants. But what makes India’s retail market so attractive for quick commerce players, and what challenges lie ahead?
The opportunity for quick commerce in India
India’s e-commerce sales stood at $60 billion to $65 billion last year, according to industry estimates. That’s less than half of the sales generated by e-commerce firms on China’s last Singles Day and represents less than 7% of India’s overall retail market of more than $1 trillion.
Reliance Retail, India’s largest retail chain, clocked a revenue of about $36.7 billion in the financial year ending in March, with a valuation standing at $100 billion. The unorganized retail sector — the neighborhood stores (popularly known as kirana) that dot thousands of Indian cities, towns and villages — continues to dominate the market.
“The market is huge and, on paper, ripe for disruption. Nothing done so far has made a material dent in the industry. This is why any time a new model shows signs of functioning, all stakeholders shower them with love,” said a seasoned entrepreneur who helped build the supply chain for one of the leading retail ventures.
In other words, there’s no shortage of room for growth.
Quick commerce firms are borrowing many traits from kirana stores to make themselves relevant to Indian consumers. They have devised a new supply chain system, setting up hundreds of unassuming warehouses, or “dark stores,” strategically situated within kilometers of residential and business areas from where large numbers of orders are placed. This allows the firms to make deliveries within minutes of order purchase.
This approach differs from that of e-commerce players like Amazon and Flipkart, which have fewer but much larger warehouses in a city, generally situated in localities where rent is cheaper and farther from residential areas.
The unique characteristics of Indian households further contribute to the appeal of quick commerce. Indian kitchens typically stock a higher number of SKUs compared to their Western counterparts, necessitating frequent top-up purchases that are better serviced by local stores and quick commerce rather than modern retail. Additionally, limited storage space in most Indian homes makes monthly bulk grocery shopping less practical, and customers tend to favor fresh food purchases, which quick commerce can easily accommodate.
According to Bernstein, quick commerce platforms can price products 10% to 15% cheaper than mom-and-pop stores while maintaining about 15% gross margins due to the removal of intermediaries. Quick commerce dark stores have rapidly expanded their SKU count from 2,000 to 6,000, with plans to further increase it to 10,000 to 12,000. These stores are replenishing their stocks two to three times a day, according to store managers.
Battling e-commerce
Zepto, Blinkit and Swiggy’s Instamart are increasingly expanding beyond the grocery category, selling a variety of items, including clothing, toys, jewelry, skincare products and electronics. A TechCrunch analysis finds that the majority of items listed by Amazon India in its bestsellers list are available on quick commerce platforms.
Quick commerce has also become an important distribution channel for major food brands in India. Consumer goods giant Dabur India expects quick commerce to drive 25% to 30% of the company’s sales. Hindustan Unilever, the Indian arm of the U.K.’s Unilever, has identified quick commerce as an “opportunity we will not let go.” And for Nestle India, “Blinkit is becoming as important as Amazon.”
While quick commerce doesn’t need to expand beyond the grocery category, which itself is more than a half-trillion-dollar market in India, their expansion into electronics and fashion is likely to be limited. Electronics drive 40% to 50% of all sales on Amazon and Flipkart, according to analyst estimates. If quick commerce can crack this market, it will pose a significant and direct challenge to e-commerce giants. Goldman Sachs estimates that the total addressable market in grocery and non-grocery for quick commerce companies in the top 40-50 cities is about $150 billion.
However, the sale of smartphones and other high-ticket items is more of a gimmick and not something that can be done at a large scale, according to an e-commerce entrepreneur.
“It doesn’t make any sense. What quick commerce is good at is forward-commerce. But smartphones and other pricey items tend to have a not-so-insignificant return rate.… They don’t have the infrastructure to accommodate the reverse-logistics,” he said, requesting anonymity as he is one of the earliest investors in a leading quick commerce firm.
Quick commerce’s current infrastructure also doesn’t permit the sale of large appliances. This means you cannot purchase a refrigerator, air conditioner, or TV from quick commerce. “But that’s what some of these firms are suggesting, and analysts are lapping it up,” the investor said.
