Sanjaybhai Savaliya, a Surat-based textile manufacturer, has been selling on home-grown e-commerce platform Meesho since 2019. He’s retailed his merchandise on Amazon and Flipkart, too. But in the past two years, Meesho has come to be his preferred platform. Savaliya says Meesho’s zero-commission policy attracted him to the online marketplace at a time when Amazon’s and Flipkart’s 17-18 per cent platform fees were eating into his margins. Besides, a Meesho listing ensures he starts receiving orders within a day or two; on Flipkart and Amazon, it takes 15-20 days.

Savaliya dispatches more than 1,000 orders a day, and earns an average of Rs 300 per order. In three years, he’s clocked annual sales of Rs 5-6 crore on Meesho through his multiple seller accounts—without ever advertising on the platform. But things are changing. As Meesho ramps up its seller monetisation efforts, people like Savaliya will have to shell out more money to continuously appear on top of its home page as well as get their products displayed to the most relevant customers. Meesho recently notified sellers that it will now charge them a nominal fee per order in exchange for quicker payouts—within 24 hours instead of its usual seven days.  

While this is a new stream of monetisation that Meesho has embarked upon, given its rising expenses and ballooning losses (more on that later), sellers aren’t too excited. “Saat din rukne se kuch nahi ho jayega. Kyun hum extra paisa bhare? (Nothing will change in seven days, so why should we pay extra?),” says Savaliya.

FY22 was clearly a time to gain market share... We invested significantly to gain market share. and we grew our GMV 25x in two years

Dhiresh Bansal
CFO
Meesho

The impact of this new seller policy is yet to play out, but what is amply clear is Meesho’s hunt for monetisation. Although it continues to be a zero-commission platform for its 825,000 registered sellers, it has now become imperative for the Bengaluru-based seven-year-old e-commerce firm to pave a path to profitability. Especially after a brutal 2022 that was defined by a prolonged funding winter and mass layoffs at start-ups.  

Meesho, too, laid off employees as it scaled down its grocery division (Farmiso) to cut costs. While the official number of layoffs is pegged at 150, company insiders say at least two more rounds of firings took place in 2022, which saw Meesho’s large HR team trimmed significantly. “Some product and engineering people were also asked to leave,” a person told BT on condition of anonymity.

Meesho, however, denies laying off any people besides those in the grocery division. “Our business restructuring cost folks in the grocery unit their jobs. But those were restructuring exits and not layoffs to save costs,” says CHRO Ashish Kumar Singh. 

Nonetheless, in the absence of free-flowing venture capital (VC) and given the tough macroeconomic environment, unicorns like Meesho are compelled to arrive at a clear path to profitability and a sustainable growth model. While the first phase of Meesho’s dramatic rise in India’s e-commerce landscape was funded by VC dollars and an unbridled optimism around the new economy, the next phase must be self-borne. Can it get there?

Meesho Co-founder and CEO Vidit Aatrey is unfazed by the funding slowdown, and refutes claims that his firm has struggled to raise an external round since September 2021. For the record, Meesho’s last fund-raise was a $570-million Series F round led by Fidelity and B Capital Group, valuing it at $4.9 billion—six months after its unicorn round of $300 million led by SoftBank Vision Fund. Between August 2019 and September 2021, Meesho’s valuation zoomed from $700 million to $4.9 billion, according to Tracxn, a private markets database.

“We are fortunate that we raised a substantial amount of money in 2021, much more than we needed. We have more than enough in the bank, and can keep running the business in a very healthy manner for many years. There is a good likelihood that our next round [of financing] would be an IPO. But the plan in 2023 is to get to profitability as quickly as possible,” says Aatrey. 

Vidit Aatrey
Co-Founder & CEO
Meesho

Prosus Ventures (earlier Naspers), one of Meesho’s key shareholders since 2019, echoes Aatrey’s quest for profitability. “Meesho has enough cash now... and there is no immediate need to raise money… It is on track to get to Ebitda profitability very soon. And by soon, I mean months, not years,” says Ashutosh Sharma, Head of Investments for India at Prosus.

