We speak with PriyoShop Co-founder and CEO Asikul Alam Khan about the evolution of PriyoShop into a B2B e-commerce platform, the huge opportunity in the B2B e-commerce space in Bangladesh, how PriyoShop has built an asset-light model to address the supply chain challenges for the small mom-and-pop shops in Bangladesh and the suppliers, the state of PriyoShop’s operation today, its fast-evolving B2B business model, the challenges for the company today and its ambition going forward, his lessons from his entrepreneurial journey and much more.
This is a fascinating conversation, that offers crystalizing insight into the fast-evolving B2B e-commerce landscape in Bangladesh. I hope you enjoy reading it as much as we enjoyed doing it.
Be bold and enjoy!
Ruhul Kader: Thank you for agreeing to this interview. It has been a long time since we last spoke. Over that period, I know PriyoShop has gone through a metamorphosis of sorts. To begin, could you please give me an overview of the company, what you're doing these days, and a broad understanding of where things are at PriyoShop?
Asikul Alam Khan: We pivoted in July 2021 and now PriyoShop is a B2B marketplace. We connect micro MSMEs directly with suppliers and brands to fix the fragmented supply chain.
This evolution of PriyoShop is a result of the ideas we received from our customers. In our earlier business model, we worked with MSMEs, solving a different problem. We’re using them as an offline distribution channel for our online e-commerce platform to reach offline customers who are hard to reach online. Before our B2B model, we ran a B2C e-commerce platform where we provided digital catalogs to mom-and-pop shops so that they can sell anything and everything to their work-in customers. The idea was that they could sell mobile phones, Air conditioners, refrigerators, and everything that they couldn’t otherwise sell. It also allowed customers to buy anything and everything from their nearest shop. That was our primary objective.
After COVID, we faced lots of challenges. Many of our customers had to shut down and some of them changed their business model. Due to the lockdown, mom-and-pop shops suffered. Some of them had to cut down their employees, which led to a situation where in many cases they are a one-man army. As this transition was happening, some of them started asking us to supply them with their inventories. They said, you do provide us with catalogs but it would be super helpful if you supply us with our real inventories. That’s how we came to learn that there is a need. In many instances, they also helped us to get suppliers' connectivity.
As you know, I worked in the B2C e-commerce space for the last 10 years. We have a strong connection with FMCG brands and big distributors and suppliers. So we spoke with some of these suppliers and put together a B2B operation to deliver mom-and-pop shops their supplies. We started everything in July 2021 and are now 100% focused on PriyoShop B2B. In many ways, the pivot comes from our experience of working in our mom-and-pop shops as distribution channels.
If I address the problem side first, there are 5 million mom-and-pop shops including small restaurants, we also cater to restaurants, in Bangladesh. So 5 million small businesses serve 170 million people. In most cases, they're one man army. Every day, they cater to 150-plus customers. There is an existing distribution mechanism through which they purchase their inventories. But the existing model is broken and they face lots of challenges. For commodities, they need to go to multiple wholesale markets like Karwan Bazaar, Krishi Market, Begum Bazaar, etc. There are multiple wholesale markets for each product. For rice, you need to go to Krishi Market. For edible oil, you need to go to Begum Bazar. So for different products, you need to go to different markets. Given the horrible condition of traffic in Dhaka and other cities as well, it is a huge problem for these small MSMEs. Because when they go to a wholesale market to buy products, they need to shut down their stores, which means they are losing their working hours.
Moreover, when they purchase themselves they don't get the right price from wholesalers because wholesalers provide different prices based on quantity. As a small retail shop, your order is limited. You usually don't buy bulk quantities. As a result, you don't get the right price. Moreover, since your quantity is small, you use local transport such as Rikshaw or CNG to transport your products, which is costlier for a small quantity. In the meantime, your shop is closed and your loyal customers move to your competitor.