Falguni Nayar, founder of skincare platform Nykaa, highlighted at a recent conference that quick commerce is primarily taking share from kirana stores and would not be able to keep as much inventory and assortment as specialty platforms that educate customers.
The quick commerce story in India remains an urban phenomenon concentrated in the top 25 to 30 cities. Goldman Sachs wrote in a recent analysis that the demand in smaller cities likely makes it difficult for fresh grocery economics to work.
E-commerce giant Flipkart will launch its quick commerce service in limited cities as soon as next month, seeing an opportunity to woo customers of Amazon India. The majority of Flipkart’s customers are in smaller Indian cities and towns.
Amazon — increasingly scaling down on its investments in e-commerce in India — has so far shown no interest in quick commerce in the country. The company, which offers same-day delivery for some items to Prime members, has questioned the quality of products from firms making “fast” deliveries in some of its marketing campaigns.
As brands increasingly focus on quick commerce as their fastest-growing channel and more consumers embrace the convenience and value proposition of 10-minute deliveries, the stage is set for a fierce battle between quick commerce and e-commerce giants in India.
Open source 'headless commerce' builder Saleor closes $8M round led by Target Global and Zalando
Saleor — a Poland- and U.S.-based startup that develops an open source headless e-commerce platform used to build online shops — has pulled in an $8 million seed-extension round led by Target Global (the investors that have previously backed the likes of Revolut and Auto1) and e-commerce giant Zalando. Also participating were SNR VC Kevin Mahaffey, Cherry Ventures, and TQ Ventures.
Saleor’s API for e-commerce does the back-end heavy lifting for online shopping while developers produce a bespoke front end.
We last covered Saleor when it had raised $2.5 million in seed funding from Berlin’s Cherry Ventures, with participation from various angels.
The seed-extension round is noteworthy, as it’s clear open source is gaining traction in e-commerce where normally proprietary solutions abound. Saleor competes against other more traditional e-commerce tools such as CommerceTools and legacy vendors such as Salesforce.
In a statement, Lina Chong, partner at Target Global, said the firm was attracted to “Saleor’s thriving open source community” and “robust SaaS offering.”
Founded in 2020 but existing as a project since 2013, Saleor is an open source, headless, composable e-commerce platform. It was originally started by the web agency of founders Mirek Mencel and Patryk Zawadzki, who then spun it out as its own startup. Today, the platform is used by such brands as Lush and Breitling.
Zalando, a leading European e-commerce destination for fashion and lifestyle, said that it invested “based on Saleor’s traction with global brands.”
Jan Bartels, SVP B2B at Zalando, said in a statement: “We see a great fit with Saleor’s vision, offering, and expertise, which can also help us to further expand our capabilities.”
I spoke to co-founder Mirek Mencel, who said: “Everybody has to optimize for the experience they provide to their customers. And this is nontrivial in today’s world where expectations are growing, so Saleor is enabling that.”
He described how open source had gained traction in the e-commerce world: “When Patrick and I met as open source developers, we told ourselves we are not going to work with e-commerce because we hated this as developers.”
“We saw this as inefficient and programmatic and brands were asking for things the software was unable to do in 2009. After doing a couple of big projects together we realized this is a big niche. We released the platform as open source and decided to see if there was a possible business afterward. In 2020 we realized this was going to be an amazing business as well, because brands also want communities around the products, in the same way the open source community functions,” he added.
Thrasio, once king of e-commerce aggregation, files for Chapter 11
Thrasio, the U.S. startup that raised billions of dollars and popularized the concept of e-commerce aggregation — buying up and restructuring dozens of smaller brands and third parties selling on marketplaces like Amazon in a bid for better economies of scale — has commenced a restructuring of its own. The company has filed for Chapter 11 bankruptcy protection to cut its losses on a mountain of debt. It said it has also secured an emergency $90 million in emergency financing from unnamed existing lenders.
Thrasio raised more than $3 billion in equity and debt over the years to fuel its roll-up play, and its collapse into bankruptcy protection is one of the biggest examples of how mighty growth-stage tech companies have fallen in recent times.
