Nov 18, 2016 10:42 AM IST | Source:

EXCLUSIVE: Demonetisation will help reduce costs: Snapdeal's Kunal Bahl

The recent move by PM Modi has come as a shot in arm for Snapdeal. It is now the only e-commerce player to have a trio combination of delivery, payments and e-commerce in its portfolio with Snapdeal, Vulcan and Freecharge. The company's CEO gives Moneycontrol a download of what to expect in weeks ahead.

Priyanka Sahay

Moneycontrol Bureau

Gurgaon-based Snapdeal has been has been grappling to improve its market share amidst tough competition from bigger rivals Amazon and Flipkart, who grabbed the first two spots in pre-Diwali sales, this year.

However, the recent announcement by PM to annul high denomination currency notes comes as a huge opportunity for Snapdeal which acquired online payments firm Freecharge, last year. Post demonetisation, the company has launched a ‘wallet on delivery’ service.

To improve overall customer satisfaction index and reduce the delivery time it is moving a majority of its delivery to its own logistics unit Vulcan Express, next month. In a conversation with Moneycontrol, Kunal Bahl, the chief executive officer, talks about the effects of demonetisation on the e-commerce sector and how having logistics, delivery and payments facilities under one roof will help Snapdeal in the long run. Edited Excerpts:

What is the impact of demonetisation by the government on Snapdeal's business?

It is a ground breaking move for our nation. There was a requirement of tough and bold decision which this government has taken. Within 24 hours of the announcement, we announced 'Freecharge on delivery'. Others also came out saying, we are also launching but I haven't seen a single case of anyone doing it. Whereas for us, 15% of all our payments is happening online wherever we have opened 'Freecharge on delivery'.

Demonetisation will further the narrative of building e-commerce companies in a very sensible and methodical manner, focusing on their unit economics. There is a lot of craziness that has traditionally happened in ecommerce in order to gain gross merchandise value. One thing is very clear, this will drive is greater focus on unit economics. Because now we have been given an opportunity to improve our economics structurally by driving cash on delivery come down. So we must embrace this.

What was the thought that went behind when you decided to acquire Freecharge, last year. How will that work now post demonetisation?

About 18 months ago, we acquired Freecharge, a lot of people asked why did you do that even as about 80% of our business was cash on delivery. But if you believe that India's future will be digital, if you believe in that thesis, you have to take bold steps. We have been doing a string of innovations at Freecharge. We were the first to launch a virtual card. We have a patent pending for this. No one else offers it. We have an internal SLA that no payment should take more than 10 seconds.

We have done all these different things, which are first to market. Despite the fact that other players have been in the market for around for may be about 4-5 years, Freecharge really turned into a payments company after we acquired it.

We are very happy with that investment. A lot of people were non-believers. People always viewed payments as different from e-commerce. According to them, they were two independent opportunities.

But, I don't think that is the right way to look at it. Payments make commerce stronger and commerce makes payments stronger. And I think, from our perspective, making that bet early, now we are so far ahead (of competition). If you think about Indian e-commerce companies, no other large e-commerce company has a big payments business. And now no one disagrees that payments is a large opportunity and it helps e-commerce.

What are the payment innovations be expected out of Freecharge in next few weeks?

We are going to launch utility payments on delivery soon. A delivery boy will ask a customer's number. He would be able to fill the account for the customer and the deduction will happen from the wallet. The customer can give cash and the delivery boy will make the payment. We are going to launch this soon, where the delivery boy will offer this as a service. We have millions of touch points a month. There are many million opportunities of helping consumers make more payments and digitize their transactions.

(Snapdeal's staff during Diwali sales)

How does having delivery, commerce and payments make Snapdeal unique from a Flipkart or Amazon?

This is the golden triangle where commerce should help payments and payment should help commerce. The delivery person is going door to door anyways. Why shouldn't they enable more digital payments at the same time while doing deliveries? There is no additional cost for us. It adds an additional convenience layer for consumers. It also increases the number of reasons for consumers to use Freecharge. It is a unique capability only we have. We have delivery, commerce and payments. If you don't have any of those three you can't do all these things.

