Online to Offline: Rise of O2O Commerce
A digas is a 'vegetarian only' restaurant located in Shakambari Nagar, a quiet Bangalore suburb. Despite the efficient staff and quick turnover of patrons, over most weekends there is a wait time of about 15-30 minutes for getting a table. However, on weekdays it is a different story. "Our footfall decreases to a third of the weekend high," admits Sampath Adiga, the owner.
There are many Adiga restaurants across Bangalore, but they don't necessarily belong to a single chain. The name is a community surname of people from Dakshina Kannada district (coastal regions of Udupi and Mangalore in Karnataka) famed for their culinary skills. They are sometimes generically called Udupi resturants. While most of them are fast food joints, some offer 'sit-down service'.
With skyrocketing real estate costs, Sampath could not afford to have the restaurant only partially full on weekdays. "We are able to keep affordable prices only if there is a certain amount of volume to offset it," says Sampath. After experiments like tweaking weekday prices didn't work out, he decided to offer deals on 'Little', an 'Online to Offline' marketplace. On weekdays, some of the items were offered at a discount of nearly 20-40 per cent. This, he claims, drove up traffic by about 35 per cent. "I also started getting clientele from a larger pool of people."
It has been a similar story at Innovative film city, an amusement and theme park, located on the outskirts of Bangalore. During weekends, holidays and summers, the park is expectedly packed with kids and people of all ages. But on other days, it struggles to fill up. So on 'Nearbuy', a marketplace similar to Little, Innovative decided to offer a 35 per cent discount and saw footfall on its lean days spike up.
Welcome to the brave new world of local deals, where marketers are trying to drive people online to buy offline. Three key things set this market apart. One is that the deals here are hyperlocal and real-time (prices can fluctate really quickly). Two, it usually involves some time-bound 'perishable services' including restaurants, movie tickets, spa and salons, last minute hotel stays and even diagnostics like medical check-ups. Finally, the deals are offered online, but the actual transaction takes place offline. A number of players like Little, Crownit and Nearbuy are trying to grab some action in this growing market.
Making of the O2O market
It is a win-win all around, claim merchants, marketplaces and users. The local merchant can control stock and inventory, as well as whom he chooses to sell to. The buyer not only gets a lower price, but he also supports local economic activity. The marketplace, of course, takes a cut in the entire process.
One key player in fast-growing O2O marketplace is Little, the app-only online marketplace that Sampath chose to be on. Little has been promoted by Manish Chopra and Satish Mani, who had earlier co-founded online apparel brand Zovi.
Chopra says that the O2O market in India is estimated at $64 billion and its size was what attracted them. "Size of the opportunity, the ubiquitousness of the smartphone and the need to drive traffic from online to offline local deals, made us start the company in February 2015." To do that, Little has raised $50 million (Rs 320 crore) from Tiger Global, SAIF Partners and m-commerce player Paytm.
Despite the buzz surrounding e-commerce, even in the US it accounts for only 8 per cent of the total retail market. In India, that number is likely to be even lower, which means that the offline opportunity will remain the biggest pie in the foreseeable future.
Coupons vs O2O players
Hasn't the hyperlocal deal place always existed? Players like Groupon (now Nearbuy) and deal sites like Mydala, Coupon Dunia and Cashkaro have been around, but Chopra claims Little is different. "The deals space in India is broken with complete lack of personalisation, timeliness and ease of redemption. What we offer is hyperlocal, targeted, real-time deals with one of the largest merchant base. Game-changing developments are happening with mobile technology, giving rise to billion-dollar opportunities in this deal making space."
"Game-changing developments are happening with mobile technology, giving rise to billion-dollar opportunities in this deal making space"
The owner of Vapour Pub in Gurgaon, who is a merchant on the Crownit platform, says he likes its model. "I really like this concept. It is very easy for us to analyse how much business we get in a week and track our growth patterns. Since the process is very transparent, we can actually see our commissions going directly to the customer. It is easy to understand that the business we get from Crownit is genuine." A sentiment with which Satish Kumar, the owner of Burbee's Caf in Noida, concurs. "The best part is that I don't even need to contact Crownit to ask for the sales or check-ins as I can see them myself."
"We are committed to build and partner every platform that will bring mobile commerce to masses in India"
Yet another player who has been in the game for long is Ankur Warikoo, the Co-founder and CEO of Nearbuy, which has undergone several iterations before donning its current avatar. Nearbuy started life as Sosasta.com in 2011, before morphing into Groupon India and now exists as Nearbuy. Warikoo says the O2O marketplace is not so much about sales as it is about capacity utilisation. "I am clear that my primary focus is on the merchants and not necessarily the customer. I am more of a matchmaker helping merchants fill capacity during lean times," he says. "During peak times, the discounts don't exist for the customer or it is very low. Also what has changed from our earlier iterations is the widespread penetration of smartphones." Warikoo's estimate of the O2O market is even higher at $120 billion and claims that it is growing at 15 per cent a year.
