Getting Udaan IPO-ready: The inside story of a pivot

As Udaan’s losses mounted, concerns arose regarding the viability of its concern model. “This is simply a precise punishing marketplace if you don’t person the close outgo and gross structures successful place," said a erstwhile Udaan executive, requesting anonymity. “Everybody’s woken up to the information that this is simply a debased borderline business," the enforcement added.

Udaan, therefore, is nary much the institution it was a twelvemonth ago. The institution grew rapidly earlier the pandemic and was 1 of the fastest startups to execute the coveted unicorn presumption successful 2018. But successful the past 2 years, it has closed operations successful respective cities, consolidated categories, laid disconnected a ample fig of employees and transitioned to a much cost-efficient model. Indeed, the institution wants to spell nationalist successful the adjacent 18 months.

What precisely is the caller exemplary Udaan is pinning its hopes on? Before we answer, let’s look astatine the company’s beginnings and wherefore it galloped the mode it did earlier the pandemic.

Middle India pitch

Udaan, founded by 3 erstwhile Flipkart executives—Amod Malviya, Sujeet Kumar, and Vaibhav Gupta—started successful 2016.

It started arsenic a marketplace that was antithetic from Flipkart oregon Amazon. While the 2 e-tailing giants focuses connected consumers, Udaan wanted to play successful the unorganized marketplace of B2B trade. It wanted to link farmers, wholesalers and retailers connected 1 platform. The institution started with apparel and electronics and past expanded to food, user goods and pharmaceuticals categories. Over time, it besides introduced an inventory-led model. For instance, it stocks goods from FMCG brands.

For the 3 founders, each of whom came from tiny towns successful Uttar Pradesh and Bihar, the imaginativeness was to physique for mediate India. “I ne'er wanted to spell and absorption connected luxury markets oregon luxury goods. That does not excite me. What drives maine is solving for the ample population," Vaibhav Gupta, besides Udaan’s main enforcement serviceman (CEO), told Mint during an interaction.

Udaan’s transportation managed to drawback investors attraction close away. The information that the founders were from Flipkart and had a palmy way grounds of scaling an e-tailing concern helped. It has raised astir $1.5 cardinal frankincense far, a premix of indebtedness and equity.

According to a study by AllianceBernstein, a planetary plus absorption firm, Udaan’s scope accrued from 0.5 cardinal cumulative fig of buyers successful December 2018 to 1.7 cardinal by December 2020.

Another study by Redseer, an advisory firm, stated that by 2022, astir fractional the existing idiosyncratic basal of online B2B platforms planned to summation their spends connected 2 companies—Udaan and JioMart, the online wholesale level by Reliance Retail Ltd. But portion Udaan is simply a axenic play online venture, JioMart is an omnichannel business.

Over time, Udaan built a marketplace that serviced sellers and buyers done centralized warehouses and a centralized proviso chain. This standard of operations came backmost to wound the company.

Age of experiments

Flush with cash, Udaan embarked connected an experimentation spree—just excessively galore earlier the pandemic, according to an manufacture enforcement who requested anonymity.

“They were moving 12 antithetic categories, immoderate 50-odd subcategories, experiments successful logistics, business-to-consumer (B2C) couriers. There was conscionable excessively overmuch going on," the enforcement said.

For instance, successful 2020, the institution tested waters successful B2C done an app called Pickily. The thought was to alteration speedy fulfilment done the acheronian store model. The experimentation did not spot the airy of the day.

With the backing wintertime approaching, it abruptly got precise costly to support truthful galore experiments, added the manufacture executive.

While everything integer boomed during the pandemic, axenic online models, beryllium it successful edtech oregon e-commerce, started fumbling arsenic things opened up station the lockdowns. “Our estimates accidental that during covid-19, astir 25-30% of retailers utilized Udaan oregon equivalent services. Today, however, that fig is astir 15%," Kanishka Mohan, spouse astatine Redseer, said.

In 2020, Udaan launched a B2C app called Pickily. The thought was to alteration speedy fulfilment done the acheronian store model. The experimentation did not spot airy of day.

Meanwhile, immoderate FMCG brands merchantability constricted supplies to Udaan to support their relationships with accepted offline organisation networks. In fact, successful 2021, Udaan had filed a ailment against FMCG large Parle Products earlier the Competition Commission of India (CCI), alleging that Parle had abused its ascendant presumption by refusing to proviso their products straight to Udaan. The CCI turned down the plea, noting the manufacturer’s autonomy successful choosing its concern partner.

Udaan’s CEO, however, told Mint that the FMCG occupation is mostly solved; that astir brands judge Udaan is simply a parallel channel. “At slightest 90% of them are giving implicit proviso to the request we are raising," Gupta said.

Within the categories, pharma became hard to crack, aggregate existent and erstwhile employees told Mint. A much organized category, the institution struggled to find a worth summation it could supply successful the cause supply-chain.

The large pivot

This brings america to Udaan’s operational pivot. From large to small, from centralized operations to hyper-local.

The institution present has a clump approach—Udaan finds retired the densest request country successful a metropolis and sets up a localized supply-chain. India is divided into 50 clusters. Each clump has its ain proviso chain, ain warehouse, ain fulfilment centres. These centres banal and service lone the designated cluster. The attack optimizes costs since the institution doesn’t discarded wealth serving a fewer customers extracurricular of the large request centres.

