Players like Udaan may disrupt $1 trn consumer retail market: Bernstein

Udaan's GMV has increased from about $0.6 billion ARR in December 2018 to around $2.1 billion ARR in December 2020, according to US-based research powerhouse Bernstein

Business-to-business e-commerce players including Udaan are expected to disrupt $1 trillion consumer retail market in India, said Bernstein, the US-based research powerhouse in a report.

In terms of reach, the Bengaluru-based firm has grown from about 0.5 million cumulative number of buyers (retailers) in December 2018 to about 1.7 million by December 2020. Bernstein said, hence Udaan’s GMV (gross merchandise value) has increased from about $0.6 billion ARR (annual recurring revenue) in December 2018 to around $2.1 billion ARR in December 2020.
 

The startup is competing with e-commerce giants such as Amazon, Flipkart and Reliance’s JioMart which are also betting big to tap B2B e-commerce especially in Bharat (tier 2 and tier 3 cities and rural India).
 

“The success of platforms such as Udaan will transform the distribution landscape, in our view, and enhance the efficiency in terms of margins and capital requirements for the entire consumer supply chain,” said the Bernstein report. “Small and new brands will have to focus less on the distribution build-out. This will influence market share in several consumer categories once the reach of B2B increases.”
 

There are 12-13 million formal distribution outlets in India with grocery and FMCG (fast-moving consumer goods) dominating the mix. The report said the challenge is that there are multiple layers and even prominent brands like Hindustan Unilever Limited (HUL) have only 15-20 per cent direct retail reach, and in some categories, there is no direct reach. The layers are largely due to the inability of companies to reach the last mile in a cost-efficient manner. This also impacts the ability to influence market share, the transmission of promotion schemes, ability to track inventory and support credit access to small retailers (which is low). Small retailers hence depend on the wholesale network.

“How do you reach over a billion consumers spread across 664,369 villages and over 8,000 cities and towns? Indirect distribution and multiple layers of that running into millions is deployed to reach consumers,” said Bernstein.
 

Leading brands with several decades of presence are still struggling with enhancing direct reach while new and smaller regional brands struggle to win share because of challenges of enhancing reach. This gap is being addressed by players like Udaan with an intent to drive a pan India direct reach for brands.
 

Udaan was founded by IIT graduates Sujeet Kumar, Amod Malviya and Vaibhav Gupta in 2016. The firm recently raised $280 million in additional financing from its existing and new investors including Lightspeed, Yuri Milner’s DST Global and Tencent, at a valuation of over $3.1 billion.
 

Udaan has become the largest eB2B company (80 per cent market share) with over 0.5 million products across 2,500 brands on its platform, said the Bernstein report. It is able to offer a reach of over 3 million users with an everyday delivery cycle across 900 cities covering more than 12,000 pin codes.
 

The company has its own logistics company Udaan Express that manages the deliveries. It also has a financial services arm called Udaan Capital. The firm offers its services for brands such as HUL, P&G, ITC and Coca Cola. The other brands include Reckitt Benckiser, Dabur, Colgate, Apple, LG and HP. It has a network of over 200 warehouses with operating space of over 10 million sq ft.
 

There are a few other such models with lower market shares such as Jumbotail, Storeking and Shop Kirana, according to Bernstein.
 

The different categories that Udaan handles include lifestyle, electronics, home and kitchen and staples. The other categories include fruits and vegetables, FMCG (fast-moving consumer goods) pharma, toys and general merchandise. It recently added electricals and hardware. Fresh and pharma were added last year. The number of branded companies on the platform has increased from about 50 in December 2019 to nearly 300 in December 2020, while individual brands have increased from about 200-300 in December 2019 to over 2500 in December 2020.
 

During Covid, when traditional channels were impacted, Udaan was one of the few that was fully operational. This helped several brands understand the advantage of this model. Recently, there are over 2,500 brands that agreed to onboard on the platform for national reach.
 

One of the key challenges in the Indian retail market is the prominence of "small retail stores" also called as Kirana stores and this is prevalent across categories. Over 90 per cent of retail still run through these outlets with over 20-25 million of these in the market.
 

This level of direct reach for large brands reduces further in categories such as clothing, which is largely wholesale driven. But Udaan (e-B2B model) focuses on several categories ranging from pharma products, grocery and clothing. The platform also ensures consistent availability of products. This helps retailers broaden their product access and increase their own volumes.

Udaan offers them the convenience of doorstep delivery, ensuring an increase in the efficiency of operations through lower costs. The firm is also able to get retailers the access to credit through Udaan Capital based on their track record on the platform.
 

The year 2020 posed one of the biggest leadership tests Udaan founders. Udaan’s business model found itself severely disrupted by the Covid-19 pandemic. At one stage during the lockdown, Udaan is learnt to have lost almost 60 per cent of its business. But the founders and their team have been able to pull Udaan out of the carnage.
 

• $1 trillion consumer retail market that Udaan and others are expected to disrupt.
• $2.1 billion ARR of Udaan in Dec 2020 compared to $0.6 billion in Dec 2018.
• 2,500 brands on its platform.
• 3 million users, its reach covering over 12,000 pin codes.
• 90% of retail still runs through millions of Kiranas across categories in India.
• 1 billion consumers, the opportunity across 664,369 villages, 8,000 cities and towns.