Every single transaction in my e-commerce venture is profitable: UrDoorstep.com CEO

What led to getting into the start-up mode after having worked for 25 years in the corporate world?

After quitting family's jewellery business, I launched the first mall in India called Gaurav Towers back in 1994-95 in Jaipur. Owned by the Bardiya Group, it was a two lakh square feet space and there were no takers as nobody really understood the mall culture then. I figured that I'll have to do retail myself and that led to the pening of Big Shopper, which was incidentally the second largest supermarket chain in the country then. That's was the beginning of my association with retail. Had a short stint with the Hiranandani Group, post which, I moved to Jubilant Retail in Bangalore and was with them from 2003 to 2011.

During this tenure with Jubilant, I realised there was going to be a big shift in the essentials category. Flipkart was just taking off by adding product categories like apparel and consumer durables, which were more amenable to e-commerce. However, I was certain that the most amenable was food, grocery and other essentials as it is a chore, which is repetitive, non-value add, but one still had to do it. Interestingly, 70% of the consumer spending today out of the $500 billion is only foods and essentials. So this was one very exciting category that I wanted to get into. In fact, the business plan for which I raised money just recently was finalised in 2011 when I left Jubilant.

What I also realised then was that the market wasn't ready then and investors weren't kicked-up about the opportunity in food and grocery. So the business idea had to be put on the back burner and I took up an opportunity with Mahindra Group that was planning to make an e-commerce foray. By 2014, I sensed the market was getting ready and opening up to the idea of online food and grocery retailing. Fortunately, a few players like BigBasket, etc., had already created the market and done the homework. So in 2015, I quit Mahindra and started working on my business venture all over again.

You managed to raise $4 million from Jupiter Capital even before launching the venture...

In fact, I already had four term-sheets in place by April 2015. The reason I went with Jupiter Capital is that they understood why I wanted to build this e-commerce business. I am not into the valuation building mindset nor looking to make a quick exit from the venture after a year-and-a-half. The consumption story I was talking about was amenable to e-commerce / m-commerce and although physical organised retail hasn't really done anything meaningful in this space yet. They could understand that consumers will jump a generation and not go to physical retail for the product categories around which my business was getting built. And the most important of it all was that I was talking about making money from day one as against looking at profitability after five or 10 years.

You chose to launch with just a handful of pincodes.

I raised money in May 2105 and went live in October after putting up a 35,000 square feet state-of-the-art fulfilment centre. We put a design and started with 13 pincodes in Bangalore out of 95 and are now delivering to 25 pin codes. We are already doing about 55-60% of the what the market (BigBasket) leader is doing there and that was also by design. I don't want to do more orders because the entire value / supply chain and deliveries have to be planned and managed efficiently. I think by January or max February end we should be as good as the numbers being clocked in by the market leader. The most interesting part of it all is that every single transaction is profitable for us so am not loosing any money on the deliveries being made daily.

Can you tell us how are you able to do that?

The most beautiful part of this business is that the gross margin is at 20%. If you are able to control the entire value chain, that is where my last 25 years of experience comes into play, the unit economics or current expenses (cost of delivery and fulfilment) will not be more than 15-17% in the current scale. In fact, once I grow the business, it will come down to 4-5%. Some time around February-end or March, we should be doing over 4,000 orders a day in over 35-odd pin codes. That's will be when we would be more or less at par with the market leader despite doing deliveries in just half of Bangalore.

How is UrDoorstep's business model different from BigBasket's?

The primary difference is they are a supermarket and we are a hypermarket. We are into three large business lines viz. food and grocery, home and lifestyle products. These are all repetitive, non-engaging products that consumers / households have to keep buying again and again. This apart, we also have the core non-fashion apparels. These are all things that the customer doesn't want to spend too much time on buying. Our e-commerce platform aims at giving a complete solution to the consumer as against just providing food and grocery. The other fundamental difference is that venture was designed keeping the investor's perspective in mind while we have designed the business keeping the consumer and profitability aspect in mind. An interesting part of our offerings is that we airlift a lot of local products from across the country for migrants in Bangalore.

There are talks about other biggies getting into this business too.

I will be happy for them looking to make a foray. In the current model, irrespective of whoever is the operator, they can never ever make money. It's very easy to burn cash anything from 10-50 billion dollars in this business, and to feed India, one can burn any amount of cash. If they have that kind of an appetite, let them do it and if they try to re-engineer the business model at a later stage, that's just not possible. One needs to know the business inside-out. Just being adequately capitalised doesn't really make a business successful.

What are revenue / turnover targets like for the first year of operations?

Just to give you a perspective, we should be in the vicinity of annualised exit run-rate for February-March 2016 of close to Rs 100-120 crore in turnover. In the next 12 months, I can see doing 15,000 orders and have a visibility of becoming a Rs 1,000-crore revenue company only in Bangalore in the next 12-18 months. We currently employ close to 500 employees, of which logistics is 20% and the balance is between fulfilment centre, production and procurement team, call centre, etc. So it's a reasonably large organisation for a start-up.

Will you be a Bangalore-focused operator only?

Now that we know the business model is working beautifully and we are making money on every transaction, the idea is to quickly ramp-up in Bangalore and then look at a few more cities to expand operations.

Would you be looking for additional fund raising now that business is expanding?

Our next round of fund raising, which we have started to discuss, is only for enhancing the profitable growth. We will not open in three cities simultaneously. We will open in one and start putting infrastructure for the second. We will go step-by-step and our approach is – what others are doing in 20 cities we will that number in one city. That way we have enough cash to expand into the next few cities. Any business that's fundamentally right will survive.