In his fourth appearance, Chaldal Co-founder and CEO Waseem Alim joined Ruhul Kader to talk about Chaldal’s current state of operation, priorities, strategic direction, the rationale behind Chaldal’s recent move to pull back from several cities outside Dhaka, how the current economic environment affects Chaldal and broader venture ecosystem in Bangladesh, the state of ecommerce growth in Bangladesh and his take on its future, the state of Bangladesh startup ecosystem, why Bangladesh needs a local venture capital and investment ecosystem, why local conglomerates should invest in startups and step up their philanthropic efforts, the cultural challenges in Bangladesh’s business scene, why challenging times are good for good business, his strategies for navigating tough times and much more.
This is a brilliant read throughout. I hope you enjoy reading as much as I enjoyed doing it. Be bold!
Table of Contents
Ruhul Kader
Thank you for agreeing to this interview. We can start with a general overview of Chaldal today. Last time we spoke, we discussed a few threads. One was the multi-city expansion. Another was a focus on the commodities, working with the mills and the large manufacturers. Another focus was improving the supply chain and the long-term sustainability of the company. You were seeing 200% growth from one December to another. You had about 17 micro-warehouse. You were expecting somewhere between 350 to 400 crore in revenue. You just applied for the payment license, which you received last year. We can start by talking about the major changes over the last year.
Waseem Alim
So, updates on the company. It's been slower than we had expected. Slower in the sense that we were on a very good trajectory until April 2022. In April 2022, it seemed like it was a completely blue sky. We were able to deploy the resources we wanted to. We were deploying warehouses outside of the city. One of the rationales for outside-of-the-city expansion was that we could expand into other categories. We have expanded into medicine, and we were thinking of expanding into a few more categories like toys. If you have a wide range of products, you can get more traction in cities outside. Because in those places, more than convenience, people look for variety.
Unfortunately, what has happened is that we have lost a year in between. Well, I would not say it's lost. Rather, let's say that April 2022 to April 2023 was an extremely difficult time for Bangladeshi e-commerce and startups. We had a major pullback from one of our investors. We were expecting some massive funding to take us to the next level.
However, it was also a good learning experience. We shifted our focus from our top line to the bottom line. We have managed to reduce our losses by more than 50% over the past year.
We have decided to pull back out of those cities because we have decided that it's important to have the core business be profitable. For outside cities to work, either we have to expand the categories or we have to have great demand. In order to generate great demand, you need a huge marketing budget. Since we don't have that capital to deploy and the cost of capital for everyone has gone up, we have decided to pull back from those cities for the time being and focus solely on Dhaka.
In the meantime, we have launched an online pharmacy, we have received the NOC for payments, and we are working on those products.
Our supply chain has made significant improvements everywhere, especially in terms of the perishable supply chain. We are working with cold storage and are working more closely with farmers. We have made some good progress across our supply chain. We have also made a lot of progress in efficiency, such as per rider deliveries, the average costs of delivery, promotional discounting, which products to stock, and which products not to stock, etc.
Last year, Bangladesh's economy went through a huge shock. In a sense, most imported goods were out of stock. We have figured out strategies to deal with these challenges. Because of the disruption in the supply chain, you have to be careful with how you're using your capital. There was huge pressure on working capital to make the LC margin 100%.
We have significantly improved our working capital management. Compared to our earlier working capital needs, Chaldal is now run with almost neutral working capital. Those are the things that we have focused on.
Other than that, there have been technological improvements. A new app came out, and we introduced a ton of new features. We launched a reward club for our loyal customers. Last year, there was the Biman Ransom case. Worldwide, all sorts of attacks were going up. We focused quite a bit on infrastructure security, software security, and other things like that. That's mostly been it.
In a nutshell, last year has been more of a bottom-line focus year than a top-line focus. However, we have also grown, and our expectation is 600 crores. I cannot say that it has been a win on all ends. It has been a very tight year. The silver lining is that we have learned how to operate with less investment. I think that is the biggest takeaway. Chaldal is very close to profitability at this point.
