A decade ago, Vidit Aatrey and Sanjeev Barnwal quit their salaried careers and began a tour of family-run stores in the southern Indian city of Bengaluru, attempting to work out why the country’s legion of small shopkeepers did not sell their cheap clothes and goods online.
It was a challenge that would inspire the Delhi college friends to create Meesho — an online platform with the lofty aim to “democratise ecommerce” in India, according to Aatrey, who along with former Sony executive Barnwal hails from a middle-class family that rarely bought expensive, branded items online.
“Around us are people who are looking for affordability,” says 34-year-old Aatrey, who took the risky step after working for Indian cigarette and consumer goods major ITC and adtech company InMobi. “This is the majority of the market in India.”
Today, Meesho is one of India’s fastest-growing online retailers, selling unbranded household goods, fashion and furnishing to about 190mn users. Its focus on the large, thrifty populations of the country’s less affluent but still sizeable cities has put it on a route to a stock market listing and placed it 72nd on the FT’s High-Growth Companies Asia-Pacific ranking.
Since India’s economy opened up in the early 1990s, the promise of its large consumer market has lured the likes of Amazon and Walmart, betting on exponential growth in ecommerce. Yet online shopping still only commands a small portion of a market dominated by neighbourhood grocery stores, or kiranas.
Despite their early insights from the time spent with the shopkeepers, the founders’ first attempts fell flat. They created an app that allowed merchants to list their products online but, after six months, the platform had failed to gain traction.
“No one used it,” Aatrey recalls. “We never spoke to a customer. Small businesses in a local area have a limited selection and consumers say, ‘when I buy online, I want a lot of selection. I want a lot of variety.’ ”
Aatrey and Barnwal noticed shoppers were increasingly using WhatsApp groups to buy products. They shifted gears, helping small businesses sell through social-media platforms. It was a turning point. Coupled with the advent of cheap mobile data across India, Meesho’s zero-commission model encouraged shop owners to sell their wares via its social media channels. By 2021, after building up a sizeable business, Meesho launched its own app.
“For many, Meesho has also served as a gateway to ecommerce, introducing them to online shopping for the first time,” says Mohit Bhatnagar, managing director of Peak XV, one of Meesho’s early and current backers. Other investors include SoftBank and Tiger Global.
Aatrey says Meesho’s competitors primarily cater to a limited number of wealthier consumers outside the nation’s so-called Tier-2 and Tier-3 cities in a country where purchasing power remains constrained. Goldman Sachs analysts last year highlighted that only 60mn Indians have an income above $10,000 a year, out of a population of 1.4bn.
Because of this, online shopping in India has largely skewed towards higher-income buyers and branded suppliers, with average-order values typically well over Rs1,000 ($12), compared with Rs350 among Meesho’s customers, according to investment bank Jefferies.
“Most of these foreign companies come to India and bring their business model from the west,” says Aatrey. “It appeals to the top percentage who behave very similarly to the population in the US.”
Meesho is now gearing up for an initial public offering later this year, according to people familiar with the matter, even as India experiences an economic slowdown and stock market retreat, with the benchmark Nifty 50 index down 10 per cent over the past six months.
This has been caused partly by a drop off in consumption among urban households, which have been struggling with stagnant wages, growing debt and elevated inflation since the coronavirus pandemic. Meesho’s valuation has fallen from a peak of $5bn in 2023 to $3.9bn, according to start-up database Tracxn.
Rahul Malhotra, director of India technology and internet at Bernstein, says he “wouldn’t be surprised” if the retail slump had hit Meesho in recent months. In the longer term, the question is how the platform would “build profitability out of such low average order value,” he adds.
“They have had a lot of help from the larger players not really pushing hard into Tier-2, Tier-3 markets,” Malhotra says. “At some stage those markets will become attractive — competitive intensity could go up.”
Aatrey argues that Meesho’s focus on cheaper goods means business does not stagnate during lean periods. “In good times, people want to come on a platform because they have more money to spend,” he says. “In bad times, also they want to come here because that’s the place where they save the most amount of money.”
Along with advertising, a big chunk of the company’s revenue comes from logistics. Last year, the company launched its Valmo business providing shipments to online sellers.
To boost its growth further, Meesho is eyeing up India’s fiercely competitive, low-margin, high-volume online grocery market once it figures out supply-chain logistics.
Aatrey says the company is cash flow positive, with transacting customers growing at a rate of 20 per cent a year.
Adjusted losses fell 97 per cent to Rs530mn ($6.2mn), excluding employee share-based pay, in the financial year ending March 2024.
“Our focus is not to maximise profitability in the short term, we still serve only 200mn people out of 1.4bn people,” he says. “In India, I think the ecommerce journey is still quite early so we’ll stay in the growth mode for some time.”