The restructuring support agreement covers 81% of Thrasio’s revolving credit facility lenders and 88% of its term loan lenders, the company said, and it will erase around $495 million of its existing debt, as well as defer all interest payments in the first year post-emergence from Chapter 11.
The $90 million in new capital, it said, “is expected to provide sufficient liquidity to support the Company throughout this process and beyond. In particular, the financing will enable the continued operation of Thrasio’s brands, support ongoing business operations and provide the Company with access to new capital upon emergence from Chapter 11 to support go-forward business operations.” More details on the restructuring here.
The news should not come as a surprise: There have been murmurs of the company’s impending bankruptcy since last year. Since 2022, the company has been laying off employees and taking other steps to restructure its business such as pulling out of certain markets.
We have contacted Thrasio to ask if it plans to lay off more employees with today’s news and will update this post as we learn more.
“Over the past year, we have made significant progress transforming the business and advancing our objective to introduce hundreds of brands to millions of customers,” said Greg Greeley, chief executive officer of Thrasio, in a statement. “We are taking steps to build on this progress by strengthening our financial position and working with our lenders to support our future success. Thrasio is one of the largest third-party sellers on the Amazon marketplace, and with a strengthened balance sheet and new capital, we will be better equipped to support our brands, scale our infrastructure and enable future opportunities.”
Thrasio overall has been a victim of a perfect storm of market conditions plus its own business model.
Amid the major downturn in fundraising that hit privately held tech companies starting at the end of 2021 (and still ongoing), late-stage companies, which needed the most to stay afloat yet were not in a position to IPO, were especially in a tight bind to stay afloat.
Thrasio was a case study in late-stage “startups”: Over several years, it had raised well over $3 billion in funding across equity and debt rounds — money it pulled together from investors like Silver Lake, Oaktree, Innova and many more — to itself buy up a wide range of smaller e-commerce businesses built to run on Amazon’s fulfillment infrastructure but with little appetite to continue and scale those enterprises on their own.
Thrasio’s pitch, the same one used by the many other roll-up plays that are still on the market today, was that by buying up the best of these companies — there are millions of them in existence globally — it could consolidate production, distribution and marketing. It would have unprecedented access to data that it could use across the wider business to improve results overall. And it could build new technology to improve that larger operation.
“Our business is getting better as it gets bigger, and these investments will be invaluable as we continue on that path,” Carlos Cashman, one of the co-founders, said in 2021, when he was still the CEO. At the time, the company had just raised $1 billion at a valuation, it said, of up to $10 billion. Josh Silberstein, another co-founder (who is no longer with the company), told TechCrunch in 2021 that Thrasio made a profit of $100 million on revenues of $500 million in 2020.
None of that really played out as planned, as you can probably guess. Consolidating disparate businesses is easier said than done. Consumer tastes for goods shift all the time, and moreover, e-commerce has seen a lot of pressure due to the economy tightening, meaning sales targets were likely hard to make on what might have been a wobbly cost base.
There were layoffs and a change of leadership, bringing in Greeley, in 2022. By September 2023, secondary market firm Forge Global was estimating that the valuation of Thrasio — which itself had already shelved plans for an IPO due to its own financials and the state of the IPO market — had dwindled to just $193.9 million. (It noted that even in 2022 it was “just” $4.5 billion, not the $10 billion that the company had said it was.)
Thrasio is the most notable of the roll-ups to collapse, but with companies like Branded, Berlin Brands Group, SellerX, Heyday, Heroes, Perch and more collectively raising more than $1 billion to jump into the aggregation race, it is unlikely to be the last?
Topsort helps e-commerce create ads without being ‘creepy’
Regina Ye says she and Topsort co-founder Francisco Larrain have learned a lot in the two years since their auction-powered advertising startup launched.
The company raised $8 million in seed funding in 2022 to value the company at $110 million. Topsort develops retail media technology for small businesses to use auctions as a way to create effective advertising.
Fed up with how complex ad campaigns were to create on Meta, Amazon and Google, they created a simple API for users to install. When they start a campaign, customers can add items like sponsored listings, banner ads and video ads. They then control how the ads are shown, how to measure ad quality and relevance, and who can launch campaigns.
