Vijay Ghadge has been a pharma man for most of his life. His first stint was with Dr Reddy’s Laboratories and the second with Ranbaxy as its supply chain head in South Africa. As he talks to us inside a warehouse cabin, packed boxes labelled with the names of the who’s who of the e-commerce world keep falling off a conveyor belt, each at the right time and place. Ghadge, too, seems to be at the right place at the right time. He started gojavas — his e-commerce-dedicated logistics start-up- — three years ago.
Today, the shelves and conveyor belts at his warehouse are teeming with boxes. However, the drug hangover remains: the strategic project teams at gojavas are modelled after the R&D teams at pharmaceutical companies. “The teams design processes and conduct pilot programmes, the same way that drugs are first tested, trials run and launched at pharma companies,” says Ghadge about the customisation and innovation the company has done within the logistics field.
“Before we came on the scene, companies would pay up after about 15-30 days. We changed this to a daily transaction format — money for today’s collection paid up by tomorrow — thereby reducing the working capital requirements of an e-commerce start-up considerably. That really helped us grow,” adds Ghadge.
Almost 60% of e-commerce transactions in India are cash-on-delivery (or COD). “Cash collection is very important, especially for us, since we do not take any money from the customer but still make the spectacles they have ordered,” says Amit Chaudhary, COO and co-founder, Lenskart. Nearly 65% of the company’s shipments are handled by gojavas today.
Before starting gojavas (under Quickdel), Ghadge worked for Jabong and felt that e-commerce customers were looking for a lot more from logistics support — more visibility, a better experience at the doorstep, lower return rates (because with COD, high return rates were a major concern).
Companies had responded by starting their own logistic arms, such as Flipkart with eKart. But there still was a yawning vacuum. So, Ghadge and two of his former colleagues put some money together and were able to build the business with support from some key clients, the biggest being their former employer Jabong.
“Our first delivery office was in a van because we didn’t know where else to open it instead. We decided we would look at wherever the demand was coming from and would set up the van there,” recalls Ghadge. The founders had a folding chair, table, printer, laptop and dongle and 15-20 delivery persons. They used to park their van near a CNG station in west Delhi and make deliveries from there. “Now, we have 440 offices across 300 cities. From 20 delivery persons, we have scaled up to 12,000 people across the organisation and 500-600 in the head office,” says Ghadge.
And all this within 30 months of inception. This would not have been possible without the backing of two HNIs, whose identity Ghadge declines to reveal. The company got a further vote of confidence from the country’s second largest e-commerce player Snapdeal. As per news reports, Snapdeal invested ₹200 crore in gojavas in March 2015. Putting the deal in context, Rohit Bansal, co-founder of Snapdeal, says, “Though infrastructure across the country is improving steadily, there are still many gaps. In order to boost the entire digital commerce ecosystem, players across the industry need to work together.” Currently, the company has a total of 400 customers. In FY14, it delivered ₹42 crore worth of goods, which surged to ₹208 crore in FY15. Its average revenue is estimated to cross ₹500 crore in FY16. (see: Full throttle)
Bridging the gap
The company has made the most of the service gap in the market, given that existing logistics giants have failed to inspire confidence on the customisation front. “E-commerce logistics start-ups are much better from the point of view of customised solutions. Every organisation has a DNA that becomes difficult to change or mould once the company grows bigger. It may not be impossible but it is quite difficult,” says Navneet Singh of grocery delivery start-up PepperTap.
Singh also runs a reverse logistics company called Nuvo Ex. This is why the stage was set for the emergence of dedicated e-commerce logistics companies. Of the pack of such start-ups, three have thrived: gojavas, Ecom Express and Delhivery, all based out of Gurgaon. But conventional players, too, have started e-commerce divisions.
TA Krishnan, CEO and founder of Ecom Express and a logistics industry veteran with 23 years of experience at Blue Dart, puts it this way, “Blue Dart, Gati and DTDC are largely B2B companies and have leveraged this opportunity by virtue of the courier business. Obviously, there will be pressure from their courier, surface cargo and air cargo businesses, while we are completely dedicated to one field, which is what differentiates us from them.” Blue Dart declined to comment for this article.
So, how does such a company win and retain customers? The gojavas team says the solution is to customise and then customise some more. Ghadge’s strategy has been to find innovative service ideas in customer complaints and feedback and he has often succeeded at this; he claims that gojavas was the first to introduce same-day and open-box delivery. E-commerce companies spend loads of money to acquire customers and they want repeat purchases. In other words, every e-commerce company is trying to maximise customer lifetime value.
Full throttle
Management seems bullish about revenue growth after it surged five-fold in a short span
If a customer buys once, his or her buying experience must prompt him or her to buy 20 more times that year. The role of the logistics company becomes pretty significant, then. “I had gone to Indirapuram for a delivery with one of our staff members. The lady who took the delivery asked whether she could open the box. I couldn’t say no as this was an elderly customer. I asked the delivery boys how often this happened and they said that a lot of customers had similar requests, especially for COD orders. So, we launched the open-box delivery concept. In the process, we help e-commerce companies build trust,” says Ghadge.
Then, gojavas started a 90-minute reverse pick-up feature at Snapdeal’s insistence and introduced GPS tracking of delivery boys. Krishnan of Ecom Express says, “All three companies bring different value-added services to the table.”