Ruhul Kader
I think your expansion to and pulling back from these divisional cities is an interesting case study. Can you expand on your experience of this move?
Waseem Alim
I think all of those cities have at least 5,000 customers who liked Chaldal and were super-regular. That's been the biggest regret for us that even after having 5,000 customers, we're not able to have a presence there. I'm pretty sure if Chaldal were there, e-commerce would have grown faster and we would have learned more.
The reality is, we had to pull back. I think the main thing is to have the variety. It's also very easy to get the word out in these divisional cities. But people are generally more relaxed than in Dhaka. They have more time. They still want to go shopping from the regular stores, and they usually have a relationship with these regular stores.
One of the key value propositions of e-commerce is convenience, and that factor is less well-played out in these divisional cities. Quality is also less well-played out, particularly when it comes to perishables because their quality is higher than Dhaka. For instance, vegetable quality is often higher in Jessore than in Dhaka because it's closer to the farms. These two factors are harder to attack.
On the other hand, we have advantages on two other factors. One is price, and the other is convenience. That's how you have to play the game.
Ruhul Kader
Now that you have temporarily pulled out of these cities, what's the plan going forward?
Waseem Alim
Right now, the focus is on Dhaka. We're finding that our return on investment (ROI) is highest if we keep on investing in Dhaka. In Dhaka, e-commerce penetration is about 1%. We thought that instead of getting to seven more cities and trying to get like 2% market share in those markets, it makes better sense to focus on growing our business in Dhaka. Because all those seven cities combined would not equal Dhaka. So it's better to just keep the focus on Dhaka and try to get the market share to 10%.
Ruhul Kader
How do you plan to do that?
Waseem Alim
It's the same old formula. You have to offer customers better value. You have to meet your commitments for time. You have to meet the convenience needs. You have to offer variety. You have to have pricing power. You have to have quality. If we can keep on improving on all of these things, I think it will not be very difficult. So we just keep on innovating in each of these areas.
We have made many small changes in recent times. For example, the amount of damage of let's say apples we used to have in the system has dropped by 90%. People don't always realize our quality changes. We have also significantly increased the sale of meat and fish.
There are changes on a year-on-year basis. Some years it feels like you've achieved a lot and some years you have not, but it's not like we're working any slower.
Ruhul Kader
I also noticed some of these changes. For instance, my wife sometimes complains that orders come ahead of the scheduled time. She would go: “I scheduled the delivery at 12 to 1 pm, why are they delivering it at 11 am?
Waseem Alim
That's a problem. It's an accuracy issue. Moreover, people have high expectations these days. For instance, delivery delays in the past were not a huge issue. We had complaints from customers, but not immediately. Now, when orders delay for half an hour, we start getting complaints. Which is a good thing. People should have high expectations.
We’re also seeing a lot more competition. However, there are still a lot of customers who are coming to us. We have an excellent loyal customer base. Probably a lot of them are shopping from two or three sources, maybe sending the smaller orders that way, but we still see that our customers are with us. Maintaining that loyalty and also growing that base are some ways we think we have to take.
Ruhul Kader
Another point we discussed was your focus on B2B. You already had a collaboration with WFPA for Rohingya Camp and you were also considering expanding the B2B business.
Waseem Alim
We were considering expanding the B2B business. However, we have not found any good projects. In B2B, you have to work with really stellar customers because the biggest problem in B2B in Bangladesh is payment. We don't have the capital to splurge, which is why we are not expanding on the B2B side. If we get stellar customers, we will be able to expand. It's a credit game in B2B, which is a problem.
Ruhul Kader
You acquired two companies — Cookups and BangaMeds. BanglaMeds after the pandemic and Cookups before that. How those businesses are doing? How do they operate in relation to Chaldal?
Waseem Alim
BanglaMed is growing pretty decently and has been integrated with the Chaldal app. We were not able to integrate Cookups fully in terms of the user experience, but the customer base, etc, has been integrated.