Ebb and Flow

While attaining profitability may be a key focus in 2023, Meesho’s last reported financial results suggest that the company is far from it. Its losses surged 6.5x to Rs 3,247 crore in FY22 on account of increased expenditure, as it rushed to acquire customers in a bid to emerge as India’s third e-commerce alternative after Flipkart and Amazon. Not only did it splurge on promotional campaigns, it also saw a rise in its employee costs as it rolled out fancy benefits, insurance packages, ESOPs, and more.

Indian e-commerce 1.0... [brought] organised retail online... Meesho went after unorganised retail at Rs 500-600 price points and brought it online

Sarthak Misra
Investment Director
SoftBank Vision Fund

Overall, Meesho’s FY22 expenses jumped 5x to Rs 6,607 crore from Rs 1,337 crore in FY21. Its revenues during the period grew 4.5x to Rs 3,232 crore and its transacting user base reached 140 million riding on pandemic tailwinds. The growth was also partly triggered by Meesho’s pivot from an earlier reseller-based model to pure-play e-commerce (like its larger competitors).  

In the earlier model, intermediary sellers (mostly homemakers from India’s small towns) placed bulk orders on Meesho, added margins, and re-sold the products to end customers via their social media networks. This tried-and-tested model of ‘social commerce’ has seen massive success in China, birthing giants like Pinduoduo. In the middle of 2021, however, Meesho transitioned to the direct e-commerce model.  

Co-founder and CTO Sanjeev Barnwal calls it an “organic” progression. “Our value proposition is around two things: i) lowest prices; and ii) wide selection. These became so strong that we had a lot of end customers organically coming to Meesho and buying for themselves. Even the persona of those customers was not very different from the resellers’—they came from small towns and had a certain purchasing power. So, we tweaked our platform to make sure that both personas could be served.” That tweak resulted in 80 per cent of Meesho’s business coming from direct e-commerce today. App downloads also surged past 270 million, making it the most downloaded shopping app globally in 2022, per Apptopia, that tracks the space.  

While Meesho’s pivot may please end consumers, resellers—the mainstay of its growth between 2016 and 2020—feel shortchanged by the platform. They contribute only 20 per cent to sales today. “Meesho is a classic case of a company dictated by VCs, even though Vidit [Aatrey] wants to do the right thing,” says a former Meesho employee who quit the firm in 2022. “It started as an earnest company that told the average Indian woman in a village that you can earn an income without any expenses of setting up a business. They then stabbed the same woman because they wanted to scale up.”

Sector observers, however, don’t fault Meesho’s change in business model. “Private investors have expectations from the capital they invest, and they want scale… You improvise to the market conditions. Social commerce was facing headwinds. To go further up, Meesho needed a change of gear,” says Ankur Bisen, Senior Partner & Head-Consumer, Food & Retail, Technopak.   

Meesho, meanwhile, asserts that its reseller base continues to grow in absolute terms even though the platform’s direct customer base has far outpaced its growth. “On the demand side, the percentage contribution of resellers may have come down, but the number of resellers has remained pretty strong,” says Utkrishta Kumar, CXO-Business at Meesho. “But we’ve become a big consumer destination for those who had no access to these products earlier.”  

It was by Meesho’s design, of course. “Social commerce was a way to transition small-town people who are offline to come online. But it was never the permanent way of people buying online,” says Aatrey. 

To attract more direct e-commerce shoppers, Meesho galvanised thousands of small-town sellers and urged them to put their entire assortment on its platform by going commission-free. It also ran aggressive promotions and sales events, thereby incurring high customer acquisition costs on its balance sheet. At the start of 2022, Meesho’s monthly burn was estimated to be at $30-40 million, which it claims to have reduced by 80 per cent. CFO Dhiresh Bansal explains that Meesho is using a lesser number of dollars to achieve the same outcome, and that’s what has led to this improvement in burn. “We expect to cut it down to zero in 2023,” he says.

Meesho has enough cash now. The burn has reduced considerably... It is on track to get to EBITDA profitability very soon. And by soon, I mean months, not years

Ashutosh Sharma
Head of Investments for India
Prosus Ventures

Bansal says FY22 was a time to gain market share. “We invested significantly to gain market share and we grew our gross merchandise value (GMV) by almost 25x in two years. From April 2022, we’ve been focussing on profitability in a meaningful manner,” he says.  

