HOW UDAAN IS PREPPING FOR AN IPO
The B2B commerce unicorn hasn’t cracked the profitability code yet. A pivot may do the trick
Entrackr. raising,” Gupta said.
Within the categories, pharma became difficult to crack, multiple current and former employees told Mint. A more organized category, the company struggled to find a value addition it could provide in the drug supply-chain.
THE BIG PIVOT
This brings us to Udaan’s operational pivot. From big to small, from centralized operations to hyper-local.
The company now has a cluster approach—Udaan finds out the densest demand area in a city and sets up a localized supply-chain. India is divided into 50 clusters. Each cluster has its own supply chain, own warehouse, own fulfilment centres. These centres stock and serve only the designated cluster. The approach optimizes costs since the company doesn’t waste money serving a few customers outside of the major demand centres.
“Because we expanded across India, we did get scale. But, it was important to focus on demand in a small neighbourhood to optimize cost alongside scale,” the CEO explained.
The pivot also worked for the customer, he added. “It enables us to do next day delivery. And it also enables us to carry a very localized portfolio, which is relevant in India because the rice, the flour and the pulses which get bought and sold in Bengaluru are different from the rice you buy in Hyderabad,” Gupta further said.
The localized approach, meanwhile, has helped Udaan map its customer base better—the size of a shop; its location; the estimate of what products the shop carries. “Once we do that, we get a sense of what the market demand is. Our goal is that our shopkeepers should be able to find at least 80% of the products they keep on our platform,” the CEO said.
Investors appear to like this model— like we mentioned earlier, the large funding round last year was on the back of this new strategy.
“Udaan’s cluster strategy serves as a compelling blueprint for the company to scale its operations profitably, setting a new standard of excellence in the industry,” Bejul Somaia, partner at Lightspeed, Udaan’s biggest investor, said. “The cluster approach transforms how Udaan engages with the kirana stores by delivering sharper value propositions. This focus
enhances customer satisfaction and drives improved service levels, higher buyer retention, share of wallet and order frequency,” Somaia added.
Nonetheless, the new model means a much smaller business for the company. As part of the restructuring, it has scaled back on categories and cities. Pharma is one of them.
“There was a team of 20-30 people in pharma and Udaan was once doing ₹30-40 crores in business. They have been consolidating the vertical,” said a former employee who didn’t want to be identified. Six months ago, the pharma business shrunk to about ₹22 crore; the team was cut to just 6-7 people, he added.
While Gupta did not comment on the size of the pharma business or the employee count, he agreed that the company was consolidating the category and it now operates only in Bengaluru from a pan-India focus earlier. He calls it “geography-specific
Udaan’s revenue dropped 43% in FY 23 9,897 -780
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Big money
Series E was one of the biggest late-stage deals of 2023
category optimization”.
“We have expanded the portfolio; we have expanded the coverage and our Bengaluru business in pharma has grown over the last nine months, almost doubling in scale,” Gupta said.
PRIVATE AFFAIRS
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daan, meanwhile, is also pressing ahead with its private labels business—a high margin game—and an important piece in the company’s path to profitability. Private labels were first added in 2021.
“For a similar product, national brands give you 3-5% margin; regional brands or smaller brands 8-10%; private labels offer 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 some of its private labels.
While some people Mint spoke to said that the private labels business is yet to gain traction, Gupta disagreed. “In the Bengaluru cluster, they (private labels) have scaled up from single digit to above 10% of the overall business now, just in the last two months. It’s a big part of our strategy,” the CEO said.
THE CROWD
Udaan’s margins, meanwhile, face another challenge—growing competition.
A host of companies, big and small, old and new, have mushroomed in the B2B commerce space. Udaan doesn’t have the tailwind that Flipkart did, some market watchers pointed out. The consumer e-tailing space, by the time Walmart bought Flipkart in 2018, was a duopoly (Amazon being the other giant). But B2B is more crowded with well funded players.
There is ElasticRun (the company calls itself a “B2B e-commerce platform for rural India”); ProcMart (it raised $30 million in a Series B round in April); Flipkart Wholesale; AmazonDistribution; Supermarket Grocery Supplies (BigBasket’s B2B arm) and Metro Cash & Carry India (a unit of Reliance Retail). Besides horizontal commerce platforms, there are single category players as well—they focus on building a business around one category. Ninjacart (agri) and Jumbotail (food and grocery) are two of them. Further, FMCG companies like HUL and ITC have also been working on their own online B2B platforms called Shikhar and Unnati, respectively.
How the dynamic between FMCG brands and B2B e-commerce players unfold, going ahead, will be key to Udaan’s path to profitability and its ambitions of a public listing. Some time back, the company was eyeing an IPO in 2023. That timeframe has stretched—it would be ready for the public markets in the next 18 months, company executives said. The task, therefore, is cut out.
Udaan has already gone on an overdrive to conserve cash. Gupta said the company has reduced its burn by 80% in the last two years as it trimmed operations. With the new focus on hyper-local, he thinks the company has finally cracked the B2B code. Now, it has to demonstrate a few quarters of profitability, an executive quoted above said. How soon remains the billion-dollar question.