There is a new war afoot in the intensely competitive and rapidly growing e-commerce landscape in India. After years of battling Amazon, Walmart-owned Flipkart is now fending off a threat from a newer rival: SoftBank-backed Meesho.
Moneycontrol learns from sources that six-year-old Meesho's rapid expansion and quality of execution have taken India's original internet poster boy by surprise. This fresh threat also opens up a new battlefront in the e-commerce space in India, years after the likes of Snapdeal and Shopclues got badly bruised, leaving Amazon and Flipkart to dominate the market. But Meesho is now chipping away at that duopoly, forcing a reset in the e-commerce landscape, even as large conglomerates such as Reliance and Tata chalk up ambitions to grow in this space.
At least two people familiar with the development told Moneycontrol that Flipkart now has a war room comprising 20-30 executives dedicated to Meesho. "It is becoming very Meesho-focussed internally. Their name comes up multiple times in a day," a source said.
Two more sources Moneycontrol spoke to said Flipkart has also informally asked third-party logistics providers such as Delhivery, Ecom Express, Shadowfax and XpressBees, to cut down on their commitments to Meesho. Delhivery, Ecom Express and Shadowfax did not respond to queries on this development. Moneycontrol was unable to reach out to XpressBees.
Flipkart's move, widely seen as an attempt to flex its muscles amidst rising competition, is unlikely to cut ice with these companies. Because, while Flipkart and Amazon have their own delivery services arms and warehouses (Ekart Logistics and Amazon Transportation Services), Meesho is completely dependent on third-party logistics providers and now contributes to 40-50 percent of their overall shipments. On the other hand, Flipkart primarily uses Ekart and is dependent on third-party players for a fifth of its deliveries.
"The third-party delivery ecosystem gets far higher orders from Meesho than what Flipkart gives them. Meesho is now averaging 2 million orders a day, compared to the 2.5 million orders that Flipkart and Amazon clock every day," an executive at one of these logistics firms said, on the condition of anonymity.
"They cannot dictate terms to third-party logistics players, because Meesho is now a much larger part of their base and is helping them recover the fixed cost of their investments in smaller cities," a second source said.
Flipkart vs Amazon vs Meesho
The battle lines between Flipkart and Meesho are more pronounced because of the overlap in the segment they cater to. The Indian online shopper can be broadly divided into two categories- those who value convenience over price, and those who value price over convenience.
In the last decade, Flipkart was forced to cede its monopoly in the convenience segment to Amazon, which is going after the top 100 million online shoppers in India who value convenience and don't mind paying extra money for speedy delivery. While the convenience buyer still accounts for 60-70 percent of Flipkart's business, it has increasingly been focussing on the value segment, especially in Tier-2 and Tier-3 cities. This is the same customer group that Meesho caters to.
"Meesho is solving much more for the price than convenience. It is not giving an Amazon Prime kind of a promise where it will deliver the product the same day or the next day. They are saying this will come in a certain number of days but you will get a good quality product at a lower price", an executive who is familiar with Meesho's strategy said.
"Meesho works with all the large logistics partners and is among the largest customers for them. They (logistics companies) care more about the volume and weight of the shipment than its value. So if you think about how important Meesho is today, they are the number one with a lot of logistics providers. They are extremely critical for their businesses" he added.
Meesho's strategy has parallels with how internet companies in China and Southeast Asia are organised. "Think of Flipkart like a JD.com, whereas Meesho is like Taobao, or like Singapore's Shopee. It wants to deliver the smallest of items at the smallest of price to every shopper," an executive who has tracked the space over the last decade said.
"For Flipkart, 65 percent of their business still caters to the convenience segment, which is why they have a dedicated logistics arm and warehouses. Their fixed cost is high. But Meesho doesn't have a single fulfillment center and is asset-light. Flipkart's unit economics is not built to do what Meesho is doing," the executive quoted above said.
Meesho's rapid growth
Founded by IIT Delhi graduates Vidit Aatrey and Sanjeev Barnwal in December 2015, Meesho started out as a social commerce platform. This business model typically has a three-sided marketplace - supplier, reseller, and end customer, where the reseller buys products from the supplier and sells it via platforms such as WhatsApp.
While Meesho started out with a thrust on social commerce, its share of direct sales has been going up, pitting it against players such as Flipkart and Amazon. It now derives 75 percent of its business directly from customers who come on its platform, while 25 percent comes from resellers.
