Pepperfry:Omnichannel Supply Chain

Group 3
Anjaly T A – PGP10190
Kanika Bhagat – PGP10149
Kasina Tejaswini – PGP10151
Pritha Barua – PGP10163
Sandeep Agarwal – PGP10169
Sheersha KK – PGP10048

Ashish Shah, co-founder of pepperfry, was discussing the future strategy for Pepperfry with his business
partner Ambreesh Murthy before the board meeting, which is scheduled in two days. They were analysing
the effects of some crucial decisions they have made in the past years and their plans for the future.

In a short span of 6 years, Pepperfry had been able to successfully entrench its position as a leader in the
home and furniture segment with an online traffic market share of 60%. Growing at a CAGR of 83%, their
mission was to be in 20 million homes by 2020, Ashish was thinking. In 2018, both the co-founders of
Pepperfry were wondering if they should make more investments in their supply chain management, to
explore the opportunities that the omni-channel supply chain would give them and to include a vehicle
transportation system between 22 distribution centres to reduce the overall transportation cost.

Changing the way, we buy furniture

Till a few years back, buying furniture was a tiring task. You had to either rush from one showroom to others
in search of the design or quality of furniture you were looking for, or you had to get it made. But the process
became much simpler by buying from online. You can simply choose any piece of furniture you like online,
and get it delivered and even get it assembled and installed, without any hassle. Owing to these many
benefits, the number of people opted to buy furniture online had increased. According to RedSeer
Consulting, the online furniture market is expected to reach $ 3 billion in 2020. For urban professionals and
students, online portals were the first option for buying furniture - a phenomenon which had been
unthinkable four years ago. Metro cities had witnessed drastic growth, with multiple players coming in and
expanding their base

India’s furniture sector was 90 percent unorganised. Of the organised, only one per cent was online. Different
models were looking at different consumer segments. For instance, rentals aim at those looking for short-
term essentials, mostly students, or people who had just started working. Swedish furniture giant IKEA’s
impending entry into India by the end of 2016 was expected to impact the furniture sector at least in the
urban areas. IKEA was famous for its do-it-yourself (DIY) model. But DIY was new in India. Urban

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customers and those who had lived abroad, however, might find it agreeable. With increasing smartphone
penetration, apps’ contribution to sales was sure to rise.

Logistics is undoubtedly the biggest challenge for the sector. Furniture needed dedicated trucks; you can’t
mix it with other items. Due to smaller volumes, truck capacity was underutilised. Hence 10-15 percent of
the value was spent in logistics. Furniture manufacturing was concentrated in belts, which made delivery
longer and costly. Horizontal players just built the catalogue, tied-up with suppliers, and left the logistics
companies to manage the rest. Since few logistics companies know how to manage it, their returns and
damages had been much higher than that of verticals. Since the return logistics was a nightmare, many sellers
gave discounts up to 50 per cent, so as to cancel the return request. Many users misuse this.

Founders of Pepperfry

Ashish Shah
Ashish Shah is Pepperfry's co-founder and COO. Ashish graduated from Pune University in chemistry
engineering and later graduated from Ghaziabad Institute of Management and Technology with a specialized
diploma in content management. Before Pepperfry was founded, he had been involved in some of the largest
companies such as eBay and Commerce One India at C1 India Pvt Ltd in the fields of distribution, market
growth, supply chain and logistics 15 years.

Ambreesh Murty
Ambreesh Murty is another co-founder of Pepperfry and is the CEO of the company. Ambreesh went to
Oxford College of Business Management for his MBA and worked as a SAP SD consultant for 7 years and
then worked as a Country Manager for eBay India. Ambreesh and Ashish met at eBay and were collaborating
on the Pepperfry project together.

Pepperfry
Pepperfry was the largest online furniture store in India. They specialize in and deal with home decor
segments such as furniture, lighting, kitchen appliances, household appliances, bathing appliances, dining
and so on. This e-commerce company had a wide range of products that make a great experience for users.