“Because we expanded crossed India, we did get scale. But, it was important to absorption connected request successful a tiny neighbourhood to optimize outgo alongside scale," the CEO explained.

The pivot besides worked for the customer, helium added. “It enables america to bash adjacent time delivery. And it besides enables america to transportation a precise localized portfolio, which is applicable successful India due to the fact that the rice, the flour and the pulses which get bought and sold successful Bengaluru are antithetic from the atom you bargain successful Hyderabad," Gupta further said.

It was important to absorption connected request successful a tiny neighbourhood to optimize outgo alongside scale. —Vaibhav Gupta

The localized approach, meanwhile, has helped Udaan representation its lawsuit basal better—the size of a shop; its location; the estimation of what products the store carries. “Once we bash that, we get a consciousness of what the marketplace request is. Our extremity is that our shopkeepers should beryllium capable to find astatine slightest 80% of the products they support connected our platform," the CEO said.

Investors look to similar this model—like we mentioned earlier, the ample backing circular past twelvemonth was connected the backmost of this caller strategy.

“Udaan’s clump strategy serves arsenic a compelling blueprint for the institution to standard its operations profitably, mounting a caller modular of excellence successful the industry," Bejul Somaia, spouse astatine Lightspeed, Udaan’s biggest investor, said. “The clump attack transforms however Udaan engages with the kirana stores by delivering sharper worth propositions. This absorption enhances lawsuit restitution and drives improved work levels, higher purchaser retention, stock of wallet and bid frequency," Somaia added.

Nonetheless, the caller exemplary means a overmuch smaller concern for the company. As portion of the restructuring, it has scaled backmost connected categories and cities. Pharma is 1 of them.

“There was a squad of 20-30 radical successful pharma and Udaan was erstwhile doing ₹30-40 crores successful business. They person been consolidating the vertical," said a erstwhile worker who didn’t privation to beryllium identified. Six months ago, the pharma concern shrunk to astir ₹22 crore; the squad was chopped to conscionable 6-7 people, helium added.

While Gupta did not remark connected the size of the pharma concern oregon the worker count, helium agreed that the institution was consolidating the class and it present operates lone successful Bengaluru from a pan-India absorption earlier. He calls it “geography-specific class optimization".

“We person expanded the portfolio; we person expanded the sum and our Bengaluru concern successful pharma has grown implicit the past 9 months, astir doubling successful scale," Gupta said.

Private affairs

Udaan, meanwhile, is besides pressing up with its backstage labels business—a precocious borderline game—and an important portion successful the company’s way to profitability. Private labels were archetypal added successful 2021.

“For a akin product, nationalist brands springiness you 3-5% margin; determination brands oregon smaller brands 8-10%; backstage labels connection up to 15%," Mohan of Redseer said.

Captain Harvest (atta, rice, salt), Annabhumi (atta), Jayabhumi (rice and pulses), Bold & Classic (lifestyle) and Fabclassic (home & kitchen) are immoderate of its backstage labels.

While immoderate radical Mint spoke to said that the backstage labels concern is yet to summation traction, Gupta disagreed. “In the Bengaluru cluster, they (private labels) person scaled up from azygous digit to supra 10% of the wide concern now, conscionable successful the past 2 months. It’s a large portion of our strategy," the CEO said.

The crowd

Udaan’s margins, meanwhile, look different challenge—growing competition.

A big of companies, large and small, aged and new, person mushroomed successful the B2B commerce space. Udaan doesn’t person the tailwind that Flipkart did, immoderate marketplace watchers pointed out. The user e-tailing space, by the clip Walmart bought Flipkart successful 2018, was a duopoly (Amazon being the different giant). But B2B is much crowded with good funded players.

There is ElasticRun (the institution calls itself a “B2B e-commerce level for agrarian India"); ProcMart (it raised $30 cardinal successful a Series B circular successful April); Flipkart Wholesale; AmazonDistribution; Supermarket Grocery Supplies (BigBasket’s B2B arm) and Metro Cash & Carry India (a portion of Reliance Retail). Besides horizontal commerce platforms, determination are azygous class players arsenic well—they absorption connected gathering a concern astir 1 category. Ninjacart (agri) and Jumbotail (food and grocery) are 2 of them. Further, FMCG companies similar HUL and ITC person besides been moving connected their ain online B2B platforms called Shikhar and Unnati, respectively.

Udaan has already gone connected an overdrive to conserve cash. Gupta said the institution has reduced its pain by 80% successful the past 2 years arsenic it trimmed operations.

How the dynamic betwixt FMCG brands and B2B e-commerce players unfold, going ahead, volition beryllium cardinal to Udaan’s way to profitability and its ambitions of a nationalist listing. Some clip back, the institution was eyeing an IPO successful 2023. That timeframe has stretched—it would beryllium acceptable for the nationalist markets successful the adjacent 18 months, institution executives said. The task, therefore, is chopped out.

Udaan has already gone connected an overdrive to conserve cash. Gupta said the institution has reduced its pain by 80% successful the past 2 years arsenic it trimmed operations. With the caller absorption connected hyper-local, helium thinks the institution has yet cracked the B2B code. Now, it has to show a fewer quarters of profitability, an enforcement quoted supra said. How soon remains the billion-dollar question.