How many pincodes is 'Freecharge on delivery', currently available?

We haven't opened it up everywhere. Every day, we are increasing the network. We did not want to open it up everywhere overnight. There's a lot of training that needs to go in.

How big is utility payments on Freecharge? Is there an increase in transactions post demonetisation?

Utilities are obviously very big, but where we have seen the biggest increase in the last week after demonetisation is actually in the merchant transactions. The three categories we have seen maximum uplift are cabs, chemists and doctors.

Users were taking taxi earlier also but they were paying with cash. Now they are paying with digital payments. Earlier, if we saw X transactions on chemists, now we are seeing 20x-30x transactions on chemists. On a blended basis across all our merchants put together, we are seeing about a 10x growth, if we see an average number of merchant transactions per day over the last one week, versus the previous 30 day average.

What does it mean when you say that 'customers will be getting more out of it'? Would it be going a year back to the era of discounts and cash backs?

No, it is also about loyalty, where you can offer consumers benefits around loyalty. For instance, credit card companies offer instant cash backs. But that is just one part of it. The other part is wherein you use the card at a certain merchant or spend a certain amount and then you get vouchers and benefits.

And there is nothing wrong with it. Today, we are at a stage where we are trying to drive change in Indian consumer's behaviour. And that change in behaviour is partly driven by demonetisation but also partly driven by us. It is giving consumers another reason why they should transact digitally.

So like for instance, what Freecharge is offering today, if instead of paying with cash if you pay by 'Freecharge on delivery', you get an additional 5% off. It works great for us. The cumbersome cost of cash collection and returns will go down, if a customer pays digitally.

Will demonetisation improve the customer satisfaction for buyers?

For customer also, we track a net promoter score, which is a customer satisfaction score. We have seen that customer satisfaction score for people who pay digitally is at least 30% higher than consumers who pay cash on delivery. That sounds surprising to some people, but the reason that is the case is because when you order on cash on delivery, you have to be there, you have to have the cash, which many people don't have at the moment. Often, the delivery boy does not have exact change. So there are all these inconveniences associated with COD which will also go away now. The more consumers pay digitally, the greater are blended satisfaction scores on our platform.

How has the re-branding exercise that Snapdeal took up in September helped the firm?

That has been fantastic. In general 9 out of 10 people have said that it has come out very well. The creative has come out very well. It has made the brand, go up in aspiration. Our traffic was up by 50 percent within 15 days of launch. It has continued to grow up, ofcourse in Diwali it doubled and tripled at times. In the first week of November, we continued to see almost 80-90% lift in traffic.

Has re-branding affected Snapdeal's sales?

Think of it proportionally. Almost proportionally it increases. We had a great Diwali. We saw a significant lift. The lift from September to October, this year was much more compared to last year. I would have to give significant credit to the fact that our experience has improved materially -- customer experience, delivery experience etc, second is the re-branding campaign.

After most of the companies had accepted the net promoter score as a metric, why did every e-commerce company went back and flagged order numbers instead of taking about the increase in NPS, during Diwali?

Customer satisfaction and revenue are lag metrics. We have to calculate them. Units, I can tell you right away. So we had to give people something then, which was credible and was factual. Things like net revenue are calculated with a lag. Customer service scores - you have to send service to consumers, then you get answers, then you calculate. That can't happen in real time. But our focus stays very clearly on growing net revenue. Our net revenue grew 4.5 times, last October to this October, in absolute terms. Which shows that the quality of GMV has increased. If you are making more margins, for the same topline, it means that your mix has become healthier. We are not just selling super low margin products that are high in Average Selling Price, just to make your GMV go up (like our rivals).

(Snapdeal's warehouse)

Does that mean that your average ticket size has also increased?

Not really. Average ticket size has gone up little bit. The frequency of buying of consumers is increasing because of an increase in sales of fashion and home products. Those are typically lower value products in the range of sub Rs 1000 versus laptops, phones, appliances which are obviously more expensive.

It is learnt that GoJavas is not handling much of your logistics right now and that Vulcan has come on the forefront. Can you help us understand how is your logistics being taken care of right now and which all parties are involved?

