Ravi is a kirana store owner in a small town of Maharashtra. Every month, when he goes out of stock, he would shut down his store for 3-4 days, travel 60 kms to his nearest city to procure products for his store. While doing so he would lose out on thousands of rupees of business and also will spend thousands in transporting these goods from the city to his kirana store. And the thing is, Ravi is not alone. India has more than 12 million kirana stores and 10 million of them are in rural India – where people like Ravi are struggling to get products for their stores. None of the big FMCG companies have a strong distribution to reach these small villages and town. But one Indian startup is changing this – they are helping these kirana store owners to get their groceries at the click of.
A button right at their store – all without owning any delivery vehicles or warehouses. This company is a unicorn, made 4,755 crore rupees in revenue in FY23 and is disrupting the rural B2B commerce market in India. Today they are reaching 600,000 kirana stores in 120,000 villages in India. The company I am talking about is ElasticRun, so let’s find out how they are solving this massive problem and what we as future entrepreneurs can learn from this. Okay, before before we talk about why ElasticRun founders chose to solve this unsolvable problem, let’s try to understand the problem in a bit more detail. In the intro, I mentioned how the FMCG distribution network in India is broken. So let me give you an example to help you understand that. Let’s say there is a retail store owner ‘Kishan’, whose store is in a city like Pune. He sells FMCG.
Products like Maggi, soap, biscuits, etc. Now, If he wants to get more Maggi – he can simply call a wholesaler or a distributor in his area which supplies Nestle products since Maggie is owned by Nestle and tell them he wants 100 Maggi packets. That particular distributor or wholesaler has Maggi stored in his warehouse and will send his vehicle to Kishan’s location and deliver it to him – it’s that simple. But if let’s say Kishan’s store is in a village, which is 100 km away from Pune – here the process is not that simple. Since there are no distributors or wholesalers anywhere near his village, he’d have to call up one in Pune – which is the nearest city from his village. And here he will get a response like “sorry, we don’t service this area – but you can come here and get it yourself”. .
So why did this happen? Why were these distributors and wholesalers ready to send a vehicle in Pune but not in a village far away. I think the answer is easy to understand, it’s a simple demand and supply problem. When a distributor decided to send his own truck to a location inside the city, he wasn’t just delivering Maggie packets to Kishan. He probably had more orders in the same area and he would have clubbed all the orders together and send a truck to service all the retail shops in Kishan’s area. But when it came to a remote village, where there is less demand and a distributor will have to send a guy 100 km to a whole different village just for 100 maggi packets – it makes no business sense. The transportation alone will cost more than the products. And if let’s say a distributor or.
Wholesaler wants to set up a warehouse nearby this village, he would have to invest a lot of money for the infrastructure, hiring people for operations and finally buying delivery vehicles to make the operations feasible. So there’s a big ‘fixed cost’ here. So this is the problem. Because of low and unpredictable demand, high set up cost of warehouses, lack of delivery fleet and low order value by these retailers in small villages, rural distribution in India is broken. Now that we are aware of the problem, let’s understand what led to these three folks go behind this to solve. Sandeep grew up in Buldhana, a small town, more than 400 kilometres from Pune. He was well aware of the problem of lack of access to products that people in large cities take for granted. Sandeep’s first job.
Was at the logistical company DHL, where he met his future co-founders Shitiz Bansal and Saurabh Nigam. After their DHL stint, all three of them worked at different jobs for next 10 years, but their passion for solving last-mile logistics brought them together in 2016. All three of them understood the rural distribution problem, and also knew that this was a big opportunity. At the time, out of 12 million retail stores in the country, 10 million were in rural India. And while the urban retail market was growing at just 3-5%, the rural market was growing at 15% per year. Despite this massive opportunity, no one was solving this, and this is when this trio realised that because of their experience, they were perfectly suited to solve this problem. In this short clip, Sandeep explains the crux of their solution.