The market segments
Grover of Crownit lists out the metrics that O2O players look for in a market segment before entering it. "It has to have high gross margins, should not be a verticalised category and preferably should be perishable." Warikoo of Nearbuy says the O2O game is different from product commerce. "The offering ideally should be perishable, have limited inventory and should be open to variable pricing on weekdays and weekends or during peak and lean times."
So, a large part of the market is focussed on food and beverages (F&B), beauty and spa, health and fitness, local services, travel and activities-related courses and workshops or even sports. While the market size estimates might vary, available data from a number of independent third party reports do indicate that this is a very large opportunity. For instance, CLSA estimates that the F&B market in India at $78 billion, a Corporate Catalyst India report says Hotel & Getaways market is at $35 billion, while Technopak estimates retail and apparel market at $45 billion with Health & Wellness opportunity alone estimated at $17 billion.
Network and reach
Little says it has signed up more than 10,000 merchants across 11 cities and offers over 30,000 'live' deals. "Just like a Paytm, Flipkart, Snapdeal or an Amazon empowered lakhs of small manufacturers and traders by offering them a platform, we eventually aim to be the selling arm of lakhs of merchants by creating a hyperlocal O2O marketplace." While Chopra refused to share the revenues being done by Little currently, he has in the past said that the company will do about $170 million in Gross Merchandise Value (GMV) by March 2016, which would indicate an average of nearly $15 million in monthly GMV.
Grover of Crownit, on the other hand, says his app has 800,000 users across nine cities with eight categories of offerings. Crownit, too, claims it has 10,000 merchants and does a GMV of Rs 36 crore every month, not an inconsiderable number for a company that is less than two years old. The company has 200 employees across three offices in the country and is looking to raise an additional $30 million Series B funding. Grover also says that a user does about three transactions on an average. "We drive about 15,000 transactions every day and this number is only growing every month."
Warikoo of Nearbuy says he has 50,000 merchants enrolled and 1.2 million downloads for his app. Unlike some of his competitors, Nearbuy offers both through app and desktop though 60 per cent of its transactions happen on mobile. Warikoo, while refusing to disclose the GMV of the company, claims that one transaction happens every three seconds and the average size of transaction is between Rs 700 and 900. The company has 450 employees.
However, despite the enthusiasm of the O2O companies, some of the old style coupon companies are not upbeat about this market. Ankita Tandon, COO of Coupondunia, says that her company experimented with O2O for a little over a year, from July 2014 to October 2015, before abandoning it. Times Internet is a substantial shareholder in the company. "It wasnt getting us the kind of traction that we would have hoped, and I think thats where we realised that the offline market is not yet ready. So, O2O is extremely, extremely difficult. And unlike the West, where they are a lot more process and technology driven, we feel that the Indian market is not yet ready."
"The primary focus is on the merchants and not necessarily the customer. I am more of a matchmaker helping merchants fill capacity during lean times"
Chopra, however, dismisses those comments and says coupon players continue to be largely a lead generation model with mixed success ratio in India. "SMS and desktop-based models, which was what predominantly the likes of MyDala and others did, also have their limitation, as telcos control and have a big say in it." He also claims that "unlike some of the coupon players that have a 30-35 per cent margin which is not a very sustainable model, our margin, levels are at an average of 6-8 per cent."
Investors perspective
Little, though, seems to have found a big supporter in its investor Paytm. Vijay Shekhar Sharma, CEO & Founder of Paytm, says, "We are committed to build and partner every platform that will bring mobile commerce to masses in India. Little is one of the key investments in that direction and will bring millions of hyperlocal deals to Paytm consumers right from their neighbourhood. The Little app will follow a close working relationship with Paytm." Sharma plans to synergise the country's largest mobile wallet and the app offerings with a focus on creating online-to-offline models.
Ravi Adusumalli, Managing Partner of SAIF Partners - who has also invested in Little - says that the hyperlocal deals space is largely untapped in the Indian market. "While it is early days yet, Little has brought thousands of merchants on its platform and is adding hundreds every day. This coupled with Paytm's user base of 100 million gives it a headstart in this space."
Indeed, all the players say that the focus is to sign on more merchants and offer targeted deals, across more number of cities. Chopra expects consolidation in the sector, pointing out that two Chinese companies in the O2O space - Meituan.com (funded by Alibaba) and Dianping (funded by Tencent) - merged recently. "The action is only beginning now and we clearly expect to be the market leaders even as consolidation takes place." Others, too, have similar ambitions. Warikoo says Nearbuy has had a headstart and is the leader in the segment even as Grover of Crownit says that the market opportunity is so large that there will be room for more than one player.
