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India’s Snapdeal staged a comeback by diving into small cities | Tales from India’s Towns

Written by Avanish Tiwary Published on     8 mins read

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The company has made a comeback by letting go of non-core businesses, focusing on unit economics, and acting on the foresight of targeting non-metro cities

Editor’s Note: Even before the COVID-19 pandemic, there has been an undercurrent of growing tech adoption in India. Now in the post-COVID-19 era, the trend has been accelerated in the world’s second-most-populous country. Tech startups, eyeing the potential in a largely untapped and vast market, have kick-started their 2.0 strategy—to expand beyond metro cities. This is a ripe time for tech companies to tap the next 500 million internet users who have warmed up to tech-enabled services in sectors such as entertainment and e-commerce. We, at KrASIA, through our new column—Tales from India’s Towns—would keep an eye on how technology affects the lives of people in lower-tier and rural areas.

 

From an old, dilapidated building in Patparganj, an industrial area in New Delhi, the capital city of India, the husband and wife duo, C M Goel and Sujata Goel, in their 50s, have been operating a local brand of lingerie products, which the couple claims has become an alternate option for buyers in India’s smaller cities who don’t want to spend money on branded products.

Goels told KrASIA that because they focused heavily on selling their products through e-commerce platforms such as Flipkart, Snapdeal, and Amazon, they were able to make a mark in non-metro cities. However, he said, it was Snapdeal that really escalated their reach to customers in tier 2 and 3 cities.

“While we are present on all the e-commerce platforms, over 80% of orders come via Snapdeal of which almost all of them are from smaller cities across the country,” C M Goel, co-founder, Kamatri Corporation, told KrASIA.

If Snapdeal is to be believed, Goel is not the only online seller who leverages its online platform—website and mobile app—to get customers from smaller cities, colloquially known as Bharat. According to the company, buyers from more than 3,700 towns across India—accounting for 92% of India’s total 4,000 towns and cities—shop on Snapdeal.

Last year was an exceptional one for online companies, especially the consumer-facing businesses as they saw unexpected growth, both in terms of adding buyers as well as sellers on the platform. The pandemic, Snapdeal said, has ensured more sellers adopt selling through online channels as people for the best part of the year tried not to venture out for shopping and purchased almost everything online.

Snapdeal told KrASIA that the growth that it expected to see in three years were achieved in just six months of 2020. The company added over 6 million new customers between April and October last year.

Coming out of the woods

For the decade-old online marketplace, things started to go south when Amazon entered India in 2012 and intensified the competition in the e-commerce space which till then had only two major players—Flipkart and Snapdeal. According to an estimate by local media Economic Times, the SoftBank and Alibaba-backed firm lost 20% market share between March 2015 and March 2016. By the end of 2016, the company was on the verge of bankruptcy.

In 2017, in a desperate move, Snapdeal held a seven-month-long discussion with its rival Flipkart about an acquisition. The discussion ended up with Snapdeal walking out of the deal because the firms couldn’t agree on the acquisition bid. In retrospect, Snapdeal’s co-founders Kunal Bahl and Rohit Bansal couldn’t be happier about making that decision.

Left with just a few months of runway in the bank, the company within a year made a total turn-around as it not only posted a revenue growth of 73% in the financial year 2018-19, it reduced its losses by 71%.

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Read this: Netizens from smaller cities to drive e-commerce growth in India: Report

The reason the company managed to pull this off is because its founders, Bahl and Bansal, didn’t hesitate when to take extreme measures when met with a do or die situation. In July 2017, the duo sold Freecharge, a digital wallet company it had bought in 2015 for USD 400 million, at a 90% discount to Axis Bank.

Through thick and thin, the company spent the last four years staging a comeback, that involved letting go of non-core businesses like Freecharge, focusing on unit economics, and acting on the foresight of targeting non-metro cities in the hopes that it will get them early access to the new set of customers.

“Rohit and I decided we don’t have to go after everything. We decided to target parts of the market where we think we have a unique set of offerings as a company to dominate and then build a lot of other capabilities on top of it to serve buyers and sellers in those markets,” Bahl, co-founder and CEO of Snapdeal, told KrASIA.

“Between 2017 – 2020, we have cut costs by more than 94%. We are one of the few select companies where our loss is very small and is only a fraction of our revenues,” he added.

That was not a normal feat to achieve, especially at the time when its competitors were busy burning investors’ money on discounts for hyper growth. In its new avatar, which the company calls Snapdeal 2.0, it decided it will not indulge in discounts, free delivery, and cashback to acquire users. It wanted to quickly set its unit economics right and not look back.

