Express coup

It’s almost Christmas and you forgot to send gifts to your family. What do you do? Log on to your favourite e-commerce app or website and voila, within a few clicks, your order has been placed. The said platform alerts its logistics service and tells you your order will be delivered within the next few days, or even within 24 hours!

We have come to appreciate online shopping but, even today, only 3% of retail shopping is done online in India. In the US or China, the numbers are 11% and 25%, respectively. One way to increase the adoption of this channel here is to ensure timely delivery; no easy task that. In fact, time and again e-commerce companies have raised efficient transportation as one of their bigger worries. But where there is a need, there will manifest a start-up, and that’s what happened in the logistics space, too. Young companies, ready to take on this challenge, are popping up and nine-year-old Ecom Express is one such. There are many variables in this business and it’s algebra-hard to crack it, but this young company is doing outlandishly well.

As we enter their corporate office in Gurugram, we can’t help but notice the buzz and energy of the space. LED screens are throwing up data about the processing and operation as 33,000 workers on the ground, making sure you receive that smartphone you’ve been waiting for. Chances are your order is being handled by the folks at Ecom Express since they cover over 92% of the Indian population, delivering packages across 25,600 pin codes in 28 states and nine union territories (See: Deeper inroads). It boasts of being second to only India Post in its reach. One can only imagine what their warehouse looks like — oompa loompas dancing in sync, supported ably by AI and machine learning? 

Out of an estimated average of 3.5 million e-commerce deliveries in the country everyday, the company processes over 600,000 (See: Express delivery). From being a Rs.410 million company in FY14, they reported a turnover of Rs.10 billion in FY19. The former Blue Dart northern region chief, and founder of Ecom Express, TA Krishnan, beams and proudly says, “We’re the only company in the B2C logistics space to have become profitable.” In fact, in FY19, they posted a profit of $3.9 million (before turning Ind-AS) (See: Steady path). That’s unheard of for any logistics start-up in this country — of which, there are over 900, three of them already unicorns — Blackbuck, Delivery and Rivigo. So, what makes Ecom Express different?

On the right track

First. It only caters to the e-commerce industry unlike the other big players in this space. Delhivery, the closest competitor to Ecom Express hasn’t yet found its footing since it pivoted twice in the past eight years. Starting out as a hyperlocal B2B delivery platform, it moved towards e-commerce shipping, only to go back to being a B2B delivery service. It’s the poster boy of new logistics in India, with 60% more revenue than Ecom Express in FY19, but posted a massive Rs.17 billion loss with an income of Rs.16 billion. In contrast, Ecom Express always knew the market it wanted to play in, as a B2C e-commerce company.

Second. It offered cash on delivery to a country of cash lovers. Even today, 70% of e-commerce shipments are paid via COD mode in India. When the financial crisis of 2008 hit Blue Dart’s revenue from banking and international operations, Krishnan had to re-strategise. After studying the market for two years, his team realised that people who were shopping from TV commercials were all opting for cash on delivery. Which meant these brands needed credible partners for last mile delivery. Here’s where Krishnan saw an opportunity and this new line of business at Blue Dart became successful within 18 months with Rs.400 million profit, slightly offsetting losses of Rs.1 billion in the banking category. Little did he know that he was building the foundation of his own company.

“When I met with CEOs and investors in this community, they all talked about how gaps in last-mile capability were a big barrier to e-commerce growth in the country,” says Krishnan. He realised that he could only do so much as an employee at Blue Dart and convincing them to put complete faith in his project would have been a tall task. Soon enough, he got together with three other colleagues and they founded Ecom Express in the end of 2012.

From day one, the founders had their eyes on the national scale, they knew they had to play big and think big. So, they pooled in all their savings of Rs.150 million to fund the start-up and set up 42 offices in 35 cities within three months. Thanks to Krishnan’s networking while at Blue Dart, he could get a few clients on board within a few months. They included Naaptol, Jabong and Snapdeal on a test basis. “We started with a rough average of 100 shipments per day, which increased to 1,000 by March 2013,” explains Krishnan. In just over a year, the company raised its first fund series A and closed at $18 million from Peepul Capital. “We believed that it would probably last for about 12 to 18 months but, the moment we expanded to about 200 cities, our business boomed and the working capital requirement went up. Suddenly, the business was looking much larger and needed much larger capital”. It was a good problem to have, he says. But they didn’t have to wait for long. During one of his business trips, Krishnan met Viraj Sawhney, MD of Warburg Pincus, who evinced interest in their business.

