Piyush Kharbanda: Searching for Margins in India’s B2B Commerce Platforms

Way back in 2014, a former colleague and I spent time looking at the first wave of B2B commerce platforms in India. We went around the country, spoke with value chain experts for various supply chains, and came back with one fundamental question that we wanted to answer: how are you different from a wholesale distributor, especially in terms of margins? This was a growth equity framework, but I have not been able to shake some of the fundamental tenets of the framework over the last 9 years.

At Vertex Ventures Southeast Asia & India, we are strong believers in startups’ ability to impact efficiency in value chains. Suffice it to say, B2B value chains in India are fairly inefficient, and there is a massive opportunity to invest in every single segment. However, this is only a part of the story. As we start to analyze the micro-segments of each of these value chains, we begin to realize that the individual components of these value chains are actually incredibly efficient and that inefficiency creeps in at the edges.

Let’s illustrate this: in retail, the kirana store is the most efficient unit of retail. There is no rental (real estate is usually owned and close to the customer), no wages (the entire family works at the store), and no leakage or wastage (truly entrepreneurial). It is extremely difficult for a corporate store to compete with this setup. It is even more difficult for a chain of corporate stores to compete with a disparate set of kirana stores in a city like Bangalore. However, as you scale a kirana store to a large format, increase SKUs and add slow-moving inventory, the inherent advantages break down, and you have a very interesting opportunity in larger format modern retail. The same principles apply to retail wholesalers, distributors, and several other segments.

Before we dive into what could be a framework for evaluating B2B commerce companies, I want to outline the market. Particularly, the size of the markets we are talking about, which is the most attractive part of evaluating the B2B Commerce Opportunity.

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Edited by: Elise Tan

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