You see, FMCG companies traditionally have an asset-heavy distribution network. Basically, they have huge resources in the form of real estate, delivery vehicles and people, but these resources are underutilized most of the time. Elastic run was trying to stitch all of these resources together with the help of technology and hence reduce the cost for everyone. Let me explain this with an example. Let’s say there is a small retailer in a village, who also has some extra space. So what ElasticRun does is, they partner with this shop owner – to use his extra space as their mini-warehouse. This allows both parties to share the cost of real estate, thus brining down the cost for both of them. And this is important because the problem in the rural villages and towns is that retailers are spread over vast distances, so it’s hard to.
Reach them with one giant warehouse. Instead what ElasticRun does is, it creates smaller partners closer to these retailers, to easily reach them. Then, you have local logistics companies, their vehicles and delivery people are also underutilised most of the time, so ElasticRun partners with them. They do so on an on-demand basis instead of building a fully owned delivery fleet, this saves fixed cost for ElasticRun and gives flexibility to these delivery companies to use their resources whenever they want. And that’s how ElasticRun has been able to create a network of micro-distributors and entrepreneurs who are helping them build a flexible on-demand logistics network in rural India – and all of this without owning real estate, delivery vehicles or hiring any full-time employees. And With this process,.
They have been able to connect over 6 lakh stores across more than 1 lakh villages in India. And for these kirana owners, this process is both effective and economical. They now get their supplies much quicker, and don’t have to travel to a bigger city to buy their products. They can do so simply by clicking on the products they want to buy from ElasticRun’s app and get them delivered at their doorstep, just like shopping on Amazon and Flipkart. So what we saw here is that, both distributors and retailers are happy with this solution. And this is what differentiates Elastic Run with other B2B suppliers like Udaan and JioMart. What companies like Udaan and JioMart are trying to do is that they are trying to cut the middlemen – the distributor out and directly source products from FMCG.
Companies and give it to to the retailers. ElasticRun on the other hand is not competing or trying to replace the FMCG-distributor partnerships – in fact, they are trying to expand the reach of FMCG companies in places where their distributors aren’t able to reach. This is a win-win for everyone. Next there is the target market difference between them. So while Udaan and JioMart are targetting big cities and towns primarily, ElasticRun is going really deep into places where there was no such infra available. And here’s something very interesting. Despite focusing on bigger cities where the margins and opportunities are better, Udaan is posting heavy losses compared to ElasticRun. In terms of revenue too, Elastic Run is doing better. In FY23, their revenue increased by 25%,.
As against Udaan’s, whose revenue actually went down by 43%. So, there is clear indication here, how ElasticRun is moving towards a sustainable business. According to it’s CEO, they can turn profitable this year if they want. In this section I want to talk about what moves ElasticRun is taking to move towards profitability. In addition to providing efficient logistics, ElasticRun wants to use their network to offer more services for their network partners, which are FMCG companies and rural kirana store owners. Another very interesting thing they are doing is enabling e-commerce companies like Flipkart and Meesho to reach these villages where the had no presence earlier, while doing so they are reducing the cost of.
These e-commerce companies by almost 30%. Then there is data. Remember I spoke about ElasticRun’s presence in 1 lakh villages and 6 lakh retailers, well their purchase data and insights are very valuable and ElasticRun is charging FMCG companies to access this data. In addition the company is using this data to help increase the sales for their FMCG partners, here’s a video of Sandeep explaining how they are doing that . And finally, they are partnering with NBFCs and banks to offer credit to their kirana store owners and here’s the best part – ElasticRun gets their money right when the product is delivered – they don’t work on credit unlike most distributors who have to wait the kirana stores to sell the products before they get their money back – this has also been a key way for ElasticRun.
To be sustainable. In fact, the company has a zero-credit policy , which is very impressive. In the end, what are we as future entrepreneurs learn from this case study of ElasticRun. I think the biggest learning is that, Solving a difficult problem helps in building a strong MOAT. And because of this, it gets harder for anyone to compete with you. ElasticRun took on a massive task of organising rural distribution in India and even though there are players now trying to compete with it, ElasticRun is virtually a monopoly in this space. So, that;s all I have for you in this video, feel free to write your thoughts down in the comments. Let me know the most important takeaway for you from ElasticRun’s story and I will see you in the next one.