“We noticed that in the industry our peers just wanted to acquire customers even if it meant losing money. We believe customers would buy from you as long as it’s cheap and are getting all the incentives. But the moment those incentives are taken away they will be gone as well. We want to build a lasting and enduring relationship with customers,” Bahl said.

Tectonic shift

Bahl believes the year 2016 has catapulted India’s internet population to a new rise. “When Reliance Jio launched and the price of 4G fell drastically, there was this tectonic shift that happened in 2016 which no one expected,” he said.

When Bahl realized a large chunk of the next 500 million internet users is going to come from the semi-urban and rural areas—a virtually untapped market—he quickly jumped on this opportunity.

“Everyone, until 2016, focused on the top 10% of the population because data was expensive. A lot of money was spent to cater to their needs. What they mostly wanted was smartphones, washing machines, microwaves, and latest branded fashion.”

By the end of 2017, Snapdeal consciously started to focus on selling unbranded retail products in categories such as fashion, jewellery, home and décor, kitchen, personal hygiene, and electronics.

Read this: Startups from tier-2 and tier-3 cities are producing essential solutions: Unicorn India Ventures

“Even though the per capita income of people living in Bharat (non-urban cities) is less, their aspirations are no different than the folks in urban cities.” Combining its depth of knowledge of what non-metro consumers want and its focus on positive unit economics, the company started onboarding sellers like Goel who manufactured unbranded retail that had value-for-money.

By mid-2019, the company had over 500,000 sellers on its platform. Last year, it even started partnering with manufacturers and opened the platform for them to directly sell products to customers allowing them to bypass the chain of retailers and wholesalers.

In 2020, during the pandemic, Snapdeal said it noticed people had started reprioritizing their needs and spending. “Consumers are shifting towards value due to income uncertainty, with more focus on functionality and less on premium brands. As users become more price-conscious, they are turning to affordable brands,” Bahl said.

According to Snapdeal, the pandemic has certainly brought long term changes in how consumers buy today and will continue to in the future. “It is not only phones, gadgets, fashion, and food that are bought, but everyday stuff like mops, drain unblockers, potted plants, quilts, DIY kits, marble stools for religious idols, and much more. Till a year ago, customers preferred to buy such products offline after a good look and feel,” Bahl said.

New initiatives

Jasper Infotech, which owns Snapdeal Private Limited, narrowed its losses to USD 26 million in the financial year 2018-19 ended March, from USD 86 million loss it reported in the same period previous fiscal.

Bahl said if it weren’t for its deep insights into the shopping behavior of people in smaller cities buy, the company wouldn’t have been able to make this comeback. One of the things that Snapdeal did to make its app more approachable to non-urban users was that it made it a discovery-led platform. It wanted to emulate users offline shopping behavior such as window shopping and casually browsing products before deciding if they want to buy.

“Other e-commerce platforms are intent led and search driven. People open those apps when they know what they want to buy, which is similar to Google. We are more like Instagram,” he said.

According to Bahl, short videos and other social media platforms like Instagram and Facebook have become important avenues for users in small towns to discover new products. “Users open our app and scroll through different products expecting they will discover something new which has value for money and is useful.”

For Snapdeal, one of the learning curves of selling value-for-money products to non-metro buyers has been the need to add engagement and entertainment just like in the physical world and not only provide the fastest way to find products and check out. “Snapdeal’s engagement with this new and a large part of our existing user base is built on three key themes of video, voice, and vernacular. All these initiatives are built around the central idea of how we can help our users discover and transact better, rather than a traditional approach of how we can sell better,” he said.

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Read this: These video commerce startups are trying to take on Flipkart and Amazon

Bahl claimed 85% of purchases on Snapdeal are discovery led instead of users searching for something specific. Since the consumption of video in smaller cities is on a rise, Snapdeal also started adding videos on its app.

It has been three years since the company started experimenting with short videos that essentially show users how a product works. Products like vegetable chopper or mobile phone stand with a magnifier for a big screen experience is better explained in a video, the company said.

These measures, the company said, have helped it marginally increase its revenue in FY20 to INR 846.4 crore (USD 116 million) as compared to INR 839.4 crore in FY 19. However, the company also reported a 46% increase in losses in FY20 that reached INR 274.4 crore (USD 37.6 million). The loss, Snapdeal said, was on account of building additional capabilities for new online buyers. In FY 20, Bahl said the company made further investments in video, vernacular, and other strategic projects aimed at growing the online market amongst new users.

While the on-going financial year has seen recurrent disruptions and subdued consumer sentiment on account of safety and economic concerns, the benefit of these growth initiatives is expected to play out over the coming years, the company said.

“We continue to drive towards our goal of bridging the gap between access and aspiration for the segment of consumers that live in small towns,” Bahl said.

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