News is, Snapdeal is coming out with its IPO, and, while we await the launch date of the IPO, let’s revisit the making of this e-commerce brand and trace its story to the success it is claimed to be today.
The entry in the E-Commerce Sector
Snapdeal was founded in 2007 by Kunal Bahl and Rohit Bansal as a coupon booklet company. By 2010, they decided to ride the wave of the Internet and become an e-commerce marketplace.
Both the founders firmly believed that by connecting buyers and sellers from across the country they can create a massive company.
In a lot of ways, Snapdeal was one of the pioneers of e-commerce in India alongside Flipkart.
Snapdeal knew it wouldn’t be an easy game!
Of course, competition wasn’t far behind and it took only a few years for countless e-commerce businesses, including global giants staking a claim on the Indian e-commerce industry. Competition was so fierce that by 2017, Snapdeal was pushed into a corner and was made an acquisition offer by Flipkart.
Having rejected that offer, the founder’s had to answer this very important question — how were Snapdeal different? — which in turn led them to the discovery of the very business strategy that has made Snapdeal make a resounding comeback.
Snapdeal’s one-of-a-kind business approach!
What is that segment you may ask? That of value e-commerce, led by a growing number of value-conscious online shoppers who have well-defined price-quality considerations and budgets, are brand-agnostic, put functionality first and are aspirational with their demand for a variety of choices and latest trends. These customers want to explore a market beyond their local physical one but not without seeking familiarity, convenience, and trust.
The Free Internet Phase changed the game.
What really made this segment click was Jio’s entry into mobile telephony and internet business. Affordable data plans accelerated adoption of e-commerce in Tier 2+ cities quickly creating a new behemoth segment in the Indian retail context. And, with India’s mobile Internet penetration expected to surpass 1,100 million by 2026 — the value segment is only estimated to grow. In fact, of the total Internet users, 350 million will be active online shoppers, a large chunk of which will be value e-commerce.
How E-Commerce turned the tables in the market
The Kearney report further states that, “E-commerce is becoming more relevant, prominent, and important compared with modern retail in many tier 2+ towns, This is because of the sheer complexity of rolling out stores in remote regions of the country and the lack of enough high-quality retailers in this segment in India.”
It is this segment that Snapdeal caters to. In fact, value e-commerce has been a differentiated business model that Snapdeal has built end-to-end. “The retailer’s conscious focus on the needs of value lifestyle customers — a relevant, curated assortment of durable lifestyle products at affordable price points assisted by technology and a robust supply chain — has enabled rapid growth of a unique consumer base from tier 2+ markets,” notes the Kearney report.
Snapdeal’s Strategic Moves
Well established physical retail models like DMart and Vishal Mega Mart have been successfully serving this audience in the physical markets and their capital market success is known to everybody. Snapdeal is the first to build an online equivalent of these, far surpassing the competition with its many value propositions, some of them being:
- Focus on quality: Snapdeal is laser focused on providing good quality at affordable prices. They work closely with sellers to deliver predictable and consistent product experience for products in the fashion, home, beauty & personal care and day to day household goods. What’s more, they also have free shipping!
- Efficient cost management: Snapdeal focuses on optimising the cost on all expenditure. They have low fulfilment cost, efficient marketing expenditure and extremely minimal fixed cost. And, despite the low costs, the brand boasts of positive margins.The company has posted revenue growth of about 85% y-o-y and has reduced its loss by 95% last year. It’s asset-light operations and debt-free business allows them the opportunity to move fast and maintain cost efficiency.
- Power Brands: While we are all familiar with Private Labels and D2C brands ruling the metros, tier 2+ markets of Bharat were largely untouched with these concepts. With quality and price in mind, Snapdeal has built over 10 power brands across popular categories like apparel, fashion accessories, footwear, home & kitchen, health & wellness, personal grooming etc and closely controls the quality, price, style and packaging.
- UniMove: Aimed to improve time and cost efficiency in delivery, Snapdeal optimises its supply chain using AI-based shipment allocation systems that ensures fastest and cheapest delivery thereby delivering top customer experience and strong unit economics at the same time.
- Lastly, and Snapdeal’s most distinguishing value proposition — Bharat Specialist: The brand’s deep understanding of Bharat, the new India that is not limited to the tier 1 metros, has led it to not only provide for its buying needs in the way of quality and cost-effective products but also through a simple interface aimed at early Internet users for easy navigation, inclusive with 7 Indian languages beyond English & Hindi, a detailed category tree with visual imagery for guidance and personalised feed. Recent figures show that 80% of its buyers come from outside metro cities and more than 30%of the platform’s visitors consume information in vernacular languages.
The Way Forward
The 2010s were about getting the affluent consumers of tier 1 cities shopping online. The 2020s will be about the rise of mid and low-income value-conscious online shoppers from tier 2+ cities and rural India. Currently, these consumers account for more than 80% of the population and about 70% of India’s value lifestyle retail demand — a segment that is expected to grow from $90 billion in 2019 to $156 billion by 2026 and $215 billion by 2030. And Snapdeal’s company figures attest to the same. The brand has had 200mn+ app downloads, 90mn+ customers — 70mn+ of which was from tier 2+ cities and towns, and has services 96% per cent of the national pin codes.
“We believe brick-and-mortar modern retail cannot adequately bridge the gap between what value consumers need and what they have access to.” — reads the Kearney report, further elucidating on the advantages and challenges on both the online and offline models. The offline models, needless to say, are restricted by space and limited inventory, although thrive with customer trust. And while online models struggle with profitability and lack of trust in tier 2+ India consumers, offer a wide inventory.
Value e-commerce will take centre stage in retail with brands like Snapdeal, with their thorough understanding of the market’s needs taking the lead. Interesting to watch out for Snapdeal, Media reports indicate that it is aiming to make an initial public offering early next year. The company, which has backers like SoftBank, may offer an opportunity for retail investors to become a part of its expansion story.