Mumbai: The top management at retail analytics start-up Manthan Software Services Pvt. Ltd was in for a surprise last December. The firm, founded by a team that formerly ran a mid-sized tech services firm in Bangalore, had begun operations three years ago by offering retailers in the US and the UK solutions that help improve performance and reduce costs such as logistics expenses based on factors such as store location, supply chain, transactions and customer demo-graphics.
But when it decided to test the solution with Indian retailers, the results were way above expectations. “We were surprised to find CXOs of retail chains championing deployment of technology and analytics internally, when we thought they would still be focused on growing the business,” says Atul Jalan, Manthan’s founder. CXOs refer to top executives in a company such as CEOs, CFOs and peers. The company has since signed on three retailers here, including the Jubilant Group, which has retail businesses branded Total and Monday to Sunday across south India. (Some members of the Bhartia family, which runs Jubilant, have a majority stake in HT Media Ltd, publisher of Mint.)
The potential market for Manthan’s solutions in India had been spotted by two venture capital, or VC, firms months before.
Manthan raised $4 million (Rs16 crore) funding from DFJ-ePlanet Ventures and IDG Ventures India in mid-2007.
Manthan represents what the VC world likes to call as ancillary retail businesses — a segment that venture capitalists expect to be soon dotted by several start-ups aiming to capitalize on a fast growing organized retail market (a category that malls and shop chains are grouped under) in India. The Indian retail market is estimated at more than $300 billion, of which organized retail counts for just 3% by most estimates, but is expanding at nearly one- third a year.
“We see opportunities in solutions that supply into the retail industry rather than mainstream (organized) retail, which is less of a venture play because of the large capital requirement,” says Kanwaljit Singh, managing director, Helion Venture Partners. Along with Helion, several VCs such as Sequoia Capital India, Lightspeed Venture Partners, Matrix Partners India, Footprint Ventures and ePlanet Ventures have set retail high on prospective sectors to invest in this year.
The opportunities for VCs avoiding direct investment into malls or mega stores can be broadly divided into two kinds: One, niche retail chains that offer a speciality product or service that sets them apart from large players, and, next, companies which develop solutions targeted at booming retail chains. While the first category has seen several start-ups and some venture capital activity in the last 12-18 months (see table), the second is only beginning to emerge.
Such firms combine technology with retail expertise to help retailers — large or small — operate more efficiently, cut costs or enable more transactions. Take, for example, Bangalore-based start-up Just OnDemand Technologies Pvt. Ltd, which runs Storrz.com, an online marketplace that aggregates the inventories of multiple stores on its site to create a single point customers can shop from. The company charges customers a small fee for delivery and charges the merchant for online rental and a commission per sale. It has teamed up with 16 merchants. “By signing on multiple retailers, we can cross-sell products across categories and stores, which they cannot individually do,” says Chandan Maruthi, founder, Just OnDemand Technologies.
Other start-ups are also developing tools to help retailers track consumer behaviour and better target customers for various products. Mumbai’s Blink Media Pvt. Ltd has built a screen attached to a shopping cart and offers relevant content such as discounts to consumers, based on their location and preferences. It does so by mining transaction data, selecting appropriate content and beaming it to the screen on a wireless network.
For example, a user pushing a shopcart past the beverages aisle at a mall will view discounts, pricing information and calorie count of soft drinks and juices available. “A customer we know is health-conscious would be shown best discounts on low-cal products,” says Devang Raiyani, co-founder, Blink Media.
Another Mumbai company, Consumer Vision Technologies Pvt. Ltd, tracks consumer behaviour patterns at some 500 local kirana stores using customer tags mounted with radio frequency identification technologies that can store previous transaction data and preferences.
Product differentiation and how they scale up will be the big challenges for theseretail start-ups, according to a VC. “These companies could be fundable, but depends on how cost effective they can be,” says Avnish Bajaj, managing director, Matrix Partners India.