Even as Meesho strives to strike the delicate balance between growth and profitability over the next 12-15 months (until FY24), which many say will be a humongous challenge, it continues to be a significant player in India’s $72-billion e-commerce sector. How did it get there?

E-commerce for Bharat

Meesho was founded in 2015 by IIT Delhi batchmates Aatrey and Barnwal with the goal of democratising internet commerce in India. Flipkart had been around for a while, and Amazon was two years into its India journey. But both catered to the top tier of India’s population or the first 100 million online users. Meesho identified a gap that involved the ‘next billion users’—a Google coinage—who were new to the internet, new to e-commerce, more value-conscious, and less likely to transact.  

“Indian e-commerce 1.0 had succeeded in bringing organised retail online—smartphones, TVs, fridges—but those were just one set of spends. If you looked at spends like offline apparel at Rs 500-600 price points, they were not coming online. So, we were very excited about the fact that Meesho was going after an unorganised retail market and bringing it online,” says Sarthak Misra, Investment Director at SoftBank Vision Fund, who led the Meesho deal in 2021.

By 2016, following the roll-out of Jio’s low-cost data plans, Meesho started seeing a sharp growth in users. “From mid-2016 to mid-2017… we went from 300 orders to 30,000 orders per day within 12 months. And a big tailwind that enabled it was Jio,” says Aatrey. 

Meesho targeted women in Tier II and III towns because they had been traditionally underserved. “We went with a category where trials were easier, which is fashion. A lot of women would buy these low-cost fashion items and be pleasantly delighted. And then they would start to buy more items on the platform over time,” says Aatrey. 

By 2019, Meesho was one of the fastest-growing start-ups in India. It went on to attract a $25-million investment from Facebook, making it the tech major’s first Indian bet. “WhatsApp for Business had just launched in India, and very quickly Facebook realised that a large share of WhatsApp for Business users were the women entrepreneurs of Meesho. They saw the power that our platform had in empowering people to start their businesses via WhatsApp,” says Aatrey. 

Until about two years ago, over 60 per cent of Meesho’s sales came from the women’s fashion segment. That number is now less than 40 per cent because other categories such as home and kitchen utilities, beauty and personal care, and electronics accessories have also grown after the pandemic. “As trust built up, women started buying products for their kids, families and households, too. So, our goal is not to serve just a category. It is to become a single shop that consumers can come to and fulfil all their needs,” says the Meesho CEO.

But womenswear remains Meesho’s bestselling category. In 2022, it sold 148 sarees a minute, with demand coming from across the country. What’s interesting, however, is the growing number of male shoppers on the platform. “Men are showing a higher propensity than ever for grooming products, with more than 60 per cent of orders coming from Tier IV markets,” Meesho stated in its year-end wrap. Overall, 910 million orders were placed on Meesho during the year, which is a 135 per cent growth over 2021. It also on-boarded 500,000-plus new sellers. 

“Most of India shops in local markets for unbranded products. There is a joy associated with unorganised shopping. But traditional e-commerce is very search-driven. You come in, type something, see one or two options, you buy and exit. That’s not how you shop in a local market. You spend time, browse, discover, negotiate, and that is what Meesho is trying to do,” says SoftBank’s Misra.

More than 70 per cent of Shopsy’s [a Meesho rival] new customers come from Tier II and III markets... with over 75 per cent of items costing Rs 300 and below

Adarsh Menon
SVP & Head-New Businesses
Flipkart

The Challenges

So, what ails Meesho? A bunch of things. Besides its growing losses, high rate of returns, and a funding quiet, it also has to contend with a changing competitive landscape. Flipkart and Amazon have entered the value-shopping arena. Flipkart has floated Shopsy, which closed 2022 with 140 million app installs. Within a year of its launch, Shopsy’s share of Flipkart’s new customers is about 40 per cent. “Over 70 per cent of our new customers come from Tier II and III markets. At Shopsy, we have consistently focussed on providing value-based products to consumers, with over 75 per cent of products under various categories costing Rs 300 and below,” says Adarsh Menon, SVP & Head-New Businesses at Flipkart. 

