Will Meesho's Audacious Dream Come True - Mint PDF

3/10/23, 5:39 PM Will Meesho's audacious dream come true?
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Home / Companies / News / Will Meesho's audacious dream come true?
Will Meesho's audacious dream come true?

10 min read . Updated: 27 Feb 2023, 01:15 AM IST
Madhurima Nandy
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Meesho founders Vidit Aatrey (left) and Sanjeev Barnwal.
SYNOPSIS
The e-commerce company wants to be profitable in 2023. That’s easier said than done
Meesho hasn’t been able to raise any money after September 2021. The company’s growth at any cost model needs considerable tweaks to attract sizeable capital, going ahead
Bengaluru: In the second half of 2021, Indian startups were riding high, on a cocktail of enormous capital, high valuations and optimism. Venture capital firms were less fussy about their
path to profitability and the ‘funding winter’—a term in vogue now— was still some distance away. Many startups, in fact, didn’t see it coming.
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3/10/23, 5:39 PM Will Meesho's audacious dream come true? | Mint
Take the case of Meesho, an e-commerce company, six years old in 2021. After having raised $870 million in two rounds between April and September that year, it was still hoping toe-paper
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another $500 million-1 billion round at an eye-popping valuation of $8 billion, according to some media reports. In September 2021, the company was valued at $4.9 billion.
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The talk, back then, in startup and media circles, was about this ‘new war’ in Indian e-commerce, one that would give Kalyan Krishnamurthy, the chief executive of Flipkart, sleepless
nights. Flipkart has been fighting an intense battle with Amazon since 2013. Other online marketplaces in India’s e-tailing landscape—such as Snapdeal, Paytm Mall and Shopclues—all
showed early promise but were either unable to scale up or raise more money. Some engaged in a fatal discounting battle with Flipkart and Amazon and lost their way. After Shopclues’
distress sale to Singapore’s Qoo10 Pte in 2019, the
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In the last two years, Meesho, founded by IIT-Delhi batchmates Vidit Aatrey and Sanjeev Barnwal, emerged as that alternative. The company targeted ‘Bharat’ or locations beyond the tier-
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1 cities. Meesho started as a reseller platform (where users could resell products through social media platforms) but pivoted to the e-commerce marketplace model that sells directly to
consumers in 2021. Track your investments
After the funding rounds that year, Meesho pressed the accelerator on acquiring new online shoppers, mostly in the low- and middle-income categories. Today, it has 130 million monthly
active users from 50 million in August 2021. Its 825,000 sellers sell everything from unbranded clothes and makeup to cookware and clocks. The company’s revenues quadrupled to ₹3,359
crore in 2021-22, from ₹839 crore the year before. And in the last 2.5 years, its annualized gross merchandise value, or the value of all goods sold on its platform, has grown from $200
million to around $5 billion. Krishnamurthy had reasons to be worried.
While the going seemed great, there was one problem. The $500 million-1 billion fund raise never materialized—Meesho hasn’t been able to raise any money after September 2021.
Where does this leave Meesho in the ‘new war’?
The online marketplace business is cash guzzling with very high costs of customer acquisition. Flipkart, too, has been burning cash at a rapid pace. The company raised around $3.6 billion
in July 2021; a large chunk of this capital had been deployed by the end of 2022, media reports suggested. But the company has a far larger oxygen cylinder because of Walmart’s backing.
