Ahmed Khan who has over twenty years of experience working in e-commerce in Pakistan, has also served as the founding CEO at Cheetay. He has also served as the Managing Director of Rocket Internet and successfully launched ventures like Kaymu, Daraz, EasyTaxi and Carmudi.
BR Research recently sat down with Mr. Khan in Lahore. Following are the edited excerpts:
BR Research: How did you come up with Cheetay?
Ahmed Khan: When I worked for Rocket, we had to develop the market; find suppliers, build customer base and train people to use technology because the e-commerce market didn't exist. E-commerce is still in its nascent stage in Pakistan and has immense potential but unless you're adding some real value it won't work in the long-term. Cheetay was created to fill the gap in Pakistan's e-commerce market where we offer convenience, value and timely service.
BRR: The real challenge now for you is to be cash flow positive. How do you address this query?
AK: Being cash flow positive is hardly a challenge for Cheetay. Our unit economics are positive, which means our gross margins are positive. We spend very intelligently on marketing, so the life-time value of customers is much higher than their acquisition cost.
The challenge is that our business has reached a scale where we can slow down and bring our overheads cost down to break even. But we don't want to do that right now. We want to grow the market. We are expanding to new cities, categories, and verticals. So growth is actually stopping us from being profitable. Pakistan has less than one percent ecommerce penetration, so there is really no reason to try break even right now. This market has the potential to at least have a 40 - 50 percent penetration, and we are in for a long haul.
BRR: In every category in ecommerce, you have a specialist. In this specific segment here in Pakistan, we have had Food Panda before Cheetay came in. How are you two moving along?
AK: The future looks promising for Cheetay with its growth and expansion goals. The market is big enough for competition. As seen over the past few years, the second and third players also do well in the e-commerce space. In India, Amazon is the market leader, but Flipkart is also doing exceptionally well. The other important aspect is local market customisation. We see ourselves more as a fulfillment platform where the merchant takes steps to deliver an order to the buyer. That is to say, the seller goes the extra mile to streamline their logistics via a smooth order fulfillment process. Unlike Food Panda, we operate in various verticals like pharma, groceries etc.
BRR: It's a world of specialisation. And when you operate and compete on so many fronts, how do you create value?
AK: Like I said before, our specialisation is not a specific vertical; it is fulfillment. We want to optimise our rider allocation, batching, time utilisation etc. We look at the share of wallet; and food and groceries make up a huge share of your daily average total spending. Being multi-vertical is essentially a by-product of us being a fulfillment platform. We don't want to compete on food; we want to compete across all categories for fulfillment.
BRR: What is the biggest challenge you are facing right now?
AK: Slow economic growth is a challenge for retailers. As purchasing power falls, people cut back on spending which could be a great opportunity for e-commerce as it's cheaper than conventional retail. When there is a downturn, there is mistrust amongst consumers and they become careful about spending. E-commerce cuts down on the need to store inventory and set up physical stores and warehouses. The savings ultimately get passed down to the consumers.
Increased competition is another challenge and we see companies giving ridiculous discounts to boost growth. Tackling this discount-seeking mentality is a challenge as we look at a customer over a life-time rather than a single transaction.
BRR: In many ecommerce ventures we see that they keep on pumping money and increasing the customer base and valuation through various rounds of funding and not through the actual business. What is Cheetay's model?
AK: These big e-commerce companies are not profitable and don't plan to be. Instead they sit on ridiculous amounts of cash and don't pay dividends to shareholders. That is now changing. E-commerce giants are now looking into being profitable. For Cheetay, our growth plan, as I mentioned before, is not about being cash flow positive. We don't want to be a loss making entity, and our plan is to focus on retaining our customers, because that's where we believe the greatest value comes from.
BRR: But you've had a couple of rounds of financing as well.
AK: So luckily, things have changed. Now when we go for financing, we are not asked to grow faster. Investors are more interested in our unit economics and since our unit economics and growth are good, they are satisfied. Even if tomorrow we are not able to secure another round of funding, we will still be profitable by managing expenses and costs. So that is what attracts investors.
We have been slow but careful in raising finance. Right now, we've got a commitment for $7.8 million dollars in a Series A round from US-based investors. Before this, we raised $3.8 million, taking our total funding to $11.6 million.
BRR: With the kind of varied verticals you have, what is Cheetay's target market?
AK: Our target market is the urban middle class, which will give us the highest return on investment. Breaking it further down means that he or she is also from the age bracket 35-45; is tech savvy; has an income of above Rs 200,000; and preferably doesn't live in a joint family.
BRR: Coming to the groceries, people still prefer the old and traditional ways of grocery shopping, especially women. How do you see that as a challenge for your grocery vertical?
AK: The monthly grocery shopping is more of an experience. There are things that you shop for monthly like tea then there are those you need daily like milk and then there are some that you buy occasionally like imported products. Our aim is to target all these three categories of grocery shopping.
Our grocery model is hyperlocal, which means that when you shop from Cheetay.pk, you will be delivered items from your nearest superstore or kiryana store. We make sure that you get the order within 30 minutes; and charge a very nominal rider fee. The whole concept is about creating a convenient, focused, cheaper and fast shopping option with a user-friendly mobile app. Firstly, you will save money because the order will be sourced from your nearest store; and secondly you cut cost and time of traveling to the store physically where you may end up buying non-essential items.
Delivering low-value orders is not a concern for us, as they are easily available and we can generate large volume purchases for products like Naan. Priority will be to keep our app user-friendly and customise baskets for customers.
BRR: Are there other verticals or maybe allied business that you could add to Cheetay?
AK: These are exciting times for e-commerce in Pakistan and Cheetay is leading the way for innovation and growth.
Initially, we did think of adding allied businesses, but then we started spinning off ideas to keep our model focused. We have made a separate business called "Swift", which is launching soon and will do corporate and ecommerce deliveries.
Cheetay will launch cloud kitchen, a concept where food is freshly prepared in a centralised space with no dining option, and then delivered to customers.
BRR: There has been a change in Cheetay's management recently. What's your role now?
AK: We are now at a scale where we are investing in our human capital. Cheetay has one of the greatest teams in the country taking the company forward. Our company has attracted the smartest people in different functions like analytics, marketing and sales. The company has a new CEO, Majid Khan, a Stanford MBA graduate who has worked in various capital investment firms such as Goldman Sachs. He has a lot more experience in international markets and in managing diverse businesses and large investment portfolios. My role has also evolved and is now focused on raising funds and securing the company's future value.