Ecom Express: Cashing on the e-commerce wave
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New Delhi: It started with a dinner table conversation sometime in 2012 between four colleagues and friends—T.A. Krishnan, Sanjeev Saxena, K. Satyanarayana and Manju Dhawan. Besides their employer, courier services provider Blue Dart Express Ltd, they had two other things in common: all were in their late 40s and ready to leave their comfortable jobs to take a shot at building their own company.
The four were working at the northern division of Blue Dart, an almost three-decade-old company and one of the pioneers of express delivery services in India. Krishnan was heading the newly formed e-commerce division at the firm.
Entrepreneurship is a risky career choice, all the more for those on the verge of their 50s and with a family to consider, but Krishnan, Saxena, Satyanarayana and Dhawan were ready to take the plunge.
The result of the conversation the four had that night was the founding of e-commerce-specific logistics firm Ecom Express Pvt. Ltd.
E-commerce was a growing phenomenon at the time in India. Venture capital and private equity (PE) firms were demonstrating their faith in the potential of e-commerce in the country. The sector received $305 million of funding in 2011, an almost sixfold jump from $55 million in 2010, according to a 2012 report by research firm EY.
The idea behind Ecom Express was to set up a dedicated logistics firm to take care of the shipping and distribution needs of the e-commerce sector. Until then, it was largely catered to by courier services providers such as Blue Dart.
To be sure, a niche market for e-commerce delivery had already begun to sprout when the four teamed up to start their own venture. Delhivery, which was concentrating on e-commerce logistics, had launched in 2011. It was delivering more than 500 shipments per day for five e-commerce clients in the National Capital Region (NCR) by December 2011, according to its website. The projected growth rates for e-commerce meant there was room for competition.
“The way the industry was shaping up and the volumes were happening, we knew it was only a matter of time before specialists emerged,” said Krishnan.
The decision couldn’t have been easy. Krishnan’s son was about to enter engineering college and his daughter was still in school. His wife was a homemaker. The other three were in similar personal situations. According to Krishnan, at the age of 45-48, even if one is a domain specialist, employment becomes difficult. “We had only one option—that this had to work,” said Krishnan, who is chief executive of Ecom Express.
The bigger question was how to ensure that none of their families would be adversely affected by their entrepreneurial endeavours.
So they conducted a second meeting. This time, their spouses were in attendance as well. Questions were raised—how would the finances be taken care of, how long would they give the project, among others. The four did their best to address the queries of their spouses and convince them. They got the go-ahead.
Krishnan reminisces that when Blue Dart started cash-on-delivery services and ventured into e-commerce deliveries, it would get dozens of calls every day and three or four customers would get on board. “The first year, the revenue that came from the e-commerce segment was approximately Rs80-100 crore. It was one of the fastest growing segments Blue Dart had,” he said.
Everyone was convinced that the opportunity was there.
Krishnan and Saxena quit Blue Dart in October 2012. Dhawan left a month later. Satyanarayana quit in January 2013, when Ecom Express was launched with the help of funding from early-stage investor Oliphans Capital.
They started with Rs7 crore of capital, with almost Rs5.5 crore coming from Oliphans and the rest from the founders. The plan was to launch in multiple locations simultaneously, so that customers didn’t perceive Ecom Express to be a niche firm operating only out of NCR.
The company started with 44 offices spread across 35 cities. E-commerce firm Naaptol was its first client.
Ecom Express started with 100-odd deliveries per day. It earned Rs8 lakh in revenue the first month. Business surged in the next two months to Rs65 lakh and Rs85-86 lakh, respectively. Post this, the firm doesn’t share its revenue numbers.
“The market accepted us pretty well. The kind of services we were able to give, differentiated from what other players were giving them, we soon became the preferred partners. Once they got confidence that we will be able to handle volumes, and were financially stable, there was no looking back,” said Krishnan.
The growth phase
By early 2014, Ecom Express was delivering packages in about 60 towns. With the kind of growth it was experiencing, the founders needed more capital to sustain the business and grow. Funds were drying up and the company had almost no money left to pay salaries.
The founders didn’t want to approach equity investors so soon. “We wanted to have traction and show our business to people first before we hit the market for our next round,” said Krishnan.
The founders decided to borrow money from the market. Krishnan realized that he had no option but to pledge his house in Mayur Vihar, Delhi, for that. The other founders also chipped in with whatever little cash they could. An angel investor too lent them some money. They managed to borrow around Rs4 crore.
The money helped them manage until June 2014. Ecom Express then raised around Rs80 crore from PE firm Peepul Capital.
Once the money came in, the company expanded aggressively from 60 cities to 200 cities before Diwali that year. From delivering around 45,000 packages in June, it grew to almost 120,000 pieces per day in October. “With expansion and with the season, it took us to a different position altogether,” said Krishnan.
Then came a jolt for the e-commerce sector.
It was the first Big Billion Day sale organized by e-commerce firm Flipkart. Rivals Snapdeal and Amazon India were also running their own sales. Orders poured in. The e-commerce ecosystem was not prepared and it choked under the avalanche of orders.
Problem of plenty
“We were expecting some amount of growth but were not expecting this amount of volume. All of us messed up. We messed up by not being able to move the cargo by air because the airports were choked. So we had volumes floating within the system, some with airlines, at destination airports. Between October and December, it was a huge task getting shipments delivered,” said Krishnan.
