Bangalore-based ShopX helps local kirana store owners and small retailers conduct transactions through a single platform, namely an app. In effect, it helps small merchants become more than just general traders.
Using ShopX’s retailer-facing app, a small merchant can offer his customers a range of services including making mobile phone and DTH recharges, booking travel tickets for customers, making bill payments and assisting e-commerce shoppers. ShopX also acts as a pick-up delivery point for such orders. The company plans to offer more such services, including train ticket bookings, going forward.
Besides, the firm’s app connects the retailer directly with consumer brands, helping in direct sourcing of products and involves itself in last-mile fulfillment as well. ShopX, run by 10i Commerce Services Pvt. Ltd, is currently present in 250 towns and cities.
The business-to-business e-commerce enabler primarily targets Tier-2 and above towns, where people are more comfortable shopping at a local store than through technology.
Founded in 2014 by Amit Sharma and Apoorva Jois, ShopX has raised $10 million in funding till date from Infosys co-founder and former UIDAI chairman Nandan Nilekani.
In an interaction with VCCircle, ShopX’s chief executive Sharma talks about the company’s roadmap ahead and expansion plans. Edited excerpts:
Given the size of the e-commerce market in India, why does ShopX focus on small merchants and retailers?
E-commerce, as it stands today, only [accounts for] 1.8% of the total retail sector. Large format retail has become stagnant, [accounting for] about 7-8% [of the entire segment], which leaves us with about 91% [of the market]. Even in 2020, it will still be about 85-87%. That’s the large elephant in the room waiting to be addressed. Instead of starting another business-to-consumer e-commerce platform, we decided to partner with the small merchant and make him the hub of digital commerce.
How many retailers do you currently have on your platform and at what rate are you growing?
Currently, we have more than 50,000 retailers on our platform across nine cities and 250 towns. The scale is currently about $40 million in annualised gross merchandise value. We started showing growth only since August 2016, when we processed transactions worth Rs 50 lakh a month. Currently, we are going at Rs 20 crore a month, which translates into 40 times growth since then. But there is more room for more. We believe this will become a multi-million dollar business opportunity in 2-3 years.
Do the small merchants on the ShopX platform comprise mostly kirana stores?
Out of the 12 million Indian retailers, about 7 million or 70 lakh are FMCG kiranas, while about 3 million are telecom (including recharge), and others form the rest. In the ShopX network, it’s about 50-50 between kiranas and telecom.
How does ShopX’s retail distribution operate?
As I said, we connect retailers directly with brands for direct sourcing. All the top brands, which account for 70-80% consumption in India like Patanjali, Unilever, Marico, Xiaomi, Apple, Micromax, Karbon, and Lava, to name a few, are part of our network. We currently deliver parcels across the southern and western parts of the country like Hyderabad, Indore, Mumbai, and Bangalore through an outsourced network.
We ensure an average delivery time of four days, as opposed to the 10-15 days prevailing currently in the industry, at a cost which is half of [that] on Amazon. Recently, we launched something called ShopXpress, which assures two-day delivery. [This is] something we believe is unheard of in B2B e-commerce logistics and delivery. In fact, the supply chain part of the business is what makes this model scalable.
Why do you think your model will work?
India should never be confused with the US or China. There are 1.2 crore small retailers in India, the highest density anywhere in the world, translating into one for every 100 Indians. This is our unique strength and we should build on it rather than marginalise [e-commerce] under the garb of legacy retail. Legacy retail can be converted into new retail with the help of technology. It is fair to say that 2017 [was when] omnichannel-digital-offline [emerged] as an alternative to e-commerce. This year, a lot of people will see it in action and we are happy to be at the forefront of it. We are essentially helping our customers go omnichannel, and few have [been able to mix] physical [retail] with digital.
What is your revenue model?
Whenever a retailer signs up on our platform, we take a small, one-time fee of Rs 500. However, this is not our main source of revenue. The consumer brands on our platform give us a transactional margin on sales.
Besides, brands are also willing to give us marketing budgets as we aid in their growth. As our retailer customers watch this app every day, we have managed to do something similar to what Google did with Adwords, which is to open up ad spaces for advertisers. Any consumer brand can push out a notification, which will be seen by all retailers on our platform as they open the app in the morning. We also do local marketing and brand building activity. Brands are willing to pay us for these services. This is a very promising revenue stream for us and there is a lot of inbound interest from brands.