I think both of those businesses have promising potential. BanglaMeds is a much better use case. Cookups, I think the product market fit needs to be better in the sense that it's a very niche product. We need to figure out how to scale it up and make it accessible to the next 100,000 users.
I'm happy with both of those acquisitions. We have acquired some really valuable digital assets in the country. I think that should be the way forward for us. If there is a synergy, we should go for this kind of thing.
Ruhul Kader
What are the priorities for Chaldal going forward?
Waseem Alim
Right now, the only priority is to make sure we offer the best service possible while being profitable. There is no other priority for us. If we can't serve a customer profitably, we won't serve the customer. We want to prove to the world that Chaldal as a business model is stable. We're not trying to grow right now. If growth happens as a byproduct, that's good.
Ruhul Kader
Do you think e-commerce growth in Dhaka and broadly Bangladesh has been slower than expected? Many people want to say that ecommerce did not see the expected growth over the last ten or so years.
Waseem Alim
I think growth is a function of how much you’re willing to burn. If you look at how e-commerce was adopted in any country, it's usually a pricing thing. I remember when I was in the US, I was buying a camera. I checked Amazon, and their listed price for that camera was $210 and a retail shop was selling the same camera for $220, so I ordered it on Amazon. That was the first time I ordered something online.
The same thing worked in India. When Flipkart started, they were offering phones at a much lower price than the regular retail market. E-commerce adoption usually happens with the price. As people get used to the service, they start realizing that it is convenient, the quality is better, and all those things.
In the early days, when you are offering better prices as an e-commerce company, you are not making a profit, you are making a loss. You're paying for educating the customers. Without that ability to bear that loss, it becomes harder to grow. It's a function of funding.
If you look at our cost of customer acquisition, it has come down to 1/3 of what it was. And it's also that our marketing budget last year was 10 times higher than this year. Now it's more targeted, etc. So it's a function of how much budget is available and right now, nobody has any budget.
Moreover, the economy is going through challenges. I think e-commerce has held up better than a lot of things in the economy.
Ruhul Kader
What's your take on the overall digital commerce trajectory and ecosystem in the country?
Waseem Alim
See at the end of the day, ecommerce may not have grown, but the e-commerce infrastructure has become stronger and it is getting stronger every single day.
The way I see it, it is like electricity. I keep on repeating this, electricity flows through the path of least resistance. Similarly, customer demand flows through the most efficient channel.
We have been able to reduce the resistance to e-commerce faster than retail. I mean, retail has no more room to grow. How much can you grow? A retail shop is limited by its physical nature. You can't serve more people than the capacity of your outlet.
I think in retail, the resistance is increasing. I have now Netflix, people now prefer to watch Netflix sitting at their home instead of shopping grocery. People are not interested in poking fish and figuring out whether it is any good. They're interested in watching the latest documentary on Netflix. I think we have that force going for us.
The second force that is going for us is that as our density increases, the average cost of delivery decreases. The third force that is with us is that the inefficiencies in the system are getting streamed out.
To put it differently, e-commerce is getting more efficient. Retail is getting more difficult because people are less interested to go out and shop. The roads are getting busier. Infrastructure is not growing as fast. Traffic is never going to ease in Dhaka, it can only increase from this point. No matter what you do, traffic will keep on increasing. That's good for e-commerce. I feel that just because it hasn't grown 10x in the last three years doesn't mean it can't grow 10x in the next few years. It is just a matter of when we become the preferred channel. Usually from a manufacturer's perspective, and this is business school thinking, your top channel performs seven times better than your second-best channel. The question is, when does ecommerce become the top channel?
Ruhul Kader
As you have pointed out, we are going through a difficult economic environment and we have heard the report of a decline in demand for many products. What impact are you seeing in your business?
Waseem Alim
I don't know how much of it is demand-driven and how much is supply driven. I've seen our imported product categories perform worse because supply is not there and products are not available. I've seen people move out of diapers and things like that. For instance, we didn't see a growth in our diaper sales. We have seen high-end demand has been impacted. I'm seeing that people are buying on average less mango per order than they used to two years ago. Now less number of people are ordering 6kgs of mangoes. That's a trend.