Some traditional distributors provide delivery at the doorstep. But they usually do it at their schedule, not at the schedule of the shop owners or brands. They collect demand once a week and deliver the orders the next week. It means getting deliveries from traditional distributors takes between 7 to 12 days. You need to wait for that period regardless of whether you have the products in stock or not. It means, again, you are losing customers. This is also a problem for the brands. In many instances, due to supply issues, a mom-and-pop store might run out of stock for a popular brand of product. When customers come looking for it, he essentially has to sell a different brand.
For instance, a customer comes to a corner shop and asks for Maggi noodles. But the shop ran out of Maggi. Instead, it has a different noodles brand in stock. So the customer, since he does not have the option, goes for the Mama noodles. It means the brand is losing its loyal customer because it failed to make its products available. These are the three problems we identified in the initial stage. And we decided to solve these three challenges.
We also realize that there are lots of traditional suppliers and distributors in Bangladesh who have solid infrastructures. They have large warehouses and vehicles and have trained people who know how to manage inventory and distributions. But they're blocked due to the inefficiency in the supply chain, inefficiency in distribution, and the missing dot which is the connectivity. They don't have any connectivity with this mom and pop shops. They don't have any data on the demands in the market. At PriyoShop, we’re building a platform to help these stakeholders to connect in a single platform and operate more efficiently.
So now mom-and-pop shops just download our app from Google Play Store. It is in Bangla, he can easily understand and navigate, he can browse SKUs by category, by brand, and order products simply by clicking on it. We have simplified the whole thing. We understand that most of our users are not tech-savvy. So we have made it easy for them to access and place orders. At the same time, distributors and brands get notified when there is an order placed. After getting the notification, brands confirm the availability of the product, and our people collect the products from distributors and deliver them to mom-and-pop shops. This is a completely asset-light model. We want to empower these traditional suppliers and these mom-and-pop shops and enhance the supply chain efficiency.
We have also improved access to our platform for these mom-and-pop shops. We have an app but if you don't want to download our app, that’s fine, you can still access the PriyoShop platform. Mom-and-pop shops can access the entire catalog via Whatsapp. We have connected WhatsApp API so that our users don't need to download our app to access the platform.
We’ve found that many of our users use low-configuration phones, which makes it difficult for them to download apps due to a lack of space in their phones. For instance, many have phones with 2 GB RAM or something. They can’t download lots of apps, even if they want to. When we launched WhatsApp API, we received a tremendous response from our users. People started to join our platform. That's the beginning for us in many ways.
We started with covering some parts of Dhaka and now we cover the entire Dhaka. We also cover sub-Dhaka areas such as Tongi, Gazipur, and Savar. We cover most of Chittagong. We plan to cover two new regions every month.
Ruhul Kader: That's very interesting. As you said, you have worked in the e-commerce space for over 10 years. Now, you are working on B2B e-commerce but it is still e-commerce. Could you please talk about how that experience helps you in solving the problem that you're trying to solve now? Also, why do you see B2B as a much larger or more interesting problem to solve than B2C? Why did you decide to pivot from B2C to B2B?
Asikul Alam Khan: I started my career in 2006 as a web entrepreneur. This is my third venture. Earlier I ran an Ed-tech company, making money from Google Adsense and so on. After graduation, I started an IT firm called Splendor IT, providing website design and development, digital marketing solutions, and search engine optimization solutions for local and international FMCG brands and MNCs. We also catered to mom-and-pop shops with POS solutions. From 2010 I worked with both brands as well as mom-and-pop shops.
In 2013, I started a B2C e-commerce platform as a product of Splendor IT. It was bootstrapped. We didn't know about fundraising and had little idea about startups. The startup was not a thing yet in Bangladesh in those days. Our strategy was simple: we buy at a lower cost and sell at a higher price and make money in the margin. We got 25 to 30% on average margin. We’re making money almost.