Their products and delivery mechanisms have made them the leading brand in their category. The company
has more than 7 million website visits every month, more than 4.5 million registered users and subscribers
and more than 10,000 sellers on board.

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Pepperfry was particularly proud of its omni-channel capabilities, enabling the consumer to order from any
channel or device at any time, anywhere. This was possible through mobile and website presence, which
allows consumers to easily switch between these media for any part of their purchase journey.

Beginning of Pepperfry

Ambareesh Murty spent more than five years at eBay, and for the last 3.5 years he has been CEO of eBay.
He had a rocking time at eBay and saw the potential of e-commerce in India. After spending his time at
eBay, he thought about what he was supposed to do. He thought that the opportunity in India was huge and
lucrative, and he always had an entrepreneurial streak.

When Ambareesh changed his LinkedIn status to 'start up,' a whole bunch of people came to him. They all
interacted and figured out if they were thinking about the same things – building a great, long-lasting
business. So they started this online store, and because he had a chance to work with people he had worked
with in the past, the initial phase of not having the money was a little easier, because they were all in it
together.

The first round of Norwest investment was highly motivated by them, which came only a month and a half
ago before the start.

Over the last year and a half, management had seen success in the furniture & home decor category,
contributing around 80 per cent of total revenues. They also noticed that there were no really large online
players in this area. And taking advantage of the factor, the business was fixed on Furniture , Home Decor,
Kitchen & Dining, etc.

The company was offering free shipping on all orders. For convenience of shopping and returns, a 30 Days
No-Questions-Ask 100 percent Money Back Guarantee for customers was introduced in 2014.

In December 2014 , the company launched its first "Studio Pepperfry" concept store. This was followed by
the opening of a similar Studio in Bengaluru.The company had recently celebrated a major milestone in the
successful delivery of one million customer orders.

Industry
The Online Household Furniture Sales industry had grown rapidly over the five years. The technological
advancements such as the availability of high-speed internet networks such as 4G and spiked absorption of
smart gadgets were boosting the e-retail sector in India. These advancements further provide ease to the
customers to buy furniture through online channels as consumers increasingly turn to the internet for
convenience and often discounted pricing. In addition, the rising number of smartphone users across the
country and online shopping was encouraging the furniture industry players to introduce their products
through online channels. Refer appendix (1) for the growth in online sales of furniture in different countries.

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According to Statista’s Digital Market Outlook, worldwide online furniture and homewares sales were
expected to be close to $200 billion in 2018. As the following chart illustrates, China was by far the largest
online furniture markets with almost $80 billion in revenue, and India with $2 billion.

Analysis

The Indian e-commerce industry was growing by leap and bound. A major portion of the share was enjoyed
by furniture retailers. Though this segment faced many problems, it was still making the profit and thriving
in the competitive market. The Indian furniture industry was huge and ranked the fifth largest market in the
world. The big players of the online furniture industry like Urban Ladder, Pepperfry & Fabfurnish had a
good business in tier 1, 2 and tier 3 cities compared to small towns. The reason behind this was the less
delivery time for tier 1, 2 and tier 3 cities. The success route for online furniture companies was not as
smooth as it was for the retailers of other segments. Some of the challenges and inconveniences experienced
by the online furniture retailer in India were

Personalization

Personalization was the conveniences enjoyed by the customer through online furniture retailers. In the age
of contemporary furniture, customers like to go for customized furniture for their homes. Furniture was
selected as per the colour and décor of the interior. Hence, more customized furniture was in demand. Unlike
segments such as fashion or electronics where goods can easily be delivered in 2-3 days, the time taken here
used to get extended to 2-4 weeks on many occasions. This took away the entire value proposition that was in
the e-commerce space for these companies.

Eyeing the demand, furniture retailers offered customization service to their customers. They provided the
option to capture the floor plan and interior virtually so that customers can feel the furniture inside the home.