I think buying power is affected quite significantly. I know from a lot of anecdotal evidence that buying power is affected, people are very price-conscious. This is a great time to grow. It is just that if you have the capital you can grow. Right now the market is so price sensitive, it's just very easy to grow.
Ruhul Kader
If you can offer a competitive price than everybody else in the market.
Waseem Alim
Yeah. But you also have to maintain the service.
Ruhul Kader
As you said, it's a difficult market to raise money, what's your take on raising money?
Waseem Alim
In terms of raising money, it's probably going to get tougher globally for venture capital. Bangladesh was already on the edge even before the pandemic. I think what we saw in 2020-21 with venture capital is unlikely to return in the next two-three years. Venture capital, I think still makes more sense than investing in traditional industries. I think venture capital needs more allocation, but for the next one-two year, things are going to be a bit conservative.
Partly because there were excesses on the venture capital side. Since Bangladesh was already on the sideline, I think Bangladesh will be in a tough spot. To tackle this challenge, we need a local venture capital scene to grow. Unfortunately, locally we don't have enough skilled human resources to understand and make those bets. That becomes a huge problem.
Ruhul Kader
How does that affect your own business?
Waseem Alim
Since we're trying to be more profitable, it should not theoretically affect us much. But it does affect our ability to grow. Venture capital is relatively patient capital that can be used to grow a business faster. If I have maybe 20 years of working life, because of lack of capital, I've just wasted one year. That's the thing. It limits our ability to do things that we want to.
Ruhul Kader
As you said, this is a great time to grow. Crises are usually opportunities as well. If you could give people considerable price benefits, it should have allowed you to grow faster.
Waseem Alim
It is a great time to grow not only because you can grow by offering price benefits, but good talent is also readily available. All the marketing is very cheap right now because everyone has reduced their marketing budget. If you have some capital, this is a great time to invest. Some of the best ROI will be achieved by people who are investing aggressively now. As Warren Buffett puts it: “be greedy when others are fearful”.
Ruhul Kader
Can you still take advantage of the situation?
Waseem Alim
Can we take benefit of the situation, there's not much way in taking benefit of the situation. The problem is that global venture capital is a difficult space now. At the scale we are at now, there are not very many people who can think of investing in Chaldal. Because first, you have to get comfortable with Bangladesh. Then you have to be comfortable with a large check and the sort of money we're looking for. And we want that money for good reason. I think we cannot depend on foreign capital given the state of affairs, we'll have to switch over to local capital. If we are not able to make the switch, things will be slow. With capital, we could just innovate faster.
Ruhul Kader
In terms of local venture capital development, how do you see the development that has happened over the last couple of years?
Waseem Alim
I think the government is doing a great job at trying its best to promote it. The private sector and the banking sector is the one that is falling behind. There is a lack of interested people. You need people genuinely interested in this because the pioneers in this field may not get rewarded in the short run. The reward may take 20 years to materialize. We need people who are interested in the space regardless of the challenges. They will be rewarded psychologically and have an excellent experience. However, it seems the number of people who would take that kind of risk is slim. But if you're going for the history books, you want to be like Don Valentine of Bangladesh or Mr. Kleiner or Tom Perkins, risk is necessary.
The question is where is Mr. Tom Perkins of Bangladesh? People are now doing it as a hobby. For instance, instead of buying another car, they are investing in startups. That's not enough. You need someone sophisticated enough to take a bet.
Ruhul Kader
This is interesting that you brought this up. We have recently been part of a program based out of a US University where they gave us a small grant. The interesting part is that once we got connected with this community, we came across a lot of other people giving out small grants. I came across an Indian software engineer who was giving $1,000 to 10 people every year, his own money. And I was thinking, why Bangladeshi companies and wealthy individuals don't do these things? I hear large Bangladeshi companies have large stashes of cash sitting idle in their bank accounts.