However, after 2015, the market changed drastically. Many new e-commerce platforms entered the market and started providing deep discounts, free delivery, and charging less commission from suppliers. We came to face a different kind of competitive challenge. The market became quite imbalanced. In 2018, we changed our business. We shifted our business from core B2C space to rural e-commerce, mostly working with mom-and-pop shops. Our business model was completely different. At that time, we closely worked with mom-and-pop shops. We provided them with a digital catalog so they could sell anything to everything to their walk-in customers. That was our initial idea.
As your next question is why we pivoted, when we started working with this mom and pop shops as part of our new B2C strategy, we found that e-commerce caters to less than 1% of our total retail ecosystem, and big stores such as superstores and everyone in total cater 2-5% of the total retail ecosystem. That means still 97% market is in the hands of small businesses. And they're fragmented because of the lack of connectivity with the suppliers. We could immediately see a large market, a large opportunity.
That market is big, almost close to $191 billion, whereas the e-commerce market is somewhere close to $3 billion. The opportunity is there. These shops have solid demand. They are facing lots of challenges because they don't have any connectivity. At that time we were already connected with lots of distributors and suppliers and brands. We could see that we have the strength of connectivity and distributors. I also realized that this is a bigger opportunity and no one catering to this market at this moment.
Earlier, a few of my colleagues entered this space, but they're doing different categories and using different methodologies. Our current competitors mostly cater differently. Some cater to corporate/big companies, providing corporate supplies. They don't directly compete with me. And another competitor, the largest in the space, actually operates as a distributor. They mostly compete with traditional players.
We come from a different perspective. There are lots of traditional distributors who have infrastructures. We don't need to kill them. We can accelerate their business. We can solve their problem by empowering them through technology. That was our goal when we first conceived our B2B idea. After much deliberation, we decided to pivot. The market opportunity is big. On the other hand, B2C commerce is an entirely different ball game. Customers are not loyal. Retention is hard in a discount-dominant market.
Customer acquisition cost is too high and customer retention rate is too low. These are some of the considerations that have made us pivot. We could see that the market is untapped and it is a huge opportunity. Moreover, we could see that customer acquisition cost is low and retention mostly depends on service.
Ruhul Kader: Since you were working with these mom-and-pop shops, you could see that what they need more is supplies. That makes more sense for them. Once you decided to pivot, how did make the transition happen? I think it did not happen overnight. You certainly had to go through a process and put together the infrastructure and so on, could you talk about that journey?
Asikul Alam Khan: We started planning the Pivot during the COVID, in Q4 of 2020. Once we made the decision, our core team started working on it right away. We met with lots of mom-and-pop shops. We visited and talked with them physically. We visited lots of distribution houses and wholesale markets. We found out the existing challenges in the supply chain.
After that, we realized that this is a big opportunity and a blue ocean. We were playing in the red ocean of B2C e-commerce. So we decided, instead of playing in the red ocean, we need to move to the blue ocean, a completely untapped market. We could see that there could be 4-5 unicorns in the space serving 5 million mom-and-pop shops. If you consider 170 million people in this country, everyone at least once a day interacts with a mom-and-pop shop, which indicates how big this market is. So we put urgency in the plan and started our operation in the following months.
Ruhul Kader: How does your business model work? You work with the distributors and the brands and the MSME retail shops. As you said yours is an asset-light model. You don't maintain your inventory or you don't have any warehouses or don't need to maintain any warehouse for instance. You connect the suppliers with the mom-and-pop shops and do the logistics. How do all these things work in practice?
Asikul Alam Khan: Our business model is simple. We connect suppliers, brands, and financial Institutions directly with these mom-and-pop shops. We use third-party vehicles for logistics and our people to ensure the quality of distribution and customer service. We understand that customer perception is your reality. Whatever you do doesn't matter, what customers feel that's what matters, and that's why we use our people.
We use third-party vehicles so we don't need large warehouses or lots of people. However, we have our fulfillment centers.