By the month of December, majority of our orders will be delivered by Vulcan. And I think that is a good thing because it gives us more control over the experience and the ability to provide the services. I always encourage third party logistics companies to innovate and offer more services. They should have been the one creating platforms for wallets on delivery. They should have been the ones saying let us connect to all wallets. They didn't innovate. If I were running a logistics company, I would have done it.

Our view was that, fine we tried our best, no problem, we will do it our own.  And that is what we have done. So majority of our orders will now be delivered by Vulcan. It gives us a lot of control over the experience. Our order to delivery time has continued to drop. Third party research firms, companies like Redseer have said that our delivery times are lower than the other players. That has been because of the investments we have made in the infrastructure as well as in technology. Soon, like you see, an Uber or an Ola coming to you, you will be able to track the delivery boy. It is in a pilot phase.

Does that mean Snapdeal plans to shift its entire logistics responsibilities to Vulcan?

No, we will continue to work with third party logistic (3PL). You can never go 100 percent self-delivery because there will be rural India, where you will have to work with India Post.

Our answer is somewhere in the middle, we believe that wherever we have enough density of orders, we should be delivering ourselves. But for other parts of the country where the density is lower because of less internet penetration, 3PLs are needed. And it is much more efficient to work with them. So it has to be a hybrid. The answer in my mind, very clearly is not a 90% self-delivery. The answer is a co-existence of self-delivery and third party logistics.

In August, Snapdeal announced setting up of six new logistics units under Vulcan. What is the current position?

Yeah six more large ones. Since then, we have set up dozens more, even smaller hubs. I think, we have north of 3 million square feet now under operation. Our network is expanding very fast. Consumers get good experience when product is shipped from warehouses where we have more control. About 75% of all products that consumers get are sitting in our warehouses.

We don't own them, they are sellers' products, but sitting in our warehouses. They go through comprehensive checking. It is packed homogeneously and it also reaches very fast because we can calibrate which courier company to send it by. Our view is that, it is a key strategic advantage that we have, where we have a very large seller base of about 300,000 sellers. Building key logistics and supply chain capabilities is very critical. The underlining logistics otherwise in India is very weak.

What happens now to GoJavas as you still have stake in the company? Is it still doing deliveries for Snapdeal?

Yes, (we do have stake) and the company is operating for Snapdeal, though not as much as last year because Vulcan scaled up.

What was the main issue with GoJavas?

It is in the past now. I think, we have moved on (from all the issues). It hasn't had a disruption on service of Snapdeal.

Do you have an appetite for another acquisition?

We did acquired, ‘Targeting Mantra’ that worked out phenomenally well. If you open Snapdeal app on all these phones, you will see a very different app, a very different experience that is because of targeting Mantra because it is highly personalised based upon your way of browsing. We are looking at similar companies that can help us with growing conversions. Otherwise, nothing we have seen is remotely interesting.

Do you think, having Freecharge, especially at this point in time, will go a long way in increasing Snapdeal's valuation?

Valuation is a price that investors are willing to pay. I do not wake up in the morning, figuring out how can I increase valuation but thinking how can we serve our customers better, about what opportunities are there untapped by us or how we can leverage this golden triangle of commerce, logistics and payments better. It is an exciting time. I don't worry about valuation. There is nothing you can do short term to drive it up, so it is better to be very focused for the long term.

Any word on fashion? What is Snapdeal up to?

Rohit (Bansal) and I are spending a third of our time on fashion e-commerce right now. We have some big plans there. My only view on fashion ecommerce is that the way it is done in India till now is not a sustainable strategy. Selling fashion apparel is not like selling mobile phones. In that process, ecommerce companies are not making money on fashion. This pegs the question, why are you into fashion segment?

The whole point of having categories like fashion is because they have better margin structures and they make you money. But when I looked at profit and loss statements of online fashion businesses in India, most of them are barely making money at the transaction level.

A billion dollars have sunk into fashion e-commerce in India. But what do we have to show for it? Not much. So I think fashion is slightly different methodology in India and I think it will take some time. Stay tuned.

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