That is taking the competition straight to Meesho. Then there’s Amazon, which acquired social commerce firm GlowRoad last year, to penetrate deeper into small-town India. The reseller-based platform also introduced a ‘zero-commission’ policy for sellers, which is helping them bring more of their selections online without worrying about listing fees. “Today, more than 85 per cent of new customers and 65 per cent of total orders on Amazon.in come from customers in Tier II and below [towns]. Our total seller base on Amazon.in (one million-plus) has almost doubled since January 2020 and more than 50 per cent of sellers come from Tier II and below towns,” Kishore Thota, Director-Customer Experience and Marketing, Amazon India, tells BT over email.  

Hence, it’s evident that the next phase of competition in the e-commerce space is in the small towns. Aatrey, however, is undeterred. “We don’t think of them as competition because we play in very different segments. Close to 60 per cent of what is sold on Shopsy is electronics. Our assortment is very different and that determines the kind of customers we get,” he explains. 

Meesho’s other concern is its low average order value (AOV) of Rs 300-400 compared to peers. The ‘average’ AOV in Indian e-commerce is Rs 800 (less than $10), according to a report by AllianceBernstein. Meesho’s is less than average due to its high sales among low-income customers. Its GMV stood at $5 billion in June 2022, which is also significantly lower than Flipkart’s $23 billion, and Amazon’s $18-20 billion, as estimated by AllianceBernstein. “A price-sensitive customer is hardly loyal to any single platform,” says Technopak’s Bisen.

If Meesho has to break the Flipkart-Amazon duopoly in India and become profitable at the same time, it must devise new strategies. “How to make money is no longer just a strategic question. Today, it involves politics, policy, and tech. In a free market, Meesho could do an inventory model, push its own labels, charge a service fee from vendors, create loyalty programmes for customers, etc. But in an environment of regulatory uncertainty, you could start monetising in a certain way and tomorrow it could be deemed illegal,” says Bisen. 

Then, what are Meesho’s options? It has started experimenting with financial services to meet the working capital needs of its sellers who may not be eligible for formal credit. “Financial services fall fairly and squarely into the things that we can do to increase monetisation. We’ve seen some successful examples as well. Alibaba had Ant Financial, which emerged from its commerce business,” says CFO Bansal. “We want to ensure availability of credit, so that our existing sellers can grow their businesses on Meesho.” 

To increase its reach, Meesho joined the government’s Open Network for Digital Commerce (ONDC) in November. Aatrey believes this integration will fuel the discoverability of products for consumers, while also giving a fillip to hyperlocal businesses. “ONDC will also play an important role in expanding India’s e-commerce sector by bringing more consumers online,” he says.

Some sector analysts reckon Meesho must now look at solving the logistics quandary and bring down dependence on third-party players. “Meesho has been solving for reach in the last two to three years and for people who have never purchased online. But reach is a capital-intensive problem,” says Sanjay Kothari, Associate Partner at RedSeer Strategy Consultants. “The next problem to attack would be logistics and the high rate of returns. Meesho could start charging for logistics from sellers to build an indirect revenue model even as the ad business becomes a large contributor,” he explains.  

But is all this enough to attain profitability? Questions have been asked of Meesho’s P&L and its ‘growth-at-all-costs’ mentality. This is, of course, more systemic than specific in hyper-funded start-ups.  

SoftBank believes Meesho is better placed than a lot of “upstarts”. “Given the strength of the balance sheet, it gives them a runway of more than two years. They will be profitable before that,” says Misra.  

But can any new-age company surrender rapid growth at the altar of profitability? Aatrey says one can’t choose one over the other. “If you become profitable and are not growing, then why would the investor back you? They would rather go for an old-economy company that is growing at least 20 per cent YoY [year-on-year] and is still profitable,” he says. “We’d rather grow somewhere around 50-70 per cent, with profits.” 

Can Meesho then become India’s Pinduoduo? Well, time will tell.