Daybreak - Meesho wants big brands in its basket. But brands think Meesho is like a 'village dukaan'

Episode Date: May 15, 2024

A few days ago Meesho closed the first tranche of its $600 million funding round by securing $275 million. The e-commerce unicorn has impressed investors lately thanks to its sustainded operating growth and the reduction in its monthly burn rate.Over time, the platform has built a kind of dominance in India’s smaller cities and towns that become the envy of its competitors —all thanks to its super affordable unbranded products.But now, Meesho wants to boost its profits. For it, it's relying on something that’s a bit out of character for it. It is betting big on Meesho Mall, a space dedicated to legacy and D2C brands.But with small-businesses and unbranded products embedded in to its very DNA, is Meesho ready to take the big brands route?Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Last year, eight out of every 10 orders on Mishu,

the almost decade-old e-commerce platform, came from tier two cities. Over time, the unicorn has built a kind of a dominance in India's smaller cities and towns that's become the envy of its competitors, all thanks to its super affordable, unbranded products. It has become known for being an online marketplace for smaller sellers who get onto the platform without paying any commission to Mishu. It only charges them for the logistics. And it's paid off. Mishu is worth $5 billion. A few days ago, Mishu also closed the first tranche of its $600 million funding round. It managed to secure $2,000,000,000.

$75 million. And what's drawing these investors' interest lately into Mishu is because of how it's been able to sustain operating growth and also because of how compared to the previous year, it's managed to significantly cut down its monthly burn rate. But now, Mishu wants to boost its profits. And for it, it's relying on something that is a bit out of character for it. Misho Mall.

It was launched about two years ago and has the backing of investors. like SoftBank and Peak 15 partners. Now, Mishu Mall wants to sell branded products. Not premium brands, but a mix of legacy labels and well-known D2C companies like Mama Earth in personal care, boat in electronics. And the point of doing this again goes back to driving up profits. Because unlike the unbranded stuff on the platform,

Misho is charging these brands a commission. In fact, it wants to increase that commission. But when these brands pay a commission, they expect certain things in return, which me show with its small business DNA is not really equipped to handle. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma,

and I don't chase the news cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Yes, you heard that right. We are taking Daybreak daily from this week onwards and you will be hearing more about,

it in the coming few days. How did a platform whose very USB was selling unbranded products to the budget-conscious buyers in smaller towns and cities decide to move to selling brands? My colleague, the Ken reporter Goref Bager, asked the company's spokesperson this, and they told him that Mishu saw users searching for brands on its platform. So it knew that there was a certain level of demand.

And that is how Mishu Mall came to be. It was exactly the opposite of the kind of generic products with descriptive names like black printed sneakers for men or round neck puff half-sleeves polyester blend top that Misha was originally selling on its platform. Now the company wants Mishu Mall to drive a larger share of its profits because brands can be monetized more effectively compared to smaller businesses. Which is why Mishu Mall is its number one bet for long-term systems. stay in growth. In 2022, when Mishu Mall was just about getting started, Mishu decided its aim for the first six months was going to be a 10% share of branded products in its total sales. That didn't quite go according to plan. And as of now, they've managed to reach about 5% of that

number, which goes higher during discounting periods and festival sales. But Mishu is not giving up just yet. Like I mentioned earlier, the space for making more revenue from these brands is way bigger. The Mishu spokesperson explained it to us. They said that Mishu charges brands certain kinds of fee for the services that it provides to them, things like verification and account managers. Another employee told us that this depends on the brand scale and the category that they belong to. So on average, this makes up for about 5% of the transaction value. So, over time, if Mishu Mall brings in bigger orders, they can charge higher fees. But it's not as easy as it sounds.

The thing is, brands like Misho Mall because of its comparatively lower commissions. For example, a Mama Earth manager told the Kien that the brand is optimistic about Misho Mall as long as the unit economics are positive. And because Misho has been pushing for higher commissions, it would eat into the already thin contribution margins. But apart from charging the brands a commission fee, Mishu also has other plans to drive up its revenue. Stay tuned for the next segment.

Advertising. Mishu wants to make more money from it. Because you see, this is an all-new opportunity for Misho. Because unbranded, smaller sellers in general, spend as little as possible on ads. But brands are ready to scale it with volumes because they want more market share. So Mishu tried to get a small minimum commitment

on ad spending from these brands, which is basically a percentage of their GMV or gross merchandise value on the platform. But the response has not been entirely positive. We spoke to the manager of a well-known legacy cosmetic brand that was onboarded early on to Mishu. They told us that currently the brand spends about 5% of its GMV from the platform on.

advertising. And its return on ad spending has been satisfactory, but that's mainly also because of its expectations being quite low. You see, we found out that the problem is not actually ad spending. It is what Mishu is offering to these brands in terms of information that they can actually use. Brand managers told us that Mishu's analytics and data visibility are not nearly as good as platforms like Amazon and Flipcott. Because of this, brands have no way to look at key metrics like the gender split of their audience or the contribution from various geographies. A manager at Mama Earth told us that brands also have no control over how to use their

marketing funds in terms of types of ads. A cosmetic brands manager actually went ahead and told us and I'm quoting them, Misho is basically a ducan or a small shop in a village in terms of ads. ads, analytics and data. It is like a black hole where inventory goes in, but we don't see the numbers come out. End quote. So you see how this lack of transparency is not going to be of any help if Mishu genuinely wants to ramp up its ad revenue from these brands. When we asked a Mishu spokesperson about this, they told us that Mishu is a platform that was built for smaller businesses.

So there are a lot of capabilities that they will need to build out for brands. But despite all of this, Misho Mall will still appeal to brands. An e-commerce industry veteran actually told us why. It is because most brands want to be present on every platform to optimize visibility and presence. Plus, Mishu is a great place for newer upcoming brands who do not have the money to make huge investments and hire an entire sales team to expand their reach to smaller town and cities. So, while Mishu Mall may work out well for the company in the future, until then, Mishu has a lot of groundwork to do.

The break is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe. button on top of the Ken website. Today's episode was hosted by Snikha Sharma and edited by Rajiv Siyah.