Udaan- India’s Amazon or Alibaba?

Udaan is a B2B marketplace in India connecting small and medium sized retailers to wholesalers for a range of products from lifestyle, home, electronics to fruits and vegetables.

Udaan is a B2B e-commerce marketplace in India which connects small and medium sized retailers to wholesalers through its platform. It launched its operations in 2017 and rose to prominence when it achieved unicorn status within a year (private valuation of $1 billion), in September 2018.

The founders of Udaan are former employees of Flipkart, one of India’s largest e-commerce platforms, a company recently acquired by Walmart. [i] At Flipkart they were exposed to the massive retail industry in India and identified inefficiencies that could be solved using technology. This gave birth to the idea of “Udaan”.

Market opportunity

The size of the retail market in India is expected to reach 1.1 trillion this year (2020).[ii]  There are several small and larger players in all parts of India who will benefit from being. This provides a tremendous opportunity for players in this segment to organize supply chains, facilitate connections and create value for everyone in the industry.

Growth in India's retail market
Figure: Growth in India’s retail market

Challenges being solved for

Despite the promising size of the industry in India, most of the players are within an informal business structure. Wholesalers and retailers know each other through connections and long-term business relationships. Therefore, new players especially from smaller towns and villages have limited access and negotiating power to get favorable prices on bulk purchases from wholesalers. On the other side, wholesalers also find it difficult to expand their reach to these small retailers all over India. The organized segment accounts for only 10-12% of the sector and is expected to reach ~25% by 2021.[iii]

Outside this small community of organized players, India has millions of small retailers including many mom and pop shops and local retail chains which rely on intermediaries or middlemen for sourcing and fulfilling orders, comprising both on price and quality often.

Udaan is enabling these B2B transactions by bringing all participants (wholesalers, distributers, producers and small retailers) on a single platform – the Udaan app on their smartphones. Value is created by bringing efficiency to the supply chain, ensuring transparency and providing expanded access to both sides of the platform (buyers and sellers) and allows retailers and wholesalers to leverage technology to scale up their businesses.

Products: The platform supports a variety of categories from lifestyle, electronics, home and kitchen, staples and toys, to fruits and vegetables. Udaan also offers a credit line to provide working capital to buyers and sellers on its platform, thereby addressing one of the biggest challenges faced by small and micro businesses and merchants in India. The credit to buyers and sellers is financed by Udaan and other non-banking partners.[iv]

Udaan's website
Figure: Udaan’s website

Value creation and capture:

Udaan helps businesses discover customers, suppliers and products, cut the middlemen so that both parties get better deals. Unlike other marketplaces, Udaan offers higher value to its users by also taking care of logistics and payments.

To secure value, it charges a percentage on sales as a commission which varies in different categories. Udaan also charges for the logistics in the form of delivery charges from buyers, varying according to the product and quantity. [v] With increased number of users on its platform, Udaan can capture more value.

Scalability and sustainability: Udaan currently has 1 million retailers and more than 20,000 sellers from 900 cities and towns in India.[vi] There are strong network effects in this business. The platform is valuable to retailers only if enough wholesalers are available to choose from and a wide variety of products. Similarly, for the wholesalers, access to many small retailers is the key value proposition here. Udaan also manages logistics and therefore it is important to maintain a critical mass of transactions so that transportation is economical.

The company is poised to scale up in future. With potential size of retail market, fragmented and informal state of business, rising penetration of smart phones and technology, and rise of a cashless economy, Udaan has a huge potential to flourish in the years to come. However, the company needs to offer excellent service, competitive prices and differentiating benefits in order to maintain its share of wholesalers and retailers on its platform and to reduce the perils of multi-homing.

Risks:

The credit business poses a serious risk given the lack of credit history in India. To mitigate, Udaan first provides 10,000 INR credit with interest charge, which later increases to a maximum of 250,000 INR.[vii]
Competition is another significant risk for Udaan. The company should focus on increasing the stickiness of their platform so that they can increase barriers for their customers to choose a new player.

References

[i] https://corporate.walmart.com/newsroom/2018/08/18/walmart-and-flipkart-announce-completion-of-walmart-investment-in-flipkart-indias-leading-marketplace-ecommerce-platform

[ii] https://economictimes.indiatimes.com/industry/services/retail/indian-retail-market-expected-to-reach-1-trillion-by-2020/articleshow/61662729.cms?from=mdr

[iii] https://yourstory.com/2019/09/startup-b2b-ecommerce-retail-udaan

[iv] https://techcrunch.com/2019/10/02/udaan-series-d/

[v] https://lapaas.com/udaan-business-model-detailed-case-study/

[vi] https://techcrunch.com/2019/10/02/udaan-series-d/

[vii] https://lapaas.com/udaan-business-model-detailed-case-study/

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2 thoughts on “Udaan- India’s Amazon or Alibaba?

  1. Thanks a lot for sharing this article, Sneha – very interesting. Sounds a lot like an Indian version of Alibaba.

    I wonder though if there’s not some additional risks in the business e.g. Multi-Homing? What prohibits wholesalers to also list their products Flipkart and other platforms?

    Additionally – I wonder how much money the company needs to deploy for logistics/ the creation of warehouses in order to build a smooth supply chain a la amazon?

    1. Thanks Marius! Yeah there is risk of multi-homing and that’s why as I have mentioned in the blog they would have to work on increasing the stickiness of their platform so that wholesalers are incentivized to sell through them. Fortunately, not many competitors exist in India right now. Also Flipkart, although better know, has spread itself across a whole range of products and channels ( B2B, B2C) , while Udaan has the advantage of being more targeted ( wholesale- retail)

      Logistics, I agree is a heavy capex space that they have entered in. Although an integrated approach of financing, sourcing and fulfillment sounds very attractive!

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