How big is the team at ShopX?
The total team size is 100 and will continue to remain lean. A large part of it comprises of tech and engineering [personnel]. We have a small team in every state we operate, more for aiding taxation and movement of goods. By using tech in the right way, we can avoid having a large team. We eliminate or automate non-essential activities and try to outsource [the rest]. We employ resources only for the remainder. By Indian standards, I would say we are 10 times ahead of other companies, in terms of automating the workforce.
Do you plan to launch a consumer-facing app?
Yes, and it is more likely to be launched during the second half of this year. It is already in beta mode and can support six languages such as English, Gujarati, Malayalam, Tamil, Hindi, and Kannada. We have also designed the app in such a way that it can work offline, in low connectivity regions and even where data connection is absent. Customers will still be able to open the app and place orders.
While the testing is all done, the delay in the launch has more to do with a focus on prioritisation. We have our hands full with B2B. We have many big partnerships shaping up.
Currently, all these digital services are offered through touch points in the form of the retailer. We have over 70 lakh customers who have interacted and done business with our retailer network. Currently, the retailer allows the customer to use his app. In some cases, the retailers take a tablet from us, which acts like a mini-kiosk for the customer to browse and avail of services in an assisted fashion.
Why should a customer avail of these services in person at a kirana store rather than from a consumer-facing app?
That’s exactly the reason why e-commerce still accounts for only a minuscule percentage of total commerce. We are targeting the next $400 million, the middle-income mass market, which at most times doesn’t shop online. Otherwise, e-commerce should have accounted for about 30% of the market today. So, this is just a way for them to get included in the digital sphere. These customers visit their kirana and telecom recharge points once a week.
The consumer-facing app will only act as an added convenience and trust. The customer will still be attached to the retailer, who will help with the fulfillment of these services. Shopping from an e-commerce site does not come naturally to these shoppers.
What are ShopX’s roadmap and expansion plans going forward?
2018 is definitely going to be a big growth year for us, where we will deepen our existing partnerships. We are looking at $1 billion GMV within the next two years. We hope to add two lakh retailers in the next 24 months. It could probably happen faster.
Eventually, the idea will be to expand to 1,000 cities and towns in the south and west and another 1,000 in the north and east. We want to ultimately become a company with 1 million retailers, with 100 million interacting customers. I think we will be able to get there in 3-4 years.
Are there any new service offerings in the pipeline?
Offering credit is a big theme and we have already started extending small loans to retailers in partnership with non-banking finance companies. The idea is to make the app a one-stop shop for all the commercial needs of the retailer.
One of the future use cases will be the distribution of content through a kirana store. Today, the only option is streaming. We believe more than 50% of content browsing in India can happen via different mechanisms.
Could you elaborate more on content distribution?
It’s a bit early to talk about it now. The way we have visualised it is a customer can ask for content on-demand from the retailer, both free and paid. The consumer app will intelligently sync-up with the retailer’s app, with the content transfer happening free of cost without data consumption. You will be able to browse the content and view it offline as well, with an expiry time. We have developed the tech and have kicked off some pilots. We have also seen initial signs that they work.
Are your tech capabilities developed in-house?
The team has almost been built entirely in-house and through organic means, barring the use of open source software platforms, which we customise. We do about 60,000 transactions a day. Flipkart and Amazon have about 2-3 lakh transactions. We use Amazon Web Services for cloud and other technologies like Hadoop.
Do you intend to offer software-as-a-service capabilities through your technology?
Our distribution management tech has already evinced interest from leading brands who have asked for it. But we are clear that we aren’t a services company. However, if is of any value to others, we will definitely consider letting them use it. In some cases, we may even give it out as an open source platform for free and let the community benefit. In some cases, it might be a monetisation tool. However, it will never be a traditional SaaS-based offering.
What is ShopX’s status on profitability?
This business lends itself to a very good path to profitability. We are already very close to operating break even at a unit economic level. Our major cash burn is only for tech and people.
Are you looking for funds to expand?
The good thing about our business is the low cash burn. Our growth has an inherent profitable element to it. When we sign up retailers, they pay us money. When we launch them on our platform, we get money from the channel partners. Likewise, brands pay us for marketing and distribution. Normally, you have to incur a cost during customer acquisition. We [don’t] have acquisition costs. Some months ago, we made a net profit of Rs 20 lakh just from growth, whereas it usually requires investment. Hence, we do not require a lot of capital.
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