Consultation Service

This service was again in favour of customers. With this service, customers can get recommendations and
advice from experts. Customers can call interiors designers for in-home consultation by paying a minimal fee
and later order furniture from the retailer. This exclusive service was offered by renowned online furniture
retailers like Urban Ladder and was a big attraction for customers.

Advance Payment

Advance payment was one area where an online furniture retailer faces challenges. Purchasing furniture
involved big expenses including advance payment. Customers need to make online advance payment for
buying furniture online which somewhere deters customers to shop from online retailers. However, many
retailers offer easy financing options and EMIs’ to combat this issue.

Delivery time

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Delivery time was another challenge experienced by online furniture retailers. Usually, furniture delivery
took time as most of the retailer production houses were located far away from the cities. This caused
inconvenience to deliver the items quickly. However, to compensate for the long delivery issue, retailers
offered additional services like free home delivery, delivery tracking, and easy return policy.

Customer expectation of luxury

Almost all the industries like automobiles, electronics, food & agriculture and entertainment had felt the
pinch of new technologies. But the furniture industry still remained the same. It was confined to the basic
frames that were used to build furniture. However, few breakthroughs in the furniture industry like design
position furniture for health and fitness attracted customers to some extent. Well, customers were still
seeking more luxury in their furniture.

Low Trust on Online Retailers

Unlike furniture shops, the online retailer did not provide the comfort of touch and feel experience to
customers. This was a huge drawback for online retailers in India as customers here like to touch and feel any
product before buying. Therefore, online retailers had to struggle to gain the confidence of new customers
and retain loyal customers. Most of the online build trust by providing extra services like active call/email
support, easy return policy, customer support, and easy payment and EMI options. Some retailers were also
tied up with investment banks to ease the process of investment.

Competitors

Pepperfry competes with Homelane and Livspace, which attract customers with end-to-end home services.
Flipkart and Amazon have also been competing with Pepperfry. Urban Ladder and Pepperfry, however, are
competing face-to-face.

Another major concern was the entry of the world's largest furniture retailer, Ikea. The Swedish retailer
started operating in India in 2018.

Pepperfry’s recipe for success

Pepperfry was one company that was behind this growing popularity of online furniture shopping among
Indians. Established in 2011, Pepperfry brought stylish and quality furniture with attractive EMI options.
Pepperfry worked on a Managed Marketplace Business Model wherein the small and medium business
artisans and merchants sold their merchandise through the company. Pepperfry's category team met the
sellers, and after proper checking, they procured selected products from the sellers. The products were then
taken to studios for photoshoots. The photos of products were then catalogued and placed on the website.
Once a product was sold, it was brought from the sellers to Pepperfry's warehouse, where the quality of the
product is checked, and the product was packed and dispatched to the customer. Currently, Pepperfry was

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working with more than ten thousand merchant partners who sold their products all over India. From
electrical appliances to wall arts, Pepperfry offered everything which you need to make your apartment
home. The largest online furniture store in India, Pepperfry was founded in the year. Their products and
delivery mechanism had made them a leading brand in their category. The company had more than 7 million
visits on the website every month, more than 4.5 million registered users and subscribers and over 10,000
sellers on board. Initially, Pepperfry was started to provide products across multiple lifestyle categories but
then after a year, in 2013, Pepperfry pivoted to find a niche in the category of selling only furnishings, home
decor, and related products online. Headquartered in Mumbai, Pepperfry has opened over 60 Pepperfry
studios in 18 Indian cities. These studios displayed a wide range of furniture so that the customers can get a
look and feel of the furniture before placing an order.