In October last year, Mint reported that Flipkart was considering raising $2-3 billion at a valuation of more than $40 billion to expand its product range in India.
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Meesho, meanwhile, claims that it has $500 million still left in the bank. Industry sources peg it to be around $400 million. This gives the company a decent runway but not enough
comfort.
As a prolonged funding winter continues, Meesho’s growth at any cost model needs considerable tweaks if it has to attract sizeable capital. No way out, it has set itself an audacious goal—
turn profitable by the middle of 2023. Remember, it lost ₹3,251 crore in 2021/22; for every rupee Meesho earned, it nearly spent ₹2.
Can Meesho pull off the impossible while maintaining its core value proposition of affordability? The average selling price of its products range between ₹300 and ₹350.
“So far, e-commerce hasn’t made money in India. Meesho will be the first test case on whether a profitable e-commerce story, focused on Bharat, can be built. In six months, we will know
whether it’s a sustainable model," said a person who is familiar with the company’s plans. He didn’t want to be identified.
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The model
Let’s take a closer peek at what made Meesho such a sensation in two years.
Kavitha M ordered a green cotton sari for ₹262 on the Meesho app in January this year. The seller was Surat-based CP Fashion. It was the first time she had bought a sari online, after her
friends told her about an online app that sells saris and kurtas at affordable rates. “The quality and price were good; I could pay cash on delivery and there was no extra delivery fee. But
they extended the delivery time from five to eight days, so it took a bit long to arrive," said the 31-year-old nanny, working in Bengaluru.
A resident of Howrah, West Bengal, Mainak Nandy recently paid ₹900 for a watch on the e-commerce platform. On opening the package, there was no watch, but a piece of torn cloth.
When he contacted customer care, he was asked to mail a photo and video of the product. Meesho refunded the amount in 24 hours. “In my experience, the app and customer care are
good, but some of the sellers are not," Nandy said.
When you talk to shoppers, Meesho’s playbook appears similar to that of any other e-tailing company—customer delight. The company doesn’t always tick all the boxes, like Kavitha and
Nandy found out. But for shoppers on a budget, the company’s model mostly works.
Nevertheless, there are subtle differences in Meesho’s model when compared to other marketplaces. Meesho does not charge sellers a commission on the sale of merchandise—it charges
them an advertising fee for better visibility on the app. Meesho also earns by providing various value-added services to sellers, including recommendations and insights to grow their
business.
The company is asset and people lite; it works only with third-party logistics providers for delivery. And right now, it wants to stick to low average order value products while betting on
volumes.
“Operating at this kind of scale while maintaining your costs is always tricky," founder Sanjeev Barnwal said. “How do we build for users who are not very tech-savvy? We are constantly
figuring out what our customers want. We may sell affordable brands, but will we sell Nike on Meesho? Not right now," he added.
The tricky proposition Barnwal refers to also has analysts worried. How will the company maintain its scale when it is forced to reduce its cash burn because of the funding winter?
“It will be interesting to see how Meesho creates customer stickiness while keeping costs low. Customers who came on Meesho as new online shoppers (over the last few years) now know
how e-commerce works. They could move on, explore other brands and platforms," said Satish Meena, an independent consultant.
The costs job