Waseem Alim
It's partly a lack of ambition. Many large companies in Bangladesh lack ambition. The other thing is that psychologically, there's a trust issue. They cannot trust that someone else can do the job better than them. That becomes a problem. This will lead to basically us having low economic growth in the next 10 years. If these large companies continue with the mindset that they will be able to do the best manufacturing, best research, etc, you will end up with the situation that you have right now, where we have hundreds and thousands of rice mills, high NPL, because everyone just built the same thing. Capital allocation is the single most important determinant of the long-term prosperity of a country. If we are not allocating capital properly, we are destroying capital. Every bit of capital that is sitting in some random bond, is capital that is not being used to improve the world.
Ruhul Kader
How can we change that?
Waseem Alim
I think it's a moral duty. The biggest saving/asset class in Bangladesh is perhaps real estate. I bought some land and put it down. The second is government bonds. The government is taking your money and spending it. You don't think some entrepreneurs can spend it better than the government? That seems very absurd. You're buying a piece of land, and not doing anything with it, you don't think it's better to have a nicer factory or a nicer restaurant? As I said, it doesn't have to be venture capital, but capital should not get tied into land and things like this. The way Dhaka city is getting built and all of these developers are just building more high-rise buildings. The city has literally turned into a concrete slum. And we are just building more on top of this concrete slum. All of this has to be destroyed in the next 20 years if Dhaka is going to be a global city. All of this effort that we're putting behind these buildings is a wasted effort.
Ruhul Kader
Is there anything that can be done to change the mindset of wealthy people or the companies that have a ton of money to get involved in philanthropy and invest in worthy causes?
Waseem Alim
I don't think they have to give it away. There are a few things that we need to consider.
One of the problems with the richest Bangladeshis is that they feel that the younger generation is just dumb. It was hard to make money in Bangladesh, I will give you that. We came from a British imperial colony, so we never developed that growth mindset. We've always thought about how we can hack the system, how we can get a few percentage lower points in interest rates and make money. True wealth is created by building things that people can enjoy for the long term. I think it is probably a generational thing. We probably have to wait another 10 years and then people will start realizing.
I think the second generation of a lot of companies realize that the capital that they're sitting on and wasting in their own companies, they could unlock that capital and get a higher return if they invest in more productive things.
But we don't have enough examples to point to. I think we need a few examples that will show a higher return on capital. Once we have those examples, things would move faster naturally. That's actually what happened with Estonia after Skype. The entire ecosystem changed because of Skype's success. They thought we could do other things. I think there needs to be an example of some exits in the ecosystem. Otherwise, things are unlikely to change dramatically anytime soon.
Ruhul Kader
It's good that you brought it up. Many people ask this question that it has been ten-plus years, but we don't see a significant startup success story in Bangladesh. Why is that?
Waseem Alim
Well, we do have significant success stories, but they did not convert to success stories for the ecosystem. I think bKash is a significant success story. It is just that no one knows what's the ROI of bKash or IRR of bKash. If you invested $1 in bKash in 2010, how many dollars is that now? That information is not public. That is why people are not coming. I think it is the responsibility of players like bKash to go public and show that if $1 was invested in bKash in 2010, it is equivalent to $250 now. If that can be shown, people will support the next bKash.
Ruhul Kader
That's one example. Do we have other examples?
Waseem Alim
I'm sure we have. We could have even more examples and I believe we will have eventually. To be honest, there're not that many startups that have been around for that long. Our ecosystem is fairly young. People who have invested early in Chaldal have not done 100x yet but if we can show them a path to exit I think Chaldal would be in a good position as well.
We have to understand that startup is a game of power law. We need to have more startups for longer periods to have significant success stories. See the success rate of startups is low. It's not like you will have dozens and dozens of examples. We have to keep that in mind. People are being too critical too early.
Ruhul Kader
Many people try to point this out as a counter-example that startups are not going to work in Bangladesh.
Waseem Alim
I think that's just absurd. That's a leap in logic. Startups are not going to work in Bangladesh, why? Because we don't have investment? The basis of startups is not investments. The basis of startups is innovation. And there is nothing that can stop us from innovating. Yes, perhaps in San Francisco the air quality is better. But I don't think my brain would work significantly better in San Francisco than it does in Dhaka. One thing used to be that you needed to be near smart people to develop and polish ideas — but the internet and quality of video calls have solved that to a large extent. I think the problems that exist over here, there can be lots of innovative solutions.