Topsort, an auction-based advertising startup, now valued at $110M after seed round
The founders also recognized that its plug-and-play product resonated with e-commerce marketplaces of different sizes. Today, Topsort is used by marketplaces in 35 countries by the likes of Poshmark and Youtravel.me.
“You don’t need to be a rocket scientist to be able to actually have really good advertising results,” Ye told TechCrunch. “We have tried many things since then and found what works, and last year was incredible growth for us. We grew almost 10 times in terms of revenue, and we have a similar scale of ambition for this year.”
Topsort also shifted its focus to be more enterprise-friendly, and it built more advanced features. It now counts P&G, General Mills and Danone, among others, as customers.
All that growth excited investors, who poured another $20 million of Series A capital into Topsort along with a valuation boost to $150 million post-money. Upload Ventures led the round with support from existing investors, including Quiet Capital and Pear Ventures. The company has now raised $28.6 million in total.
The company is focusing on what happens now that cookies are going away. Topsort wants to correct advertising’s reputation for being “slimy” around user privacy. It created a Cleanroom feature to combine user data without actually “being creepy,” Ye said.
“Everyone’s wondering what’s going to happen to advertising after cookies, and we think we have the answer to the clean advertising solution,” Ye said. “We’ve spent three years making a very solid offering, and today, we probably have the most comprehensive offering of that in the market.”
Where will our data go when cookies disappear?
What African B2B e-commerce startups can learn from OmniRetail's profitable run
Save for fintech and clean tech, B2B e-commerce and retail was the leading destination for venture capital dollars over the last five years. The premise of digitizing the continent’s mom-and-pop convenience stores and offering various solutions to streamline logistics and procurement processes saw hundreds of millions of dollars flood the segment, particularly during the venture capital boom of 2021.
However, the sustainability of building large, scalable businesses in this sector is now questioned due to funding constraints, tighter margins, and heightened competition. Most B2B e-commerce startups have struggled to keep subsidizing their products and expanding operations, leading to retreats, closures, downsizing and mergers.
As Ismael Belkhayat, CEO of Chari, one of Africa’s B2B e-commerce startups wrote in a blog post, “Startups in this space whose contribution margins were negative (meaning their margin from an order was lower than the order’s operational costs) correlated their growth to their burn rate. The faster they grew, the more money they lost. Unprofitable growth at all costs turns into a death sentence the moment the funding market freezes.”
Two of Africa’s largest B2B e-commerce platforms, MaxAB and Wasoko, in merger talks
For startups still operational, choosing the most optimal strategy for digitizing store operations while simultaneously achieving profitable scaling in the fast-moving consumer goods (FMCG) space is increasingly vital. Gross margins in the industry are tight, typically ranging between 3% and 6%, influenced by factors such as goods category, operational scale, negotiation power and supplier relationships. Logistics and warehousing costs are also factored in, differing between asset-light and asset-heavy models.
Making a case for asset-light models is Nigeria-based OmniRetail. The company says it’s currently profitable dating back to last November, an impressive feat in an industry where startups have struggled to break even and whose conditions are worsened by present currency devaluation issues affecting the cost of FMCG items.
OmniRetail says it owes its profitability to partnering with 65 brands (manufacturers) across Nigeria and Ghana and sweetening its margins through rebates and incentives. In January, the B2B e-commerce platform’s gross margins stood at 9% and net contribution margins, 5%; that means for every transaction worth $1 (~N1,500), OmniRetail makes $0.05 (~N75).
The five-year-old startup also claims to have achieved breakeven in earnings before interest and taxes (EBIT); this stands out against the backdrop of many platforms in the industry operating at negative EBIT margins of 6% to 8% or attaining only breakeven net contribution margins.
Building a B2B e-commerce business in tech winter
B2B e-commerce platforms provide convenience to FMCG manufacturers like Unilever and P&G for distributing their products to the last mile. In today’s scenario, they have to build this distribution channel on their own and onboard their distributors, retailers, salespeople and workers. But plugging into B2B e-commerce platforms like OmniRetail, where they can use available infrastructure to distribute, makes it easy for them to launch more products in the market.