Pepperfry was today by far India’s largest online furniture retailer, with 50% of the market share. Its revenue
of Rs98 crore for the financial year 2016 tripled over the year-ago period. The secret of success of Pepperfry
was its omnichannel supply chain allowing the consumer to order anytime, anywhere, from any channel or
device. This was possible through mobile and website presence, which allowed consumers to switch easily
between these media for any part of their purchase journey. Pepperfry commenced the origin-to-hub
shipment in April 2013 and, since then, had significantly reduced costs per unit, claiming to have the lowest
shipping costs in the industry- below eight per cent of GMV. Pepperfry seemed to have got their logistics
right. The points of origin for the company's furniture shipments were Delhi, Mumbai, Jodhpur, Jaipur,
Bengaluru, Nagpur etc. They had 18 distribution centres across the country. From the distribution centres to
the doorstep of the end consumers they had their own network of more than 400 trucks covering 500+ cities.
The company was now benefiting from economies of scale. In its first years of operation, the e-tailer invested
heavily in the supply chain and logistics to control the consumer experience, but third-party vendors were not
fulfilling the promise of doorstep delivery, and even abandoning ordered items in the lobbies of buildings if
they did not fit in the elevator. Initially, the operating expenditure was 20-25% of the cost of goods sold
(COGS). Today, Pepperfry operates at 8-10%.

Omni Channel
Omni-channel retailing involved seamlessly integrating customer experience across all interaction channels –
in stores, on the web, and on mobile devices. There are many different sales channels involved in the trade
process, but as the term "omni" suggests, all channels are in focus as you can see in the exhibit. As customers
use almost every available purchase channel, companies need to be omnipresent. The purchase process is no
longer predictable. It is dynamic, driven by increasing internet and mobile usage, and has more touch points
than ever before. In addition, thanks to social media, consumers have become more powerful. They can
easily compare different offers in order to decide on the best match. The customer can purchase all channels,
and all information about the customer. The purchase process is available on all channels, ideally in real
time. This strategy is already being followed by many retailers. They are integrating their online and store
channel to leverage their vast customer reach and the convenience of Internet shopping to boost revenue.

SUPPLY CHAIN OF PEPPERFRY

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Pepperfry has a category team of 80 people who meet sellers, check and curate products that are displayed
on the platform. The products that are procured from sellers, are taken to studios for photoshoots, thereafter
catalogued and placed on their website. The tech team has to start its work much before an order is placed. It
starts with ensuring the catalogue information is thorough.

The new collections are released between January and June, every year, 60 percent of their sales take place in
the second half of the year. Along with this, to be relevant in the online domein, Pepperfry has an inventory
churn of three months.

Managing logistics
Pepperfry stocks its products at different sourcing centres from where it is moved to smaller distribution
centres from where they are shipped to individual consumers. It also works as a gatekeeper Sellers who
aren’t present within the 200 km radius of the central hub cannot place their product on the platform. But a
user has no restriction. The team has 10,000 sellers, of which 3,500 sellers get orders every month. [prefer
exhibit 5 for distribution location details]

Pepperfry has over 22 distribution centres present in most capital cities, and it also works across 500 cities. If
a person in Pune orders a product from the Mumbai sourcing centre, the product is moved to a distribution
centre and then shipped to the consumer. The distribution centres are between 5,000 sq ft to 15,000 sq ft in
area. When a product order is placed the platform checks which sourcing centres has the product. The truck
that moves between the sourcing centres everyday keeps a check on the stock for each of these centres. The
products are picked from the sourcing centres once in two days and distributed across different cities. part
from the main routes, Pepperfry sends its trucks on certain common routes as well - this enables them to cater
to many more cities.

The systems and algorithms begin by geotagging the location from where orders are placed, which in turn are
linked to the selected warehouse and distribution centre. The stocks too are determined and updated at the
central CRM, which in turn gets updated for the end consumer. The geo tagging also works on couponing for
different products at different locations.

