SOCIAL
Dealshare co-founder on shutting down B2B biz, layoffs, and plan ahead, ET Retail
New Delhi: In the past few months, social commerce startup DealShare has been in the news owing to its internal chaos and layoffs. The company which became a unicorn in January 2022, has been undergoing structural changes in its business model as it faced harsh realities.
The Bengaluru-based firm (now Gurugram-headquartered) was last valued at USD 1.7 billion and expanded to about 150 cities. Last year, DealShare said that its customer base touched 20 million and the e-grocer will invest Rs 500 crore in its private label brands.
In January 2023, the company fired 100 employees and paused its operations in about 50 of its operating cities. In July, DealShare co-founder and CEO Vineet Rao was down from his position and the e-commerce startup announced that it is shifting its headquarters from Bengaluru to Gurgaon.
As per the last communication, DealShare laid off 130 more employees and shut down its B2B business, which accounted for 20 – 30 per cent of its total revenue.
In an exclusive chat with ETRetail, DealShare co-founder Sourjyendu Medda shared that today its cash burn is significantly down to about 15 per cent of the peak. In July, he had told ET that the company’s monthly cash burn was down to USD 2 million from USD 11 million earlier.
Medda talked about the rationale behind shutting down B2B business and the plan of action going forward. Edited excerpts below:
DealShare has shifted its base from Bengaluru to Gurugram. Can you explain the thought process behind this shift?
Our primary business geographies are NCR, Rajasthan, West Bengal, and UP, while our headquarters is in Bangalore. It did not make a lot of sense to operate from Bengaluru when the business is more in the northeastern region. So, we decided a while back to shift our business functions to Gurgaon, while the tech and product functions will continue to be in Bengaluru. So, we’re not disrupting that. We have given a lot of time and support to people to manage the shift. More or less the process is complete.
What is the current employee strength that you function with?
I don’t remember accurately, but it is close to 500.
Can you explain the rationale behind shutting down your B2B business? How did the founders, and the board come to this decision?
If you look at the history of DealShare, we started as a pure-play B2C organization. We were organizing schemes in the grocery essential spaces with lesser-known manufacturers and local brands. We also launched our private labels to bring more benefits to the consumers in terms of savings. During this process, we saw the need for B2B supply aggregation, and that is when we launched our B2B vertical.
However, after running it for a few years, we realized, like many other players in this B2B e-commerce space, that the traditional distribution model is still very strong in India as it is very well entrenched, they have the capital adequacy in their network, very low cost of operations, and they are not bound by a lot of compliances which companies like us are increasing our costs. Now, a combination of all these essentially means that B2B will take more time to become profitable.
Given that the market is also not very favourable at this point, it doesn’t make sense to put capital into a business where the valuation is a lower multiplier. And in a B2B business, the value depends more on profitability than the scale. You can bring any amount of scale, but you cannot invest money in bringing that scale because it doesn’t create real value for the shareholders. So, that is where we decided to scale down our B2B arm.
B2B contributed to less than half of your revenues. Now, what are your revenue targets and also your monthly capital outflow?
Given that there are a large number of changes, monthly numbers don’t make sense. So, I can give you annualized projections. We will be around half of what we were in the peak.
Also, now that the B2B business is shut down, the burn has significantly come down. It is now anywhere between 10 – 20 per cent of the peak burn.
What is the company’s strategy going forward? What are the core pillars on which you’re building the company now?
We had a lot of high adoption from consumers on the B2C side and also from kiranas on the B2B side, but ultimately, when you are faced with different market conditions, you have to think differently. That is where we took a step back and decided on what we needed to do now.
Now, essentially we identified 3 big issues – One is that B2B would need more investment and not become profitable as fast as we were thinking. So that was one issue we had to tackle.
On the B2C side, we realized that while adoption was very high, we were facing the challenge of retention. Retention was not as high as we would want for our model to become fully sustainable. Also, the margin mix was not coming out properly. So eventually for the company to make sense, you have to have higher retention and a high-margin profile. You can start with a low-margin profile but have to move to a high-margin profile. That path was going up but was not moving in the manner that we wanted.
It is all about how much you can invest in the business given the market conditions. So as a leadership group along with the board, we decided that it makes more sense to step back and take some hard calls so that we have a better proof of point before again scaling up, and that is what we are building now.
Essentially the changes are that we have shut down the B2B business, and second, we have zeroed down to the core four geographies where customer retention and margins are better. We were operating in eight states, but the other four states were not making that much sense in terms of customer profile, so we are now focused on Delhi NCR, Rajasthan, West Bengal, and UP.
Third, we realized that the Indian grocery business is primarily physical. Dealshare stands for savings and it spans online, offline, and omnichannel.
Can you expand on your offline plans?
Essentially our model is a mass market where we keep only 1500 SKUs, and a lot of them are local brands, small manufacturers, and private labels. We will extend the same model to physical retail. The same amount of savings and the attachment to mass Indian consumers is what we are going ahead with. We are opening neighbourhood stores. Right now, we are piloting the model as neighborhood stores with around 1,500 square feet.