Founded in 2019 by Deepankar Rustagi, OmniRetail is a distribution platform that digitizes the supply chain from distributors to retailers. Its flagship product, OmniBiz, was launched in 2020, enabling retailers to place orders directly from manufacturers. These orders are fulfilled by partner distributors, who specialize in warehousing, while transportation responsibilities are delegated to third-party logistics providers, ensuring delivery to retailers within 24 hours.
Since then, the company has developed two additional products to complement OmniBiz: Amplify, an app tailored for distributors, and OmniPay, an embedded finance platform that provides payment and credit services to retailers and distributors.
“Becoming a value chain player helped us bring in more efficiencies and ultimately become profitable,” said CEO Rustagi in an interview with TechCrunch. “Just buying from distributors and selling to retailers did not have enough margin and benefits, but engaging with distributors on the platform and embedding working capital tools like OmniPay increased the value chain margin for us to hit profitability.”
Indeed, OmniRetail is not alone among B2B e-commerce startups implementing this strategy. Several startups have diversified their offerings to include working capital provisions or buy now, pay later options for retailers after establishing connections with distributors and manufacturers. Platforms like OmniRetail and TradeDepot have pursued this approach by securing debt capital, while others like Wasoko and MaxAB oversee lending operations from their own balance sheets.
Rustagi revealed that OmniPay processes $95 million and disburses $4 million in loans monthly, maintaining non-performing loan (NPL) ratios below 0.5%.
Omnibiz gets $3M to digitize Nigeria’s informal B2B supply chain
OminRetail’s payment and embedded finance platform tailored to retailers’ transaction histories, stands out as one of the primary drivers of the company’s impressive gross margins.
Complementing this are specializing high-margin product categories such as pharmaceuticals and beverages, along with robust supplier partnerships spanning more than 1,000 SKUs, enabling structured rebates and incentives. In addition, OmniRetail’s collaboration with partner networks, exceeding 3,000 in number, has facilitated decentralized warehousing and hyperlocal logistics, resulting in a 3% reduction in supply costs.
“Our focus on improving our unit economics has been consistent. In the last 12 months, we got the right incentive model with our partners and created our franchise network for warehousing, OmniHub, where partners warehouse with us,” said Rustagi. “We have a decentralized network for logistics where we involve third-party providers from the manufacturers to the retailers through our platform, and this has helped us decentralize the cost, delivering better value to the retailers.”
Unlike centralized warehouses where drivers may have to cover substantial distances to distribute to various parts of the city, OmniRetail operates approximately 16 smaller warehouses that distribute different products to nearby retailers across Lagos.
A decentralized model like OmniRetail’s cannot be overstated, especially when logistics costs are skyrocketing for local companies managing warehouses, inventory, and fleets in cities across Nigeria. Asset-light models enable hyperlocalization, allowing companies to establish closer proximity to customers and optimize warehousing and logistics costs, as goods don’t have to travel long distances.
OmniRetail’s partnership structure with logistics providers differs from the typical daily rental fees commonly used by asset-light models. Instead, its logistics partners receive a percentage based on the value of delivered products.
To guarantee fairness and operational efficiency, the company developed an algorithm that evaluates the value of products. This algorithm makes sure that each delivery van carries a balanced mix of items, avoiding overloading with either lower- or higher-value products. Rustagi noted during the call that by maintaining a medium value in each delivery, the logistics providers can optimize their earnings while ensuring efficient delivery.
Financing to continue profitability journey
The retail landscape in Africa remains fragmented, with limited infrastructure development across the continent. As a result, many B2B e-commerce startups have opted for asset-heavy models to reach their customer base. However, as highlighted earlier, this strategy has proven unsustainable and startups reliant on this approach are more susceptible to experiencing reduced margins, primarily due to the high costs associated with asset maintenance.
Asset-light and hybrid models, which blend asset-light and asset-heavy capabilities, also have their drawbacks, like navigating third-party relationships. Nevertheless, they enable startups to collaborate with existing trade networks rather than displacing or undercutting them. This is crucial for maintaining relevance in an industry where consumer loyalty can be fleeting. While this approach alone may not guarantee profitability, OmniBiz’s strategy of leveraging decentralized clusters alongside hyperlocal warehousing and regional logistics partners provides a blueprint that other startups could emulate.
