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Udaan: India’s Biggest Digital Wholesaler
My name is Mikal – I’m an early-stage tech investor and I was born in Asia, grew up in Africa and now live in the US. Every week I break down a fast-growing business in an emerging market to understand its product, market and growth strategy.
This week I’m breaking down Indian B2B wholesaler Udaan.
Within the next decade India will overtake China to become the most populous country in the world. Today India’s population is 1.38 billion and this is expected to reach 1.5 billion by 2030 and peak around 1.65 billion in the middle of this century. The enormous growth of India’s population - from just 370 million in 1950 - has created a massive and fast-growing retail market. Consumer spending in India is forecast to hit $3.6 trillion in 2021, more than 4x what it was a decade ago.
Today Indians buy most of their home goods - food, spices, clothes, shoes and more - from small mom-and-pop retail stores known as kiranas locally. There are over 12 million of these kiranas across India and they are the center of India’s retail market. Over the last few years momentum has been growing to digitize the operations of these kiranas, in particular, their sourcing and purchasing of wholesale products to stock their shelves with. The leader driving this trend is Udaan which is pioneering the digitization of kiranas across India and dominates the market.
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Udaan is a business-to-business (B2B) ecommerce marketplace in India connecting brands and manufacturers with kiranas across the country, and its mission is to digitize the wholesale purchasing and sourcing for kiranas across India.
Udaan was founded in 2016 and since then has grown to jaw-dropping scale in just four years:
Reached $2.1 billion in gross merchandise value (GMV) in 2020
Has 3 million kiranas on its platform today
Has 2,500 brands on the platform
Serves customers in a 900 cities and towns across India
Is valued at $3.1 billion and is the fastest Indian company to reach a valuation of over $1 billion
Has raised $1.15 billion in financing to date
India’s retail market and in particular the supply-chain for kiranas and brands is deeply complex, slow and inefficient. India’s 12 million kiranas are distributed across India’s 8,000 cities and 660,000 villages across the country. This makes identifying and supplying kiranas products a monumental task for brands. For example, Unilever - which has been operating in India for a century - only supplies 15% of all Indian retailers directly, relying on third-party wholesalers to distribute its products to the rest of the market. For most kiranas their goods come through a supply-chain composed of numerous layers of middlemen, raising prices and resulting in a slow and inefficient supply-chain.
Udaan radically simplifies the retail supply-chain by connecting kiranas to manufacturers and brands directly through its digital marketplace and handling the logistics of delivery. Kiranas can buy a whole range of products on Udaan including lifestyle, electronics, home and kitchen, food staples, fruits and vegetables, toys and other merchandise to stock their shelves with.
Udaan’s business is composed of three core pillars: a digital marketplace, logistics and lending. Kirana operators download the Udaan app and can order products, track shipments and handle payments all on the app. This is a significant shift from the traditional way most kiranas source their goods - from physical markets or via third-party suppliers over the phone or through text.
Udaan’s marketplace has over 3 million listed products today. However, over 60% of its sales are in the food category, primarily staples (rice, wheat etc) and fresh produce. Today Udaan delivers over 8,000 tonnes of food a day. This is equivalent to the weight of over 1,300 African elephants delivered daily!
Once a kirana orders something on the platform, Udaan’s logistics infrastructure kicks into gear to handle the delivery of the products. Udaan’s logistics infrastructure is the critical enabler of its business model and a key differentiator in the increasingly competitive market of wholesale retail in India.
Today Udaan operates 200 warehouses across India that total 10 million square meters of warehouse space. In comparison, Amazon operates 175 warehouses across Europe and North America totaling 150 million square feet. Udaan can deliver products across 900 Indian cities today and continues to expand its geographic footprint.
The final piece of Udaan’s business model, and where it is likely to generate the most profit over time, is its lending business. Today, most kiranas in India operate outside of the financial system. Most goods are bought and sold with cash and many kiranas don’t operate bank accounts. This has made accessing financing for working capital or for growth very difficult for kiranas.
However, kiranas who use Udaan are able to access Udaan’s credit facility. Over time, kiranas on Udaan build up a track record of orders and payments that help Udaan build a credit profile for a business and extend them credit financing. Udaan’s opportunity to become the lender of choice to kiranas across India represents a huge financial opportunity.