It is wrong to say that startups wouldn't work in Bangladesh. It might take another decade but Bangladesh is a good place for startups. It's like saying nobody will use the internet in Bangladesh or it's like thinking in 1995, how village people would afford mobile phones. I think it's just backward thinking.
If innovation can be had and innovation has a high ROI, capital will eventually start flowing this way. We're seeing a lot of that. We're seeing that our banking system is becoming stricter and other similar things are happening. There is more efficiency in the system. That's a global phenomenon. That means the capital is trying to get to more productive sectors. While this time is difficult for startups, it's even more difficult for traditional industries. You need industries to die out. Some companies are there for nothing. The land is just sitting there and they're taking a loan every month and paying their salaries. Some of them need to go
Ruhul Kader
Crises usually take out the weak players and make the robust ones more robust.
Waseem Alim
A crisis once every 10 years is a healthy thing. Without the crisis, there will be stagnation. It will take out not just the weak players in the innovation ecosystem, but weak players in the overall economy.
Ruhul Kader
This is a tough time for everyone. You are no stranger to difficult times. How do you deal with tough days and what are some lessons you have learned from your experience?
Waseem Alim
It's always a difficult time. Even in the good times, it's a difficult time. Sometimes you don't have to worry as much about survival and sometimes you have to worry a bit more about survival. That's the difference. Regardless of that, every morning we wake up and there are challenges. Life is an everyday thing. You can’t solve your problems all at once and get done with it.
Most of the days in the last 10 years, I've worked as hard as I could. I don't think that's going to stop. The challenge when you are not growing is that the morale is usually low. Keeping people's morale high is important. Those are the source of the difficulty.
The real difficulty, however, is solving the problem. It's like we're solving a math problem and every day we make progress.
Ruhul Kader
For early-stage companies, how should they approach and navigate challenging environments such as the one we are in now?
Waseem Alim
Challenges and opportunities go in hand in hand. There are more opportunities in a challenging environment. The challenges in the current environment are not unique to startups, it is equally challenging for existing businesses. See the businesses that are facing the most challenges and try to innovate over there. That's the path.
I think the banking sector is going to get heavily disrupted. I mean, what is it that the banking sector offers us other than large NPL at this point? NPL is high because the banking sector is misallocating resources. I think that is a sector that people need to go to. People will need a return on their investment ultimately. You have to bring that return.
Ruhul Kader
How should people think about their own operations, survival, etc?
Waseem Alim
See, startups don't exist to begin with, why do we have to worry about survival? So it's easier for startups. I mean where can you fall, you're already in zero. The challenge is for someone who has grown a bit and has done some things. I think a startup with 100 employees is truly facing some challenges if they are dependent on funding. In that case, run towards profitability. That’s the best thing to be done.
Maintaining your psychological stamina is also critical. It starts with the brain. It starts with controlling your own emotions and being able to think clearly. It's just a lot of self-discipline. This period probably requires a bit more self-discipline, but maybe that's just a function of where I am. We are at the end of the day responsible for 2500 people's jobs.
Ruhul Kader
How do you deal with that psychological part of it? Do you have a strategy?
Waseem Alim
I always think that I have nothing to lose. In the beginner's mind, there are many possibilities, in the expert's mind there are a few. I try to avoid all activities that make me unhappy such as sitting in traffic. I try not to go out during the day. I just try to avoid things that make me unhappy. Like I hate standing in queues. But I also hate skipping queues, I don't want to go and cut a queue. I find that unethical. So I try to avoid places that have queues.
Ruhul Kader
That’s wonderful. I think this is a good place to end this conversation. Thank you for always being generous with your time and insights. I look forward to having a mindset, psychology, and philosophy conversation with you in the near future.
Waseem Alim
Thank you for covering us again. It was fun.