Nigerian B2B e-commerce platform Omnibiz raises millions to gain and retain retail customers
OmniRetail has come this far thanks to its 200-person team and $20 million in equity and debt raised from investors like Ventures Platform and Timon Capital. As of August 2022, OmniRetail boasted over 10,000 daily active retailers and an annual GMV of $130 million. Although Rustagi did not provide specific updates on these metrics, he did offer insight into similar ones: OmniRetail now hosts over 144,000 registered retailers on its platform, generating $124 million in annual net merchandise volume (NMV).
The Lagos-based B2B e-commerce startup is currently in the middle of securing a new round of equity and debt to propel its expansion. Goodwell VC and several development finance institutions (DFIs) have already committed $10 million, he said. The upcoming Series A funding round is expected to result in OmniRetail attaining a valuation 50% higher than its previous round, where it commanded a valuation of $65 million, per PitchBook data.
Healthy growth helps B2B food e-commerce startup Pepper nab $30 million led by ICONIQ Growth
Pepper, the e-commerce platform for food distributors, continues to edge into Sysco and US Foods territory by giving smaller, independent distributors a technology leg up.
The company developed an ordering system specifically for independent food distributors that supports catalogs of over 100,000 items, and enables these companies to launch mobile apps and websites so they can accept orders and payments online.
Co-founder and CEO Bowie Cheung, who previously worked at Uber Eats, said the company now has 200 customers among a market of 25,000 food distributors. However, Cheung said Pepper wants to grow that by facilitating the relationship between independent distribution and technology.
“These businesses, generally speaking, have never been well-served by the big-box broad-line distributors like Sysco or US Foods,” Cheung told TechCrunch. “If you enjoy the diversity and the vibrancy that non-chain restaurants bring to your community, then you already understand the importance of that independent distributor, and that’s very much the customer that we have always served and continue to serve today.”
Pepper is doing this by developing dozens of new product features each year that leverage advanced technology, like generative AI, to improve the experience, efficiency and results. The company’s proof points include customers seeing a 23% increase in sales, 93% buyer retention and the ability to save more than 10 hours of work per week per sales representative, Cheung said.
There are some players in the e-commerce food distribution space with Pepper, including Choco, which developed a sustainable food system for restaurants and suppliers, Cut+Dry and Anchovi, which was Dot Foods’ white-label foodservice e-commerce platform. In April, Dot Foods migrated Anchovi users onto Choco as part of a new partnership.
Where Cheung believes Pepper is different is that all of those competitors took a marketplace-first strategy where you download an app. There is no “Pepper app,” but rather it takes a distributor-facing strategy, he said. This means that the distributor’s brand identity is front-and-center instead of Pepper’s.
Customers seem to like it. The more than 140 customers is double the number of customers it had when Pepper raised its $16 million Series A back in 2021.
Since then, the company became a full-stack payment processor. This makes it easier for operators to pay distributors. It also “reimagined” what the modern customer relationship management and copilot software should look like for a sales rep that works in food distribution so they can be more productive. In addition, the company built an ads platform that enables distributors to run marketing campaigns with their suppliers to promote existing products.
Cheung wasn’t specific on Pepper’s revenue, but did share that it has grown by more than 20 times. He also didn’t disclose the company’s valuation, but did say it was “a step up from our last round.”
Investors like Pepper, too. On Monday, the company announced a $30 million Series B round of funding led by new investor ICONIQ Growth, with participation from another new investor, Harmony Partners, and existing investors at Index Ventures, Greylock and Imaginary. This gives the company around $60 million in total funding.
“ICONIQ Growth is the perfect partner for us,” Cheung said. “Their track record in backing large, successful vertical software businesses and industries that the consumer world wouldn’t necessarily consider really resonated with us. Food distribution is one of those industries.”
Have a juicy tip or lead about happenings in the venture world? Send tips to Christine Hall at [email protected] or via this Signal link. Anonymity requests will be respected.