Online used to be 99% of revenues, share is coming down: FreshToHome CEO

'If you look at it, the size of the industry is around Rs 3 trillion, which is roughly around $50 billion'

After raising $104 million in a late-stage round, led by Amazon’s Indian-focused Smbhav Venture Fund recently, online meat and seafood delivery platform FreshToHome is planning to increase its presence in tier II and tier III cities and coming up with more offline stores. Amid reports that the company will have its initial public offering (IPO) in three years, Chief Executive Officer and co-founder Shan Kadavil tells Shine Jacob the company is targeting sustainable users on its road to the IPO. Edited excerpts:

What is your growth strategy after the fresh round of funding?

Until last year, all of our revenue was online. A substantial portion of our revenue, about 95 per cent, used to come from tier I cities and metros. As we look at our growth strategy, there will be three areas for us. The first is to expand in tier II and tier III cities, the second is to expand internationally, and the third is to move towards omni-channel, with a store strategy across the country.
 

Can you elaborate on these?

The first is expanding in the cities where we have launched -- tier II and tier III cities. We have launched in about 100 tier II and tier III cities in the past 24 months and their revenue contribution is around 10 per cent, up from around 5 per cent last year. We expect this to become 20-25 per cent in the very near-term, because there is enough potential for a branded meat company in these markets. However, execution is difficult. Metros are easy because of order density. These challenges we are addressing and hence a big focus of the funding is on that area.

The second focus is on extending the products internationally. We are looking at launching in Saudi Arabia. It is a unique market and we have experience of launching in the UAE, which gives 10-15 per cent of our revenues. Saudi Arabia is a much bigger market and it has a different set of challenges. Localisation, understanding eating habits, and figuring out product requirements are what we will address in that market. It will take about a year for a soft launch.

The third is one of the biggest areas we are focusing on in the next 12-24 months. That is how we figure out our way from being a pure online player to an omni-channel player. Online used to be 99 per cent of the revenues, and the share is coming down. We have launched around 30 stores in Bengaluru. They are doing well both from a revenue standpoint and also in bringing in new users.

What will your offline strategy be?

As we approach an IPO and get into a more capital-constrained world, we are trying to figure out reliable and more sustainable users to come and try us out. If you look at our business, the biggest cost is marketing cost. That is true for probably all e-commerce companies. Now, we can continue to spend money and bring more users in. We have seen about 10 times growth in the last four years.

The best thing we have seen so far is launching an offline store. What we see is that after a second or third purchase, people try online after getting used to the brand. That is what many businesses have seen in India. We have seen examples of Lenskart and FirstCry. We tried the same playbook a year ago. We had some missteps but over a year we figured it out.

The 30 stores we launched in Bengaluru contribute almost 20 per cent of the city’s new users. That is a big milestone. If we do it across the company on a larger scale, we will have a more sustainable marketing strategy. Though revenues from offline stores are low, the new user and traffic we get are large.

How are you planning to bring down your high marketing expenses?

For us, 15-20 per cent is typically our marketing expenditure and with the retail strategy we will be able to bring that down to around 10 per cent or even 6-7 per cent. Six-seven per cent is our share in Bengaluru after we launched the retail stores. We are trying to replicate that nationally.

We are planning to launch 100 more in 12 months. This will be primarily in seven metro cities -- Delhi-NCR, Mumbai, Hyderabad, Bengaluru, Mumbai, Chennai, and Kolkata -- and Kerala.

Your cost increased by 2.6 times, according to reports. What were the major reasons for this?

I don’t know which report is this. We are a Singapore-based company. There are filings in India, in the UAE, and in Singapore. It is hard to piece together this data. What you see in our India filings could be the commissions paid on our vendor platforms. If you look at the filings, the revenue that is shown is much lower than our revenue because these are only commissions paid to the vendors. Over time, our burns have come down and we are operationally profitable for the past six months. Our revenues in FY22 were $130 million, but what you would see is a fraction of that because those are commissions to vendors.

There are reports that you are looking at fresh acquisitions. What is your plan?

True. We are looking at acquisitions from talent and supply-chain perspectives, in furthering some of the technologies that we use, like cold chains and IOT.

Despite the industry being in the range of Rs 3 trillion in India, why is it that online players are contributing a lower share?

The size of the industry is around Rs 3 trillion, which is around $50 billion. Of this, FreshToHome and other online players (verticals, horizontals, and supermarkets) put together will be around $750 million. This means that the upside is large. It is equally challenging. Most of the buying behaviour is offline, and changing that is the challenge. That is one of the key reasons why we are going offline, and offering hygienic and convenient experiences.