Nestle products (Image: Reuters)
Bangalore-based startup ShopX is an unusual competitor to the ecommerce unicorns of India.
ShopX, which digitally connects mom-and-pop shop owners with FMCG brands, has created an e-commerce model that can potentially compete with the large e-commerce chains of India in reaching the last mile.
Started in 2015, ShopX has brought over 50,000 such kirana stores onboard its digital platform that allows the shop owners to directly order products from the brands.
For scaling up, the startup is targeting over 12 million of those mom-and-pop stores spread across the country, instead of banking on the online adeptness and purchasing power of India's urban users.
"All the digital startups and e-commerce companies we see today chase the same 40-50 million users who are used to online shopping. The bigger market, however, is beyond that. Over 400 million residing in the tier 2 and 3 towns, as well as villages, rely on neighbourhood shops for every need,” Amit Sharma, co-founder and CEO of ShopX said during an exclusive chat with Moneycontrol News.
Other firms that operate in the B2B commerce space include StoreKing, and Snapbizz.
ShopX connects the small neighbourhood shops, kirana stores, pan kiosks, etc to major brands. These shopkeepers can browse through a digital catalogue of major brands such as Unilever, L’oreal, Patanjali, Micromax, and order any product directly from the sellers.
A structured progress
ShopX claims that it has seen the demand for premium brands increasing in Tier-2 and Tier-3 towns.
One such example is the launch of iPhones on the technology platform in January, this year.
The company claims it sold more than 300 units of iPhones, out of which 70 percent of the shipments were for iPhone 5s.
The logistics is taken care of by ShopX that leverages the unorganized surface transport companies to take the goods to remote areas.
The advantages of this are in cost savings.
ShopX claims that its transportation costs are one-tenth of an Amazon that uses air shipping for its deliveries. For warehousing, ShopX has tied up with Fedex and BlueDart.
For last mile delivery, ShopX works with local distribution partners who manage and monitor shop owners in their stipulated area.
That cuts down the need of recruiting delivery boys or of owning vehicles.
ShopX’s role in this long process is to provide the necessary technology for seamless operation.
The retailers in turn subscribe for it at Rs 1,000 per annum.
Using a proprietary technology platform, ShopX brings retailers onto a nationwide distribution network that allows them to benefit from technology, and offer an array of products and services.
Retailers earn anywhere between 30-40 percent as margin on the products, much more than the traditional retail model that offers about 20-30 percent depending on the kind of product.
For brands, it means they can expand their product offerings while various aspirational brands are able to strengthen market outreach.
The benefits for the retailer are low investment, zero stocking, and increase in income opportunities.
Layers of service
The ShopX platform also has a consumer facing app that user of a particular shop can download, browse through the multiple brands available, and order directly.
The product will be delivered to that shop, where the user can pay and collect the product.
In a developed market like the US, almost 85 percent of the retail supply is taken care of through large warehouses.
In India, while e-commerce is catching up rapidly, it contributes only 1.5 percent to the 650 billion dollar economy.
According to Ken Research, majority of online sales in FY16 came from a clutch of eight metro cities.
“Mostly it is the last-mile logistics that keeps the major sellers away from smaller towns. Even if they rely on air shipments, costs are higher, which they can’t pass on to the users,” Sharma explains.
But in recent times, various international aspirational brands have aggressively focused on strengthening their reach beyond metro markets.
The digital offline model of ShopX has offered a win-win situation for both brands and the retailers.
The company has raised about USD 9.8 million from ex-Infosys CEO
Nandan Nilekini, who owns a strategic stake in the company.
ShopX plans to break even by 2018 on the back of its frugal cost structure. The company has also roped in Jagdish Kini, former CEO of Airtel (South Region) and former Aadhaar chief architect Pramod Varma, as mentors.
By end of next year, the startup wants to reach about 1 million shopkeepers.
The startup has also added a formal credit option in its platform that allows shopkeepers to avail loans from a clutch of partner banks and NBFCs such as FlexiLoans and CapitalFloat.
It claims to have disbursed about Rs 20 crore of loans in three months since its launch. In the pilot stage, ShopX claims that it has seen a 100% repayment track for such firstname.lastname@example.org