In a statement then, Flipkart said that the order volume was so vast that it took the company just 10 hours to hit its target of $100 million in gross merchandise value, or the value of goods sold on the site.
According to Krishnan, the e-commerce companies never held discussions with logistics partners about what they expected. And, there was no coordination between the two.
“2014 was a bumper year from the volume perspective, but completely chaotic from that of operational efficiency. For logistics, it was a nightmare,” he said. “We knew that we could not build our business on aviation capacities alone. We decided that we had to set up our own network.”
In January 2015, Ecom Express put together its own network by roping in dedicated third-party fleet providers. The company said it needed to have a sustainable and reliable road transportation network given the limitations of the aviation sector. “It was an expensive experience but we had no choice. Today from Delhi to almost every city, we have our own network. Our idea was to give our customers reliable services rather than saying that we are the fastest,” added Krishnan.
Warburg Pincus takes a bet
Ecom Express announced its next round of funding—Rs850 crore from global PE firm Warburg Pincus—in June 2015. Most of the company’s existing investors, including PE firm Peepul Capital, exited during this round.
According to Krishnan, Viraj Sawhney, managing director of Warburg Pincus India Pvt. Ltd, approached Ecom Express when the firm decided to go ahead with financing from Peepul Capital in its series A round. While Ecom Express founders turned down Warburg Pincus then, Sawhney and Krishnan stayed in touch.
“I told him that the way I am seeing the response to the business, though we are saying the money will last 18-24 months, we may need to raise funds even earlier. This is exactly what happened. Between June and October 2014, we had built up a huge volume of business. The company was doing close to 1.2 lakh pieces per day around October. We knew that at that rate and the kind of expansion plans we had in mind, we will have to raise money again,” said Krishnan.
Sawhney’s response was that Warburg Pincus would be interested in investing in the company. He told the founders not to worry about valuations or money. The PE firm was ready to bet on it.
“So we kind of got engaged with them. (In) June of last year, we were able to close the round as well,” said Krishnan.
Timing and sponsorship
According to Vinod Murali, managing director of InnoVen Capital India, Ecom Express’s main asset was a strong understanding of how logistics works in the country.
“The team had done this together in the past while in Blue Dart. They had a lot of real India experience which they capitalized on. The fact that the people at the top had the expertise to navigate through challenges helped them ramp up the business fast,” Murali said. “Then it was about the timing and the right sponsorship. Warburg came at a very good time, when they needed to invest in building capacity for warehousing and improving their geographical reach and capabilities overall.”
Ecom Express doesn’t use airlines during the September-October festive season for deliveries. “We go 100% surface. We tell our customers that this is what we will be doing and they also know that this is the kind of transit time that it will take. If they are OK with it, it is fine, if not they will go to somebody else. The fact is I am still saying that I am more worried about being reliable rather than being the fastest,” said Krishnan.
Predicting demand at the city level is not possible, according to him, because different requirements come from different areas of the same city. It has to be tackled at a more micro level—at the level of pin codes. “Today we do it at a pin code level. What kind of capacity build-up will happen, what kinds of volume would flow in, what kind of buffers are being built up. We can’t go and say that this will be the volume for a city. It is too vast,” he explained.
In the last week of September, Krishnan was back from a 10-day trip during which he checked Ecom Express’s preparedness to handle festive season deliveries.
In an interview, dressed in a black Lacoste polo shirt and jeans, Krishnan said he is confident that nothing will go wrong in this year’s sale season. The company, of course, has learnt its lessons early on. Ecom Express expects volumes to spurt to 500,000 deliveries per day during October from 250,000 a day currently. This will be double the festive season peak touched last year.
The company was present in around 500 towns during October 2015 and has now expanded to 1,000 towns. It is now delivering to 12,000 pin codes compared to around 8,000 last year.
Success is not just being present in multiple pin codes, it is about the ability to service those pin codes. Companies need the entire chain to be ready, which takes a lot of investment and capacity in terms of people, processes and automation.
Ecom Express has expansion and fund-raising plans lined up. But it will turn to all that after the festive season. It plans to set up seven large warehouses with pickup, processing and fulfilment facilities over the next two years to speed up product delivery. That will allow the company to deliver at least 80% of its orders within 24-48 hours, faster than the 24-96 hours it takes now.
Each warehouse will have around 500,000 square feet of space. Ecom Express currently has 33 small hubs for its last-mile operations, besides 30 processing centres. The size of these hubs and centres ranges between 5,000 sq. ft and 100,000 sq. ft.
It also plans to raise $200 million by April to fund its expansion plans and will actively start searching for investors in January after the festive season ends.
In a bid to expand its revenue stream, Ecom Express will also offer its 300-odd clients, including Amazon, Flipkart and Snapdeal, the option of stocking their inventory in its warehouses.
The company will also start deliveries for global e-commerce companies in India. It is in talks with multiple Chinese e-commerce companies, said Krishnan, declining to name the firms.
Sreedhar Prasad, partner (e-commerce and start-ups) at consulting firm KPMG, said dedicated e-commerce delivery companies had grown because they were more technologically savvy than courier firms and offered solutions tailored to online retailers.
“That is the reason why they were able to garner market share. Ideology and speed-wise, they were far more aligned with the start-up community than traditional courier companies. That is the reason why they clicked,” he said.
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