Interestingly, Flipkart also launched a social commerce offering called Shopsy a few months ago, to bring together sellers, resellers, and consumers on its platform. Flipkart said in October that within 100 days of launch, Shopsy has already amassed over 2.5 lakh sellers, 51 lakh users, and a catalog of over 150 million products.
Flipkart's hard choices
While Meesho is catching up with Flipkart and Amazon in terms of daily order volumes, it has a far lesser average order value- Rs 400-500 compared to the Rs 2,000-3,000 average selling price that a Flipkart has. This is also because of the business mix - while smartphones and electronics account for a lion's share of Flipkart's business, for Meesho it is fashion and home care.
In terms of GMV (gross merchandise value), which means the value of all goods sold on the platform including discounts but excluding returns, Meesho's GMV is in the range of $4-5 billion compared to $20 billion for Flipkart.
"Flipkart can take away 10-15 percent of Meesho's market share but risks ceding the higher value that it derives per order by catering to the convenience shopper. So Flipkart needs to decide if it wants to go after convenience or price," the executive said.
Meesho has already raised two rounds of funding this year. It raised $300 million in a round led by SoftBank Vision Fund 2 at a valuation of $2.1 billion in April and raised $570 million in a round led by Fidelity and B Capital in September, more than doubling its valuation to $4.9 billion in five months. It is now closing a $1 billion funding round that will catapult its valuation to $8 billion.
At the same time, Flipkart Group (Flipkart, Myntra, PhonePe), raised a record $3.6 billion in funding from a clutch of global investors, sovereign funds, and private equity, in addition to Walmart, at a valuation of $37.6 billion. This was seen as a pre-IPO round before it lists in the United States next year. The round interestingly marked the reentry of SoftBank into Flipkart, years after it exited the company. While SoftBank has less than a 2 percent stake in Flipkart, it has a 10 percent stake in Meesho.
"Apart from a newer share of the business, the newer share of capital is also moving to Meesho. The e-commerce funding pool in India is now getting divided between Flipkart and Meesho," an investor tracking the space said.
Meesho's rapid growth comes with its own problems. "The quality of customers and the quality of market they serve is very low end. Their percentage of returns is very high, almost 30 percent," an industry source said.
But a person who has seen Meesho's numbers said this was because of the business mix. "Over 50 percent of Meesho's business comes from fashion, where the returns are higher, north of 25 percent. But this is comparable to other fashion portals," he said.
A new test for Kalyan Krishnamurthy
Meesho presents a new challenge for Kalyan Krishnamurthy, Flipkart's battle-hardened group CEO, who has been running the company after the exit of its founders Sachin and Binny Bansal. Krishnamurthy's superior execution skills and business chops helped Flipkart keep Amazon at bay so far.
According to analysts from Bernstein, Flipkart, excluding Myntra, clocked GMV of around $12.5 billion in calendar 2020 while Myntra clocked $2 billion. Amazon India clocked a GMV of around $11.5 billion during the same period.
While the Indian e-commerce market was worth $24 billion in 2018, this is expected to be worth $133 billion by 2025, according to analysts from Bernstein.
Investors tracking the space say India's market will not be a winner takes all scenario.
"It will be impossible for only Amazon and Flipkart to serve the hundreds of millions of Indians who will come online and shop. So all these players will find their niches over the next five years. There will be space for an Amazon, Flipkart, Meesho, apart from vertical e-commerce players such as Nykaa, Lenskart, and FirstCry," an investor tracking the space said.
While Meesho did not respond to queries for this story, a Flipkart spokesperson shared this statement, “At the Flipkart Group, we are constantly evolving to address the growing consumer internet ecosystem, by providing end-to-end offerings from travel to healthcare, as digital technologies continue to democratize access to products and services."
"Over the last several years we have built deep expertise and have made investments in people, technology, governance mechanisms, supply chain, and infrastructure to deliver superior e-commerce experiences for consumers. We continue to leverage these capabilities and a robust internal governance and compliance framework to make safe and secure deliveries to more than 90 percent of the addressable pin codes in India."
"With Shopsy, we extend our infrastructure capabilities and deep processes, governance, and systems to give entrepreneurs and consumers across the country an opportunity to do a lot more with their commerce experience. Through Shopsy, consumers are able to overcome their trust barriers and engage more deeply with the digital economy."