Unicorn valuations attract unicorn competitors

Another rice trader in Yeshwanthpur has been with Udaan for four months. He says he does business worth up to Rs 1 lakh ($1,450) a day through Udaan. But his profit margin is reflective of the tough space that is SME B2B in India. He earns Rs 10-20 ($0.15-0.30) on an order of Rs 1,000 ($14.5). This translates to margins of Rs 1,000-2,000 on an order of Rs 1 lakh.

Transparency at its best

Earlier, with buyers unable to compare prices, sellers had more freedom to price their products higher. Udaan and its B2B competitors like Jumbotail and Ninjacart are bringing much-needed transparency and efficiency to such scenarios.

In spite of his falling pricing power, the trader claims to be on Udaan out of compulsion as the market is crowded due to the various B2B startups. He blames them for reducing footfalls. By being on Udaan, he does decent business, but baulks at the idea of paying anything for their service, saying he will quit when they begin charging him.

His reality check might be imminent.

“You had your honeymoon period with us where we were not charging anything, but we can’t sustain, we need delivery charges, and these charges are the best in the market,” the Udaan employee quoted earlier said. This does cause a drop in businesses, he acknowledges but says the platform makes up for this quite fast.

Finding out the unicorn valuation

Udaan may yet find that the unicorn valuation was easier to get to than becoming the Flipkart of B2B. Many of its bets are bold, but risky too. For instance, its policy of convincing sellers to stock goods in its hubs even before orders come in has its risk compounded by the possibility of returns.

When a buyer returns an order, it makes its way back to the seller. But if the seller doesn’t want the goods back, it becomes a part of Udaan’s inventory. Considering that a large portion of Udaan’s business is from perishable products such as food and staples, the write-off on unsold goods is high. In 2018, Udaan wrote off Rs 9.84 crore ($1.42 million) of inventory.

To a unicorn-like Udaan, these costs are hardly deterrents. It is not short of funds to bankroll its business. This, even as it looks to expand its credit and payments business as well as its logistics play, all while entering categories such as fresh produce and pharmaceuticals.

In addition to slowly charging for its logistics and credit services, it is also offering suppliers the option of running banner ads on its platform in some cities. If they choose to avail it, they will pay an additional 5% commission to Udaan for the increased visibility. Two suppliers The Ken spoke to said they have been offered this service. It’s a play straight out of IndiaMART’s subscription model, which offers visibility and a ‘verified’ tag to its users.

What are the challenges?

Udaan’s big challenge now is to see whether free customers are willing to become paying ones, while also getting buyers and sellers used to a new-age way of transacting. While Udaan may now be a staple among the suppliers in Yeshwanthpur, the relationship is an uneasy one.

Around 10 suppliers The Ken spoke to said they have only grudgingly accepted Udaan as a part of their ecosystem after unsuccessful vendors strike in December. The strike was against B2B companies like Udaan, which vendors felt were cutting out lorry drivers and daily wage laborers who depend on business from the market. They also took issue with warehousing licenses being given to online B2B companies.

After the strike fizzled out, they made their peace with B2B platforms. Paying for them, however, is something many vendors aren’t yet sure about. One of the bigger rice suppliers said he will not remain on Udaan if they charge him for it. He has been on it for a year and thinks Udaan lacks transparency, with returns coming in for “small” reasons. Orders have been returned with notes like ‘buyer didn’t order’ or ‘cash not available’. No other details were provided, he claimed.