Startups diversifying to survive Covid may make U-turn; consolidation on anvil in crowded segments

The grocery segment has attracted maximum businesses. NoBroker, Perpule, Meesho, Snapdeal, ShopClues, Box8, Uber, CountLoot, Rapido, PhonePe and more have tapped into the vertical that is led by BigBasket, Grofers, Amazon Pantry, and Flipkart Supermart etc.

e-commerce, india, consumer protection law, ministry of consumer affairs

Indian startups and technology companies’ diversification continues in order to enhance revenues in these trying times. The latest to hop on the trend is online travel portal that has partnered with the B2B arm of Ronnie Screwvala’s edtech platform upGrad. Through the tie-up, Yatra will look to offer its over 850 corporate and more than 20,000 SME clients solutions around advance learning and skill development for their workforce. Joining forces with relevant partners or leveraging existing user, client and partner bases to open up new channels of revenues has been the new normal for emerging and large technology startups and businesses in India. Ever since the government enforced lockdown in March, businesses across categories have been piggybacking existing resources to survive the downturn.

“There are significant lessons to be learnt in this pandemic. There is a massive change in consumer behaviour along with what is being consumed and how it is being consumed. For instance, the decline in ride-sharing or online food ordering. These companies have made tonnes of investments in people and processes. So they are acclimatizing to new consumer behaviour. Also, it is important on their behalf to be able to do more with their existing investments. They just can’t wait for normalcy to return,” Sanchit Vir Gogia, Founder and CEO of consultancy firm Greyhound Research told Financial Express Online.

Amazon in May had announced foray into food delivery with the launch of Amazon Food to compete with incumbent majors including Swiggy and Zomato. Amazon had also entered into liquor delivery in June beginning with the Eastern state of West Bengal. This move had mirrored the similar initiative by Swiggy and Zomato along with BigBasket to deliver liquor online in multiple states including West Bengal, Odisha, Jharkhand etc.

Also read: Flipkart raises $1.2 billion funding led by parent Walmart; valuation nears $25 billion

Importantly, food and grocery became the new oxygen for startups to sustain lockdown pressure on their revenues and business overall.  While Zomato and Swiggy have already tied-up with multiple leading star hotel brands including Marriott, Hilton, The Park, Hyatt, Roseate etc. travel portal MakeMyTrip has also partnered with JW Marriott, Roseate in Delhi, Bengaluru’s Royal Orchid, The Lalit in Mumbai, Chennai’s The Residency etc to launch online gourmet delivery service.

Nonetheless, the grocery segment has found maximum takers as customers took to online retail for fulfilling their daily to monthly needs of essential products. NoBroker, Perpule, Meesho, Snapdeal, ShopClues, Box8, Uber, CountLoot, Rapido, PhonePe and more have tapped into the vertical that is led by BigBasket, Grofers, Amazon Pantry, and Flipkart Supermart etc. This might also mean more burning of cash than what these companies might earn from new categories.

“To get revenue from new categories will be much more costly than what these companies are burning apart from their burn in core businesses. But unprecedented time requires unprecedented action and it is a reflection of that. Like launching virtual platform for people to interact,” said Yugal Joshi, Vice President at Texas-based consultancy Everest Group told Financial Express Online.

Cab-hailing company Uber too had expanded beyond its cab-hailing business. The company had partnered with online pharmacy Medlife in April to deliver medicines and in the following month had launched parcel delivery service. Bike taxi startup Rapido too had added medicine delivery to its services.

Nonetheless, this sudden rush to explore new businesses and adapt to consumer behaviour might not continue for long. “Some of these businesses are not core to these companies. While it is good that even at such juncture they are able to diversify but this is not going to sustain for anyone of them. Their core business has to work for them to turn around their current situation,” added Joshi.

Zomato, for instance, had also ventured into grocery delivery with a new vertical Zomato Markets in April. However, it has started to scale that down. “While Zomato Market will “continue to operate and service users who need on-demand delivery of essentials” but with unlock 1.0 relaxations, Zomato will “spend a large proportion of our time making our food delivery service the safest, and the most loved one in town,” a Zomato spokesperson had said in a statement last month.

Having multiple players in one category might also trigger consolidation. “It is a fair assumption to make that there will be consolidation because we only need that much players in the market. For instance, Reliance is acquiring Milkbasket. Organisations with bigger pockets and ability to stick around in these times will come out stronger ahead. So shutdown and consolidation are going to be the name of the game at least for next 6-12 months,” said Gogia.

Also read: Myntra, Flipkart, Snapdeal, others begin showing country of origin even as DPIIT suggests Aug 1 deadline

Consequently, it goes without saying that investors will pick and choose from new investment opportunities even as they would prefer to remain focused on existing portfolio companies rather than betting on new businesses. But this doesn’t mean good investible companies wouldn’t find backers. On the other hand, earlier if investors gave startups runway of around five years to become profitable, now they would look to expedite it. So, the profitability metric will come to the forefront now instead of GMVs, MAUs etc.

“Covid has reset the investment scenario. It has proven to be a great filter for investors to bet on businesses that have been able to survive the past few months and remain resilient for days ahead as well. This not only establishes the fact that their business has genuine market and customers but also that they have the ability to adapt to the changing environment,” a prominent venture capitalist based in Delhi told Financial Express Online.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.