Friday, December 10, 2021

Is Snapdeal's New Approach Reaping Rewards?

Snapdeal's IPO is coming out early next year and the news has surprised many metro dwelling folks as they haven't heard much about Snapdeal in the last few years. It has been mostly out of sight and out of mind for most people.

So over to the moot question; what has Snapdeal been up to that is leading up to the IPO news?

Well, before you decide this way or the other it's useful to understand Snapdeal's journey in the last 4-5 years and how their business is panning out. Some people in the know of things are aware that Snapdeal has been working under the hood with very different approaches and has silently staged a comeback in the value e-commerce space. Let's find out a bit more about this journey.

Snapdeal: The Pioneer of Indian E-commerce

A bit of history first to understand the pedigree of the company and its management. Co-founded in February 2010, by Kunal Bahl and Rohit Bansal, Snapdeal is the Pioneer of Indian E-commerce. It was one of India's earliest Unicorns. Within six years, it achieved a market valuation of $6.5 billion and became the second-biggest e-commerce company in the country (source: Forbes India). However, other big players like Flipkart, Amazon eventually took large market shares in the market denting Snapdeal. Many thought it was the end of the road for Snapdeal but the founders had other plans.

They embarked on a new path to rebuilding Snapdeal. With a bigger responsibility to re-establish Snapdeal in the market, the co-founders came up with a new approach, a move that would eventually change the fortunes of Snapdeal.

Read Also: Upcoming IPOs in India


The new approach: 

A fresh approach needed a fresh evaluation of the current business environment and the Snapdeal founders were quick to assess the massive growth in internet penetration being expedited by the entry of Jio. 

The JIO Internet Revolution:

  • In 2016, Jio completely revolutionized the use of the Internet in India. Now everyone had access to the Internet in the country, which led to the growth of a new wave of consumerism in India - Bharat.
  • Bharat comprises the aspirations of people of tier 2-4 cities and rural areas. As they hooked on to the internet, they started changing their lifestyle to what's the latest but with a value-conscious approach. And this led to the emergence of Value E-commerce. Let's deep dive.

Value E-commerce:

Value E-commerce is all about providing good quality products at affordable prices to customers online. It is a segment of E-commerce that offers Value-based products instead of brand-oriented products. Functionality is given more importance than brands. As per a recent report by AT Kearney; it is the fastest-growing segment of E-commerce. And with its focused approach, Snapdeal dove deep into this segment to grab this opportunity and became a completely value E-commerce focused platform.

Shifting the Customer Base to Bharat Consumers:

Since Value E-commerce had a specific kind of Value conscious buyers, the shift to Value E-commerce meant shifting to a new customer base. These value-conscious buyers were majorly from tier 2-4 cities or rural areas, who together make the Bharat segment pegged at $90 Bn in buying potential. And this consumer base of Bharat is the target base for Snapdeal, refining its focus completely towards the tier 2+ cities and rural areas. The buyers of this segment are not brand-oriented. They go for value for money products, which offer quality, durability, and trendiness at affordable prices. Therefore Snapdeal needed a new business mindset to crack this market. Here is how they did it. - Source: YourStory

The Major Pillars of Snapdeal 2.0's Business Model Are:

  • Sharp Understanding of Bharat: Snapdeal very well understands the needs of the value-conscious buyers of Bharat. Hence, Snapdeal provides good quality products at affordable prices and works closely with sellers to deliver a consistent product experience. Keeping in mind the budgets of Bharat customers, Snapdeal has priced ~95% of the products below Rs. 1000.
  • UniMove: UniMove is Snapdeal's innovative logistics platform which uses AI-based software to deliver products from seller to the customer. In this, Snapdeal uses 3rd party logistics (3PL) delivery arrangement. Snapdeal uses three different delivery partners for each three steps of delivery, unlike other e-commerce players who use only one delivery partner for the whole shipment. Through UniMove, Snapdeal is able to deliver 96% pin codes in India, one of the very few brands to do so.
  • In-house Power brands: Power Brands are Snapdeal's own built brands, through which Snapdeal provides good quality products at affordable prices to its customers. Snapdeal has built more than 10 Power brands across popular categories like apparel, fashion accessories, footwear. Through Power Brands, Snapdeal can closely control the quality, price, style, and packaging by working collaboratively with the seller.
  • Cost Management: Snapdeal has worked smartly to simplify its operations that is more suited to India and in such a way that it can be handled by a lean team structure of 650-700 people. Snapdeal doesn't hold stock of any product (zero inventory). All the stocks remain with the seller, and products are delivered directly to customers from sellers as per the order. They also do not take any loans or debts from the market. They always make a profit on every product by selling at a higher price than the seller (positive unit economics business model). They don't hold many physical assets like buildings, equipment, etc., neither they spend much on these (Zero Capex and Asset light Operations). They operate by taking them on lease and spending a minimal amount on them.

Result:

So did the new approach work for Snapdeal? Well, the answer is yes. With the new Business Strategy based on Value E-commerce, things finally started going well for the homegrown E-retailer. The results were even visible in Snapdeal's financial metrics as well. Within three years, Snapdeal reduced its loss by a staggering 95%. And to add to this, it posted revenue growth of 85% from operations. Even the traffic on the platform saw a rise of 100 percent. The pandemic saw another six million users added to the customer base. More than 20,000 new sellers joined the pool of already-existing 500,000 sellers in the platform during this period. (source: Forbes India)

Current Status: Leader of Value E-commerce

While its major rivals were busy focusing on brand-oriented business, Snapdeal completely focused on Value E-commerce. And has hence become the biggest online retailer to serve the consumers of Bharat, making it the leader of Value E-commerce.

What's next:

Future Scope of Value E-commerce:

Value E-commerce is now the fastest-growing segment of E-commerce. As per the report of Kearney, the value lifestyle retail market catering to this segment is expected to grow from $90 Bn in 2019 to $215 Bn by 2030. 19% of value buyers will be served online via value e-commerce by 2030, a huge rise from 4% in 2019. This growing number of value-conscious online buyers is giving a big boost to India's e-commerce and is reshaping it. The Value of e-commerce, which has a current value of $4 BN, is expected to reach $40 Bn by 2030.

IPO: 

SoftBank-backed Snapdeal is said to be in preparation for an IPO. As per a report by Mint, Snapdeal plans to file for an initial public offer (Snapdeal IPO). With the newfound success through the new Business Model, Snapdeal has scripted a great comeback and is reaping the rewards of the new approach. The move is paying off. And now it would be interesting to see how its upcoming IPO pans out in the market. So let's wait and watch for Snapdeal's DRHP to know more about this exciting company.

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