The process is simple. Once a mom-and-pop shop places orders, the supplier gets a notification and confirms the availability of the product. Sometimes suppliers drop their inventory at our fulfillment center, and sometimes our pickers collect products from suppliers. The next morning, our team delivers all the products to our merchants.
Ruhul Kader: How do you make money? Who pays you?
Asikul Alam Khan: Suppliers and brands pay us. We don't charge anything to mom-and-pop shops. They get the entire service free of cost and they enjoy free delivery as well.
Ruhul Kader: Do suppliers pay you for the logistics? How does your relationship with suppliers work?
Asikul Alam Khan: Supplier pay for distribution solutions. Currently, we don't charge anything for logistics, it is paid from our end. We get a margin from suppliers selling goods on our platform and we pay for marketing and logistics from the margin.
There are other opportunities and revenue streams to explore. But the market it's not adequately educated. We have excellent smartphone penetration. But many of these people don't know how to use it for productivity. Everyone mostly uses these devices for entertainment and communication. Team PriyoShop is trying to educate them on how to use a smartphone for productivity.
Ruhul Kader: Could you please talk about the complexities and different aspects of your business model? One aspect is that you connect suppliers with merchants, which means suppliers now could reach a much larger base of customers, and working with you makes sense for them. At the same time, you have to make sure that mom-and-pop shops also get competitive prices. I think there are a lot of moving parts. When we say you connect suppliers and mom-and-pop shops, it does not tell the full story. Could please talk about what moving parts are and how you ensure that both parties, mom-and-pop shops, and the suppliers stay with you?
Asikul Alam Khan: Merchants usually get the best price on our platform. Because there are lots of suppliers who upload their products to the platform which creates a competitive dynamics and makes the price competitive. Moreover, there is complete price transparency. Earlier, there was little to no price transparency, because they don't know the actual wholesale rate. Currently, we provide that transparency.
For onboarding suppliers, we use certain parameters. Anyone cannot upload their SKUs to the PriyoShop platform. We check every supplier before onboarding them on our platform. We ensure the quality of the product. We mostly work with renowned suppliers and brands. Moreover, we closely work with these brands so that we can ensure quality.
This is the first thing.
Since I have experience working in the space before and I understand some of the challenges, I try to use my experiences wisely. We’re always working hard to improve our unit economics as well as customer experience.
The biggest challenge is the education part. We need to educate our user base to use smartphones/technologies for their problem-solving. That's the biggest challenge.
The other challenge is finding the right people. As a fast-growing company, we need people almost all the time. Sometimes it is a challenge to hire the right people. That is a major challenge for us at this point.
We are growing at a consistent pace. We’re unlocking new milestones regularly. Currently, we have 30,000 small retailers on our platform. This is a big number. When you have a growing operation, it sometimes is a challenge to maintain the quality standard. This is where the people challenge comes in.
We’ve worked hard to make the platform useful for the merchants. They get the best price. They don't need to provide logistic fees. Working with PriyoShop usually improves revenue for these micro-merchants by 20% to 30%.
Ruhul Kader: So you work with third-party logistics companies for logistics.
Asikul Alam Khan: 3PL companies provide vehicles, nothing else. Our people take care of the rest of it.
Ruhul Kader: So they provide the vehicles and you have the fulfillment centers across the city. How many fulfillment centers do you have now?
Asikul Alam Khan: Currently, we have four fulfillment centers in Dhaka and one in Chittagong.
Ruhul Kader: So the suppliers send their products to the fulfillment centers?
Asikul Alam Khan: Suppliers send the products to our fulfillment centers. When we talk about merchants that means customers and suppliers are the distributors. We use a hyperlocal model similar to food delivery companies such as Foodpanda. For merchants in a certain area, we work with suppliers from that area. For instance, when we serve our merchants in Chittagong, we work with distributors and suppliers who are based in Chittagong.
Ruhul Kader: So when an order is placed, you notify the suppliers, suppliers send the products to your fulfillment centers or you pick the product from their warehouse, and then you deliver it to the customers. You said you have 30,000 merchants on your platform, how many suppliers are you working with now?