India’s retail market is gigantic. In 2020, the market was worth $900 billion and this is set to balloon to $1.6 trillion by 2025, growing at 10% annually. The digital wholesaling component of the retail market will be worth $60 billion by 2025. Today, the total number of kiranas in India is estimated to be between 12 - 15 million. Udaan’s 3 million kiranas on the platform represent an impressive 20-25% market share of the total kiranas in the market. Udaan’s users are also first-movers and early adopters. Udaan dominates the digital wholesaling market today with over 80% market share today, primarily because the 3 million kiranas it has on the platform account for the majority of kiranas involved in the digital wholesaling market.
But Udaan is not alone in the pursuit of dominance in the digital wholesaling market. India’s gigantic retail market has attracted the attention of numerous companies, local and foreign. In fact, the battle to become the supplier of choice to kiranas is heating up across India and the competition is intense.
Udaan’s main competitors include:
IndiaMART - Now a ~$3 billion public company
Image from AnalyzeMarkets
Reliance Retail is Udaan’s primary competitor and the biggest threat to its dominance of the digital wholesaling market in India today. Reliance Retail has a vast retail footprint across India, operating over 12,000 supermarkets nationwide. Reliance Retail is a subsidiary of Reliance Industries - an Indian conglomerate with businesses in petrochemicals, textiles, retail and telecommunications and revenues of $92 billion in 2020. Another subsidiary of Reliance Industries is Reliance Jio, one of India’s leading telecoms providers (like an AT&T or Verizon). Jio provides phone and data services to over 400 million users across India, in addition to other products.
Jio is a key weapon in Reliance Retail’s aim to usurp Udaan’s dominance of digital wholesaling in India. In May of 2020 Reliance launched JioMart, an ecommerce marketplace for consumers to buy products and for kiranas to buy products at wholesale prices. Reliance’s 12,000 store footprint across India gives it a huge advantage over Udaan’s relatively smaller footprint today. Jiomart is growing rapidly and is now averaging 500,000 orders a day.
More worryingly for Udaan is Jiomart’s partnership with Whatsapp. In early 2020 Facebook bought 9.9% of Reliance Jio for $5.7 billion. Reliance is now working with Facebook to embed Jiomart directly in Whatsapp and allow consumers to browse Jiomart and buy products without having to leave Whatsapp - Whatsapp has over 459 million users in India today.
Jiomart’s partnership with Whatsapp and the large existing user base of both companies gives Reliance Retail a serious chance of displacing Udaan’s dominance of the digital wholesaling market. Today, Jiomart is live in over 200 cities across India and expanding rapidly.
Reliance Retail is a serious competitor for Udaan, and its vast resources and synergistic businesses position it to grow Jiomart by leaps and bounds in the coming years. Nonetheless, despite competition from Reliance, Amazon, Flipkart and others, there is still plenty of opportunity in the market for Udaan.
Udaan can continue to grow by pursuing one or all of the following strategies:
Expanding its geographic footprint rapidly to capture market share in new markets
Specializing its business in certain wholesaling categories
Deepening its focus on its lending business
Udaan already is pursuing strategy one, and has the widest footprint of any digital wholesaler today in India (Jiomart is available in 200+ cities, Flipkart Wholesale in 50+) . By expanding aggressively and entering markets (cities and towns) where its competitors aren’t present, Udaan can dominate these new markets and effectively block its competitors from entering them. This is an expensive strategy, but Udaan’s recent $280m fundraise indicates that it plans to continue to expand its logistics footprint.
In terms of strategy two, Udaan appears to be seeing some early specialization developing. Today, 60% of its GMV is food products and staples - reflecting the typical basket of goods for an Indian consumer today. However, the company recently reported adding 100,000 businesses in the lifestyle category and shipping 230 million items in this category in 2020, accounting for 10% of its GMV last year. Some categories where kiranas buy with less frequency - like electronics - are not as attractive to Udaan as categories with frequent repeat orders like food products.
Finally, in terms of strategy three, Udaan’s lending business is a critical part of its future growth. By becoming the go-to source of credit and capital to kiranas Udaan can begin to offer a broad range of financial solutions to its business owners and drive significant revenue as a result. However, its lending business puts Udaan in competition with a whole range of new competitors such as KhataBook, which has 8 million businesses on its platform and is exploring expanding into lending.
Overall, Udaan is the early leader in the digital wholesaling market and has managed to achieve 80% market share in just four years and onboard 20-25% of all the potential customers in its market in that time. This breakneck growth is not unique to India and a feature of businesses across emerging markets. Will Udaan continue its spectacular growth and win the war for the digital wholesaling market in India? Or will Reliance Retail and Jiomart’s immense scale and resources, as well as other competitors, begin to chip away at Udaan’s dominance?