What makes companies choose gojavas, then? “We interacted on two points: the cost of logistics and how much the company can change itself for our benefit,” says Chaudhary of Lenskart. The other check that Lenskart performed was whether the partner it was nurturing would be able to scale. “We had already burnt our fingers with courier companies, who either didn’t have the funds to scale or had already exhausted their funds,” he adds. Lenskart’s business entails complexities, which led to the introduction of try-and-buy services.
“Lenskart had a very particular problem. It sells eyeglasses, which are customised, of a specific power and also need to fit a customer's face. The company said that till the time it didn’t crack the frame selection problem, it would be difficult for it to scale. “We solved that problem. For Lenskart, we ship out five to six frames, after which if the customer selects one, the company fits the lenses to it and then ships it out,” says Ghadge. All this has helped gojavas better its own reach. From a total of 107 cities in February 2015, it today delivers to 400 cities. Its shipments have gone up from 56,000 last year to around 1.5 lakh shipments every day today.
“We only open new offices once we have a firm commitment from the client. We map the demand, study which pin code the demand is coming from and, based on the demand, decide the number of offices we should open. We use hardcore analytics and optimisation software, plus old delivery hands with local knowledge. That differentiates us from others,” adds Ghadge. A new office could have as little as one supervisor and two delivery boys; bigger ones have 25-30 people. Delivery persons have to get their own bikes to keep the business asset-light.
Competitor Ecom Express has a slightly different approach. Apart from following demand, it takes its own course as well. “We are building to serve the entire state. Online companies should not be restrained by the inability of their partners to service a location. We opened at all pin codes in two new states this financial year — Goa and Haryana. We will open our offices in eight to 10 states this financial year or the next,” says Krishnan.
Far and wide
In terms of coverage, new and established rivals too have a comprehensive reach
Ecom Express is expected to reach 4,000 pin codes in September 2015 (see: Far and wide). Krishnan doesn’t feel that there are too many competitive pressures at this stage. “Currently, the supply side in logistics is less than the demand. Obviously, growth for all of us will be exponential unless you are stuck with volumes that you are not able to handle. Between last Diwali and now, projections say that our business would have grown three times,” he says. No wonder, then, that his company attracted ₹820 crore of funding from Warburg Pincus in June 2015 for an unknown stake. (see: Money flows)
Funding growth
Going by reports, Snapdeal’s investment in gojavas is roughly a fourth of what Warburg Pincus invested in Ecom Express. Since the stakes taken over in both cases are not known, an ideal comparison is not possible. But, says Ghadge, “We are not one of those funded start-ups. People have raised thousands of crores for similar turnover, at a similar growth scale, whereas we have done that with much less.” Does Snapdeal’s investment in the company give rise to conflict of interest issues in the mind of customers? Lenskart’s Chaudhary, 65% of whose deliveries are handled by gojavas, discussed this during his company’s board meeting.
Money flows
Logistics start-ups have caught the fancy of PE and strategic investors
“We thought that if it was announced that this was a 100% acquisition, there could be a conflict of interest with respect to the customer data that we have. But after a discussion with gojavas, we all came to the conclusion that more funding means better services. And if gojavas breaches our data, it will cost it more than us,” he says.
Bansal of Snapdeal though points out that the partnership is less about the two and more about fostering the industry’s growth. “We partnered with gojavas to develop innovations that will further the growth of the ecosystem and industry at large,” says Bansal.
On his part, Ghadge defends his company’s alliance, “Amazon has web services; don’t other companies use its database? Indus Towers also does installation work for all telecom operators. There is no conflict of interest in either case.” But isn’t there a danger of Snapdeal enjoying better rates from the company? In order to lock in some capacity, it might give Snapdeal preferential treatment and better complaint resolution, but not better rates,” believes Navneet Singh of PepperTap. Others also feel that the rates are pretty transparent across the industry — everyone knows what everyone else is charging.
Gojavas claims to have achieved operational profitability last year itself, although Ghadge refused to reveal the numbers. However, he says there is a 50-50 split between metros and tier 2 and 3 towns. “There are two different demand drivers. In metros, it is convenience. In other places, one is aspiration and the other is availability. For a long time, even Nike or Puma shoes were not available to many non-metro customers. E-commerce made this possible.”
But people are already talking about the valuation bubble. If e-commerce funding declines substantially in the future, what will happen to its business? Ghadge is aware of the risks. He feels that people will start looking at efficiency and sustainability, then. “Even if there is a correction, in the longer term, that would be good. We are a capital-efficient start-up. We have the financial discipline and change-readiness for any eventualities,” adds Ghadge. Gojavas keeps getting offers for PE funding but Ghadge feels that the company has sufficient funds for its expansion plans, for now. For the next five years, he has three objectives.
First, not to lose out on e-commerce opportunities. “We will continue to focus on e-commerce as a segment. We will tap into opportunities in the warehousing and hard goods segments.” The second objective, interestingly, is to get into traditional businesses, so as to not be dependent on one industry.” And the third is to reduce geographical risk by not remaining India-centric. “We are in the process of hiring people for international expansion. We have evaluated eight to 10 countries.” His competitor Krishnan doesn’t feel that getting into conventional business makes a lot of sense right now. “The growth rate in other businesses is nothing when compared with e-commerce.” Funding or no funding, e-commerce is here to stay. Which is why Ghadge’s company has just one thing on its mind, for now — to make as much hay as possible while the sun shines.