Asikul Alam Khan: 147.
Ruhul Kader: Which part of the marketplace is more important for you? Is it to have more suppliers or merchants?
Asikul Alam Khan: We need both. Say for example, when we unlock a new area, we add new suppliers. We recently launched the Uttara hub and we onboard a few more suppliers from Uttara. So currently 147 suppliers and the new seven suppliers are on-boarded after launching Uttara. We need new suppliers for new SKUs. New SKUs help us to get additional sales from existing customers. New customers aka merchants help us to get more sales from existing SKUs. So there is a network effect of sorts here. One part of the marketplace reinforces the other. So we need both. But the most important metric for us is the number of active merchants who place orders. Around 70% of our merchants currently are active. That means they're placing orders once a week or once a month.
Ruhul Kader: You have been working on this new iteration of PriyoShop since 2021 and have seen meaningful growth, what have you learned in terms of the market dynamics and the whole ecosystem?
Asikul Alam Khan: This is a quite different market compared to the B2C market. Customers aka merchants don't ask for discounts or something. They're asking for availability and on-time delivery. Most merchants we work with have opportunities to grow. They have demands to serve but often they are constrained by various limitations such as finance. They usually operate with limited working capital. As a result, they usually can’t invest much in their growth even when there are opportunities to grow. In most cases, these merchants start their business with 100,000 to 300,000 as working capital. Many people can't restock inventory as much as they can sell.
The other aspect is that this a quite sensitive market. These are common people. If you provide good service, they will believe you easily. But if you fail to deliver, their tolerance level is very low. This is a very sensitive market compared to B2C. So your mistakes can be costly. There are reasons for this. Their business depends on us. If we don't provide supplies, they can't sell to their walk-in customers. It means they lose money and their business suffers.
So we need to cater sensitively and carefully. That's why we can’t grow as fast as we could or want to. We have decided to grow slowly and provide excellent service so that we can build trust in the market.
Ruhul Kader: As you said, finance is a huge problem for these small merchants, which can be an opportunity for you as well. Do you think you can address that challenge by financing them or connecting them with financial institutions?
Asikul Alam Khan: We currently working on a pilot with SBK Foundation to address this challenge. Currently, we don't provide any financing from our balance sheet. We try to connect them with existing financial institutions. These mom-and-pop shop merchants are mostly unbanked people. They don't have any credit scoring. Currently, we can provide alternative credit scoring for them. So I strongly believe we can help them to connect with financial institutions in the coming days.
Ruhul Kader: As said you're doing a pilot, how many merchants are you working with?
Asikul Alam Khan: We are piloting with 100 micro-merchants. It's just the starting, we work with the best people who work with us. So after getting a positive response from them, we'll move aggressively.
Ruhul Kader: You said these mom-and-pop shops are sensitive customers and their sales depend a lot on you — how timely you deliver, and those kinds of things. These shops need many different kinds of products from rice to various other FMCG products. How many of these products do you supply now? And how long do you take to deliver products? Can merchants pre-order on your platform?
Asikul Alam Khan: Currently, we deliver within 24 hours max. The shortest time is six hours. So based on distance and product availability, it takes us a maximum of 24 hours to deliver orders.
Currently, we serve them with their most-selling products such as rice, edible oil, flour, sugar, salt, and many other products. These commodities are their most selling products, maybe about 60% of their basket.
We already have an exclusivity partnership with Pusti by TK Group. We closely work with all the local rice brands.
Our merchants also have demand for lots of FMCG brand demand, we’re slowly building up these partnerships. We already work with most of the leading FMCG brands. We are regularly growing the SKUs we supply to our merchants through partnerships with suppliers and brands.
Ruhul Kader: How does the pricing on your marketplace work? Since you work with suppliers, and you have this bulk demand from the small shops, one opportunity/advantage may be for you to sort of get a better price from the suppliers. But since you are a marketplace, suppliers should also be able to decide their prices. How does that work?
