Social commerce platform Meesho aspires to expand its business model to target 100 million small businesses, a strategy that pits the newly devised unicorn against online retail gigantic Amazon and Flipkart in India.

The diversification from its current focus is on women-led resellers trading in fashion and homeware categories. The strategy coincides with a $300 million fundraise by the Bengaluru-based company last week from Japan’s SoftBank Vision Fund, valuing it at $2.1 billion.

The investment is SoftBank’s third bet on an Indian online commerce player after Snapdeal and Flipkart.

Meesho's diversification plan pits it against Amazon, Flipkart

The newly minted unicorn Meesho privately retained startups valued at $1 billion or more—established by Vidit Aatrey and Sanjeev Barnwal are outlining a new business model with the new funding round, two years after social media firm Facebook Inc. funded $25 million in the company.

Aatrey said, “India’s e-commerce is about 15 years old, but the number of small businesses that are selling their products online is less than 1 million. Most of the small businesses are still selling offline, that means there is structurally something wrong,” on The Rundown, ETtech’s weekly show on Clubhouse. 

Meesho establishedits startup as a reselling platform, empowering mainly women entrepreneurs to start their businesses online in unbranded and longtail divisions. These resellers pastor products in crosswise categories such as fashion, furnishing, home appliances and trade them within their social circle via Facebook, WhatsApp and Instagram.

The startup is now contemplating to go ahead with these few categories and introduce newer ones such as grocery, including staples and fast-moving consumer goods (FMCG), as it goes head-to-head against the stabilised online retailers.

“We are focussing on women entrepreneurs scaling, but we will do everything it takes to get all small businesses online in future,” Aatrey said when asked whether it would sell directly to consumers like how Amazon and Flipkart do. Even as Meesho maps a course into becoming a more large-scale e-commerce player, it will not undeviatingly compete with other companies, Aatrey stated.

Going ahead, Meesho will be category-agnostic but will drive clear of eatables and trading economic products for now. “I think it will evolve over time as the overall scale of e-commerce keeps going up every year. The cost of the logistics will decrease with more density,” he said.

Meesho will also enter into online grocery this year through Farmiso to solve for volume and increase its reach into low-income households. “I think the frequency will come from our grocery business. And the reason it is exciting to us is that a lot of people in India, especially in the lower-income segments, spend most of their money on groceries,” Aatrey stated.

In this segment, Meesho will face well-entrenched administrators like BigBasket, Grofers, as well as others including Reliance’s JioMart.

Sumer Juneja, partner and India’s head for SoftBank Investment Advisers, said only a portion of the addressable market for established and disorganised retail was being apprehended at the moment. So, it was not necessarily about competing with larger e-commerce players.

“Meesho is playing on the unorganised retail, which is the long tail, both on the consumer side, where it brings people who are new to commerce, as well as the supply side, where penetration is less than 1%. I think there is enough room for everyone to have their own product and product-market fit,” Juneja spoke.

Companies such as Snapdeal and ShopClues had earlier tried to seize the lower end of the market, typically products priced under Rs 300-400, but they could not sustain.

Asset-light model

Meesho’s most popular section is fashion, along with jewellery, home and kitchen, which collectively contributed 60% of sales as of January 2021, a company spokesperson said.

According to RedSeer Consulting, grocery sales on social commerce are valued for almost 1% of sales online in 2020, which the consulting firm clinches at about $3 billion in value.

Meesho’s founders and SoftBank are banking on the startup’s asset-light model and its capital-efficient strategy as a transformation in the extremely competitive e-commerce industry.

“Meesho doesn’t have warehouses, it doesn’t carry inventory, and it does not have a logistics arm. But Meesho is a platform where it binds it all together to give an experience like it is an e-commerce player but without carrying all the assets,” said Juneja.