So, how is Meesho doing on costs? e-paper
Over
Home the lastLatest
eight to 10 months,
News Meesho has reduced
Markets the monthly burn
Premium Moneyrate drastically—from
Mutual Fund aboutIndustry
$40 million a Companies
month at the beginning of 2022 toOpinion
Technology about $4-5 million now. The
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company has slowed down hiring; cut customer acquisition costs by 50%, and server costs—a big part of its expenses—by 40%.
“We changed our focus from growth at all costs in 2021 to growth withCreate
profitability in your
a portfolio to track mind. In 2023,
investments we won’t
and compete spend
with fellow investorsa lot of money to acquire customers," Barnwal said. The company’s
marketing expenses had risen 500% to ₹2,579 crore in 2021-22.
Meesho is also scaling down difficult to execute business lines. For instance, in 2021, it launched a grocery service, Farmiso. Quickly, the company expanded the service to six states. By
April 2022, Meesho rebranded the service to Superstore while aiming to expand to 12 states. But then, the funding climate forced it to scale down, to just two cities. Around 150 people
were asked to go. Grocery is a strong growth lever but it is also tough to crack, conceded Barnwal.
Yet another area where the company is looking to rationalize costs is logistics. As order volumes rose, its logistics and fulfilment costs zoomed to ₹2,830 crore in 2021-22, from ₹632 crore
in the previous year.
The company claims good work on this front. A year ago, logistics cost formed 25-30% of its average order value. This has halved, and the company now aims to bring it down further. “We
work closely with each 3PL (third-party logistics) partner on the costs; how it can be reduced. Eventually, everything gets built into pricing," said Sourabh Pandey, chief fulfilment and
experience officer, Meesho.
And every bit of cost-cutting counts. Customers, for instance, get discounts if they walk 200 metres to pick their orders; sellers save money on merchandise drop-offs at the first-mile hub;
they also save when they move to trains from a road network. According to a report by JLL, a consultancy, the average speed of trucks on Indian roads is 30 kmph, or about half the average
in the US. Globally, moving goods via trains is up to 50% cheaper than by road, the report stated.
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Meesho, which charges zero commission from sellers, also compensates them for products customers return. But this led to rampant misuse by sellers. Given that returns are very high in a
category like fashion, the company recently tweaked its product returns policy, making the processes more stringent. Meesho has asked sellers to choose their courier partner for order
returns. It has employed video verification of product packaging, and new barcodes to implement rigorous checks on every return.
The change in policy, however, has led to protests by a section of its sellers on multiple WhatsApp groups, over compensation claims not being met when products are damaged during
returns. Once sellers choose a courier partner, issues over returns or claims have to be resolved between sellers and the 3PL operators. Sellers believe Meesho has forsaken responsibility
on this front.
“Customers are easily getting their refund on an incorrect order package, but sellers are finding it tough to claim compensation for damaged products. Claim acceptance and management
now lie with logistics companies, not Meesho anymore," complained a seller, who didn’t wish to be named.
The test
The billion-dollar question is if these measures would be enough. And what happens if Meesho is unable to hit profitability by mid-2023?
The management, thus far, has put up a brave front. “We are the closest to profitability compared to any other horizontal e-commerce company (that sells products from a large number of
categories)," said Dhiresh Bansal, Meesho’s chief financial officer. “We are contribution margin positive," he added. Contribution margin positive implies a positive margin on each
transaction.
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But, Meesho’s count of challenges does seem daunting. They include acquiring and retaining price-conscious users that need constant burning of cash, inconsistent product quality and
reports of delayed deliveries as well as counterfeit products, Ingovern Research Services recently said in a report.
Electronics and fashion are the biggest e-commerce categories and Meesho has gained market share in fashion and home décor. “But fashion is a difficult category, where (product) returns
are very high and it’s tough to make money. They have to keep spending significant money to gain share," said Satish Meena. “Meesho also doesn’t have private labels, where retailers have
high margins and control pricing," he added.
The rivalry with Flipkart and Amazon, meanwhile, will only get fierce. As a response to Meesho, Flipkart launched the Shopsy app in July 2021 to increase e-commerce penetration in small
town India. Scroll the app, and a few words stand out: ‘Lowest prices’; ‘budget trendsetters’; ‘affordable bargain store’. Shopsy hit 100 million users in August 2022, ahead of Flipkart’s
2023-end target. Then, Amazon, last year, acquired social commerce startup Glowroad.
Analysts are also worried that lower spend on customer acquisition could result in lower sales volumes for Meesho. Sellers, then, will spend less on ads, slowing down the company’s main
revenue engine.
“If Meesho can sustain the reduced burn and still grow, it means the business has come of age. That will be tested this year," said a second person familiar with the company’s plans.
Clearly, it’s a tricky puzzle to solve.
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3/10/23, 5:39 PM Will Meesho's audacious dream come true?

Home / Companies / News / Will Meesho's audacious dream come true?

Will Meesho's audacious dream come true?

Meesho founders Vidit Aatrey (left) and Sanjeev Barnwal.

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Where does this leave Meesho in the ‘new war’?

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The costs job

So, how is Meesho doing on costs? e-paper

marketing expenses had risen 500% to ₹2,579 crore in 2021-22.

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Clearly, it’s a tricky puzzle to solve.

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