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Lack of merchant focus tripped up Indian group buying sites: Groupon India CEO Ankur Warikoo

Founded by Andrew Mason in 2008, Groupon created a niche as a group buying site. Although copycats jumped in, the early mover was one among the slew of high interest internet IPOs in the US two years ago. Then it all came crashing down. Today, the company is valued some one-fourth of its original market cap and a few weeks ago, it fired founder & CEO Mason. The firm's India unit has a different story though, equally about flux. The company entered a crowded market here through the acquisition of SoSasta, which was rebranded as Crazeal only to rebranded again as Groupon, all within a couple of years. But Groupon India's CEO Ankur Warikoo claims that he has his foot on the pedal. In this interview, he discussed why the deals business in India declined, the focus categories for Groupon in the country and the mistakes the US parent company made. Here are the edited excerpts.

How does the Indian market look like for Groupon?

It has been a fantastic opportunity so far. By the time we entered the market, deals and group buying had already reached the peak. They held strong market shares, but then we suddenly saw a reversal and many players quit or changed their business models. Still we saw the opportunity without any bias or prejudice that others might have had.

We believe that the service sector categories have a lot to offer in India. And it would be foolish to assume that those would not translate online. Food & beverage is one segment that's booming now while spa & wellness and healthcare are the other segments where there is opportunity. These areas offer an untapped online market in India that's worth $1.5 billion. Moreover, other players have already proven that there is an appetite for buying deals online. So Groupon has started addressing that market.

Moreover, we want to cater to impulse buying. For instance, you may not go out to buy a set of kitchen knives, but if you see a convenient kit with a discount on it from a good manufacturer, you'd say – hey, why not. Travel, especially short-term vacation, is an impulse purchase. If you are looking for a weekend getaway and find a good travel package at a good discount, you will go for it. And that's where we will come in and cater to the market.

So are these the key verticals you want to focus on?

Yes, travel, F&B and wellness services are going to be our focus verticals. We are not aiming to become the largest e-commerce player in India because that may not happen. Our focus is to become your one-stop shop for deals. And these three verticals will cater to that market very well.

Why don't you consider real estate as a vertical? Real estate group buying became extremely popular in 2010-11 and loads of companies came up.

Yes, even we tried a couple of things in the real estate space. But it's a fairly volatile category given the kind of nexus existing between brokers and developers. So we don't want to enter that space at this point of time. We even tried some small deals in the automobiles space. But these are not going to be our focus verticals.

Lots of established players were there in the deals space before Groupon came in. But now they have either shut shop, changed business models or are making losses. Where have they gone wrong?

Failure to execute the business model is the sole reason. The fundamental mantra of group buying is not to focus on customers but on merchants. Group buying works on giving merchants a platform to acquire more customers and not to serve the customers themselves. But that's what people lost track of. They started spending obnoxious amounts of money on marketing; they started a token pricing system which focused on customers and not the merchants. The problem with token pricing was that online platforms were saying to their customers – pay us a token price but you don't have to commit to transactions. Thus in most cases, the merchant ultimately sold may be 8-10 per cent or worse of the total number of vouchers that the online platform sold. Hence, many of these online platforms made money off the merchants while the merchants ended up as cheap discount stores in the eyes of customers.

Today, one of our challenges is to change this perception and convince merchants that we are not into token pricing. Groupon never did it globally and when we saw it done in India, we were curious to see how it would work out. Now the answer is out there in the market.

But Groupon's business is also dwindling in the US. What has gone wrong in that market?

There are very few companies in the world that have grown to a $5 billion entity so fast and even Andrew (founder-CEO Andrew Mason who was asked to step down due to the company's perpetual poor performance) mentioned that in growing so fast, we ignored a few things which are coming to haunt us today.

So what are the things ignored by Groupon US?

The same questions – is it about merchants or customers? Who are we really doing this business for? The answers to these questions got hazy. Also, we had to strongly build upon the technology to enhance customer interaction and get feedback on the merchants and their products. The fact that the tech infrastructure is now the sole focus would make you realise that it wasn't there before in the scale which was necessary. So today we need to focus on that across our markets.

What does growth look like for Groupon India? What's your revenue target by the next fiscal?

I can't give you the numbers outright but we have grown 5x over the past two years. We have a repeat buying rate of 48 per cent and our average ticket size has increased to Rs 1,300 from Rs 1,000 when we last spoke to VCCircle in 2012. We are also doing a deal every 30 seconds.

Earlier you said that you wanted to break even by the end of 2013. Are you on track to achieve that?

We are aware of that target. Yet, at this point, we are still debating whether we should reach profitability first or invest now to grow the business. Right now, Groupon India is in investment mode because the parent is taking a lot of interest in India. Moreover, 2013-end is a target we have in mind, but there is no immediate urge to break even so fast because we were late in this market and there is no expectation that a market like India should generate profits within two years.

As the parent firm in the US is under pressure to perform, doesn't that affect you as well?

No, there's no pressure on us, neither any shift in the burden from the US market. This pressure is really being created more from the outside than internally.

Groupon India is primarily present in the metros. Given that your deals target mass transactions, why don't you expand across the country?

A very good question. But even after a span of two years in India, we have made a conscious decision to remain only in 10 cities. That's because we are limited by the quality of merchants in the cities we would like to include but cannot. Are there merchants in tier II cities where we can run deals 365 days a year? The answer is – no. Hence, we will continue to be largely urban. In fact, 75 per cent of our revenues come from the top five cities in India. Also, unlike the target demographics of many other players, we are targeting people in the age group of 25-35 and above.

But if you are going to be largely urban, why don't you target the money-splashing youth below 25? After all, that's where most consumption happens in F&B and impulse travel.

That's true to some extent. But youngsters are not brand conscious and therefore, not loyal to brands. As college kids, we are not earning. So we look at places where we can get maximum returns and don't care much about brands. What's more, that is not our proposition to merchants. We have told them we will bring you customers who will want to come back. So we want to target an age group who is brand conscious and who earns enough to spend on those brands.

Groupon entered India by acquiring SoSasta.com. Are you looking at more acquisitions since other group buying players may not cost you much right now?

No, we are not looking at acquisitions. If you consider parameters such as better business models or better technology or even a unique customer base, there is nothing out there that's so special. And there's so much we can achieve ourselves if our parent backs us a lot.

(Edited by Sanghamitra Mandal)

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