Asikul Alam Khan: As a marketplace, brands set the prices for the moment, and they decide about the margin between us and them. However, merchants get additional benefits. Since our number is high in terms of order volume, our weekly order volume is 100k SKUs, we get better margins from suppliers. The way the FMCG distribution works is that volume helps you get more margins. If you reach a certain volume, you get an additional margin. From that margin, we also offer different kinds of tire pricing to these mom-and-pop shops. We also offer different kinds of trade marketing benefits to them. So the deal is very good for small merchants.
Ruhul Kader: You said, you have now over 30,000 mom-and-pop shops and 150-plus suppliers on your platform. This is good growth within a short period, given that the market needs significant education. What has contributed to that growth?
Asikul Alam Khan: From the beginning, we have been 100% focused on unit economics. As I earlier mentioned, I'm a three-time founder and all my teammates have vast experience in the sector. Most of them have 15/16 years of experience. My co-founder comes from a telco background. She also worked with B2C e-commerce platforms. We closely monitor the performance. We are 100% OKR driven. Performance is the priority. We have tried to build a sustainable business from day one. But when you are a startup in a new vertical, it is a challenge. Regardless, our burn is significantly low.
We are very cost-efficient, which has allowed us to raise investment from some of the best investors within a short period in a quite challenging economic environment. Our existing investment has also backed us throughout our several iterations. We work closely with our investors. We have been lucky to have investors who not only provide us with capital but also provide regular feedback and guidance to grow the business.
We have been able to build a solid organization. We operate as a team. The growth we have achieved so far come from the team's performance.
Ruhul Kader: What are the challenges for PriyoShop now?
Asikul Alam Khan: Right now, we are growing fast. To support the growth, we need a lot of people, which is one of the biggest challenges.
Ruhul Kader: There are a few players in the space. Given the investor attention this vertical is getting, it is likely that we’ll have more players in the coming days. Given the competitive landscape, what makes PriyoShop indispensable to mom-and-pop shops and suppliers? What are some of your competitive moats?
Asikul Alam Khan: There are several players in this vertical but few are working in the space we are working. There are a few players who serve corporate and big companies. They're selling corporate supplies and corporate stationery. They don't directly compete with us. There are a few other players who operate more seasonally. Some companies do invoice financing. There are a few players who provide digital bookkeeping solutions to these merchants. They don't solve any existing problem. Some players operate more like distributors and they are replacing the existing distributors. They directly fight with suppliers. Some of these players are now creating their brands and offering distributorships for that.
We are trying to work with suppliers and distributors and help them grow. We don’t compete with them. Our model is super asset-light. We don’t have warehouses. We don’t need any big infrastructure. We use the existing infrastructure and take advantage of tech to exploit it. Our model is less costly and more flexible.
So our business model is different from almost all these other players. We see opportunities to work with many of these players. Moreover, the market is big. It is a $191 billion market and it needs more players to solve these challenges.
Ruhul Kader: What are some of the short-term and long-term plans for PriyoShop?
Asikul Alam Khan: We want to cover 48 new cities in 2023 and add 100k micro-merchants to our platform. That's the short-term plan. In the long term, we want to cater to one million micro-merchants through the PriyoShop platform and also create a sustainable ecosystem for them.
It's not only about supplies, we want to cater four things to these micro-merchants: supplies, financing, solutions to manage their operations, and sales. Our goal is to build a complete ecosystem. We're trying to add more value every day. We have things in the pipeline that we plan to explore in the coming days.
We have also plans to expand internationally. The problem we are solving is a challenge for MSMEs in many emerging markets. We have seen some initiatives in markets like Indonesia, Vietnam, India, Pakistan, and recently, the MENA. But there are many other untapped markets. So we have the ambition to expand internationally and our investors also are trying to help us to enter the next market.