In June 2015, the fund committed $133 million to Ecom Express. Sawhney says, “We were impressed by the founder team, which came with deep domain expertise.” There’s been no looking back for the company since. It has been unstoppable for the past four years, growing at over 90% CAGR. Sawhney, pleased with this growth, says, “They have been capital efficient and turned profitable in a short span of time. 

Third. They managed to do a few things earlier than competition. For instance, before Kingfisher shut down, 80% of packages they operated were shipped via air. But they had already started moving their operations to ground delivery. Hence, even after Kingfisher went bust, they could quickly transition completely to surface shipping, much faster than competition could. By 2015, they had almost perfected their surface delivery system. With the help of Rivigo’s trucking service, they can deliver packages within 27 hours from Delhi to Mumbai and vice versa just by surface transport.

Similarly, they were operational throughout the week, to capture the orders placed on weekends. They also started serving smaller cities and rural areas. Krishnan and his team observed that there was latent demand for e-commerce goods in Tier-II, III and IV cities. And rightly, they expected demand to explode. Until then, e-commerce players that were not focused on rural areas depended on India Post for their shipments, a service that does not offer COD. “It wasn’t that consumers in these regions did not have the wherewithal to spend on goods, they are just more conservative about paying digitally,” says Krishnan.

By expanding, the volumes they handled jumped by about almost four times. “The rough estimate of the GMV we were able to generate for the industry was almost an $8 million,” shares Krishnan. They moved into new states. “We did not wait for e-commerce companies to generate demand from those centres for us. We took the logistics there and waited for demand,” says Krishnan. He adds that, despite the aggression in chasing growth, they never chased volume to build a fancy valuation. “We have been very capital efficient. We have not splurged money like many other companies have done,” he says.  

A competitor is Delhivery, but the two companies have chosen to take different routes. Sumit Sharma, co-founder of GoBolt, a logistics solutions player believes the difference between the two players is because of the age and the background of the founders. “Mature founders would want to take things slowly and carefully, whereas those at Delhivery are more dynamic when it comes to experimenting with the model,” he says while explaining why the latter pivoted twice with their model.  

Number of players in the logistics space is multiplying by the day but Harsh Kapoor, director at Deloitte India, believes each one is serving a different purpose. For instance, companies such as Rivigo and Blackbuck, trucking and cargo start-ups, are modernising the logistics industry. Both companies have simplified and digitised an extremely unorganised space — trucking. “Historically, the logistics space has been full of intermediaries, both on demand and supply side. These companies are bringing efficiency in an otherwise fragmented industry,” he adds.   

B2B or not to be

One opportunity that Ecom Express is not tapping is the booming B2B space. Krishnan says that it can be challenging to survive in that business, which comes with its own set of challenges. There are different sets of processes and a business will need to invest heavily in infrastructure. “If I have to deliver an iPhone from a seller to customer, 90% deliveries are done through bikes. In B2B, I need to do this by thousands. Then I’ll need trucks and large warehouses,” he explains. To top it up, this space already has established and strong players such as TCI, Gati and Safex. That would mean “the only way to gain entry in that business is through pricing. And nobody gains through pricing in the cargo business,” says Krishnan.   

Ecom Express has found an innovative way to diversify, without splurging. Two years back, the company started offering digital services such as KYC and digital signatures to banks and NBFCs. Krishnan is making use of its 33,000-large field force that is digitally literate, and has a massive reach. This new stream generated Rs.1 billion in revenue last year, contributing nearly 10% to the total. Without deploying additional cash or workforce, the company has integrated a fairly successful business — all without taking their eyes off their core business, one that Krishnan is extremely confident about.     

Indian e-commerce market is expected to be worth $100 billion by 2022 from the current $17 billion, and Sawhney is sure that this is the space to be in. He explains, “We believe e-commerce as a sector has multi-decade growth potential, and there is a significant need for reliable third party logistics providers in India to serve the requirements of the industry over time.” As the big two, Flipkart and Amazon, continue to outsource more of their shipment needs in the country so as not to lose focus on their core markets, they will need reliable players such as Ecom Express. Due to the kind of market that India offers, a dynamic one, Krishnan hopes to see more players enter the space. That would mean more business for Ecom Express. 

“India is fortunate to have two big players (unlike US and China with just one player each). Two other giants Alibaba and Reliance Retail are also deeply interested in this market. A four-corner market will be even more helpful for logistics players,” he says, as the screen on their office wall continues to register every successful delivery.