Pepperfry initially opened a studio in 2014 below their office, further within 6 months they opened 6 more
but then came to a pause. The company soon realized that the studios provided a great form of marketing and
a lot of sales were happening through it. In 2017 it pioneered the omnichannel by opening 16 more studios in
the major metro cities in India. These studios serve as the offline experience centers for the customers who
want to seek design inspiration through touch and feel of the product and through complimentary design
consultation. The studio also helps in building better customer experience. With 22 studios in the country,
Pepperfry currently attributes 25% of its purchases due to the studios. Further to get the studios to the online
customers, they are also integrating Virtual Reality experience on the website.They want their customers to
be at ease and see how the furniture will look in their home.

Ashish Shah and Ambreesh Murthy are thinking of opening a warehouse of Pepperfry in Bengaluru to
improve delivery rates and expand its presence in southern states. (Exhibit - 6 gives the details of the
distribution center targeted by the Bangalore warehouse) The southern region contributes to over 40% of the

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online marketplace’s business. This facility will be the largest built-to-suit facility in the Indian furniture
etailing segment. Spread across an area of over 360,000 square feet in the Hoskote area of Bengaluru, the
warehouse facility will be technology-enabled and will help Pepperfry improve its customer experience
along with increasing the pace of delivery rates. The warehouse will have a storage capacity of 30,000 units
of furniture.

Pepperfry is recognised as much a logistics company as it is a furniture marketplace. This new warehouse
will help it to elevate its consumer experiences through reduced transit times while growing the business
through reduced overhead costs. It will also help to cater the surge in demand during the approaching festive
season.

Decision Time: Possibilities and Priorities

Looking back over the previous six years, Shah felt quite confident about the accomplishment of pepperfry
but was equally nervous about their investment decision which has to be finalized in the next board meeting.
So, they had to assess where their future priorities should lie, and whether taking this risk might be
necessary. He wanted to reach a decision after a thorough discussion with Ambreesh Murthy, his friend &
co-founder of Pepperfry.

Time was short but the stakes were high. He understood that whichever decision they chose, it would
fundamentally shape the future of the company. With the meeting scheduled in two days, they started to
sketch their ideas.

Questions
1. What is an omnichannel supply chain? Benefits?
2. How did Pepperfry incorporate it?
3. Standing in 2018 should Ashish Shah and Ambreesh Murthy explore more possibilities in Omnichannel?
Should they further invest into this by setting up more offline stores?
4. Which Vehicle routing should be followed by Pepperfry to send the goods from the planned warehouse
to the distribution centres?

Exhibit -1 :

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Exhibit 2:

Exhibit -3 :

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Exhibit - 4: OmniChannel Supply chain

Exhibit -5: Distribution Centers : Chandigarh,Gurugram, Jaipur, Jodhpur, Vadodara, Indore, Mumbai, Pune,
Nagpur, Hyderabad, Goa, Kochi, Bangalore, Chennai, Vizag, Lucknow, Kolkata, Guwahati

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Exhibit - 6: Distance between the Bangalore warehouse and nearby distribution centers

References

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https://www.pepperfry.com/about.html

https://indianonlineseller.com/2014/11/pepperfrys-founder-talks-about-their-challenges-in-the-online-market/

https://itelligencegroup.com/wp-content/usermedia/WhitePaper-ImpactOfOmnichannel.pdf

https://www.fastcompany.com/90388400/the-battle-for-indias-32-billion-furniture-market-heats-up

https://www.marketingmind.in/25-500-employees-pepperfry-takes-trip-goa-every-year/

https://www.indiaretailing.com/2018/08/20/retail/pepperfry-to-double-offline-studios-by-2019-build-indias-
largest-omnichannel-network/

https://economictimes.indiatimes.com/industry/miscellaneous/pepperfry-to-invest-about-12-million-on-
expansion-bolstering-supply-chain/articleshow/68241916.cms?from=mdr

https://yourstory.com/2019/10/behind-scenes-pepperfry-ecommerce-startup-online-furniture

https://inc42.com/features/pepperfry-furniture-warehouse/

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