After a $4.5 million pre-seed round two years ago, social commerce grocery platform DealCart has raised 3.4 million, with Mubadala-backed VC fund Shorooq Partners leading the round. The recent funding is the first of two tranches that the startup has decided to raise.
In recent times of record inflation and a fragmented retail industry, 45 to 55% of household expenses in Pakistan are spent on groceries. DealCart started as a group buying platform providing affordable daily essentials to underserved communities, with the mission to help customers reduce their cost of living. The company says the new funding will be allocated towards enhancing product development and expanding the team.
Ammar Naveed, co-founder of DealCart told Profit the recent fundraising round was significantly more challenging compared to their pre-seed round. He structured the difficulties that arose while raising into two levels.
“Firstly, on an international level, there was a noticeable pullback from venture capitalists, especially with rising interest rates. This shift created a challenging environment for securing investments globally. Secondly, Pakistan, as a frontier market, faced additional scrutiny. The economic and political instability in the country added another layer of difficulty. This meant that investors were hesitant to deploy funds in frontier markets in general, and Pakistan in particular,” Naveed explained.
However, as some reassurance, he added, “In the last three to four months, the situation has improved significantly. We now see that they have begun to show increased interest and have started engaging with businesses in Pakistan. This renewed interest makes me more hopeful than I was six months ago. While it’s uncertain if investments will come in the next two to six months, the fact that investors are starting to have conversations and engage with businesses is a positive sign. The fact is that Pakistan has one of the largest and youngest populations in the world and remains a largely untapped market where founders and investors can build meaningful businesses.”
Despite the bleak state of funding in both local and global tech markets, Naveed says that there are certain startups VCs are placing bets on, if they are able to see potential. He explained how DealCart was able to secure the recent funding.
“VCs seek opportunities with significant outcomes. In Pakistan, the average household allocates roughly 45 to 55% of their budget to groceries, representing a massive market opportunity that excites investors. I don’t see a world where a country like Pakistan, with a population of roughly 250 milion, doesn’t have a few big e-commerce players in the next few years,” he explained.
Naveed added that in order to compete in the grocery sector, it’s essential to maintain low cost structures. Businesses must develop models that deliver groceries at the lowest possible cost, which attracts investors. Unlike quick commerce models that promise 30-minute or 1-hour deliveries, which require extensive infrastructure like numerous warehouses and delivery riders, DealCart’s approach avoids such high costs. Quick commerce’s expenses are typically passed on to customers, who are unlikely to pay an additional 10-15% when already spending a large portion of their budget on groceries.
However, DealCart understood early on that customers seek more affordable groceries, therefore they zeroed their focus on competitive price points. This helped the company minimise expenditure without compromising on customer expectations.
DealCart’s investor Omer Zabit, Principal at Shorooq Partners, in a statement issued to Profit, said, “E-commerce requires certain infrastructure to scale, like logistics and payments. With improvements across both these sectors, we’re seeing the e-commerce sector grow rapidly. PostEx is an example of a company that is driving a lot of the infrastructure development on logistics and last-mile delivery.” He explains that this is the reason why e-commerce in Pakistan is still nascent but growing so rapidly.
He also added that they are bullish in investing in Pakistan because mobile banking has become the single biggest channel and digital payments play a critical role in developing e-commerce in the country, “The movement of money is a prerequisite for a thriving e-commerce sector. Mobile payments and Raast will help plug the trust deficit on payments and make the entire process frictionless. For the first time in Pakistan’s history, digital payments surpassed documented cash withdrawals.”
With the support from its investor’s, DealCart will deploy the new capital to develop its physical and tech infrastructure to support its scaling. The remaining capital will be allocated to increasing brand awareness and promoting DealCart’s private label products.
What does DealCart do and how?
It would be an understatement to say that keeping a startup afloat, even when you are seemingly doing everything right, has become nearly impossible in Pakistan’s current economic conditions.
Profit was curious to learn how DealCart is surviving in the present climate.
Speaking about cost-cutting and efficient spending, Naveed said, “We focus on tier two and tier three products to help customers save money. Initially, we saw aspirational buying, but now with increasing inflation, there’s a shift towards these economical options. To reduce costs, we operate with a single warehouse, avoiding the high operating costs of the likes of a quick commerce business, and serve as the distribution arm for tier two and tier three products, cutting their distribution and marketing costs.”
When inflation strikes, buying patterns are destined to change and those in the retail space need to be quick to adapt or lose the race. However, these trends do not always mean doom and gloom for businesses, if they are able to find gaps that can serve them. Even though people are increasingly reluctant to pay premiums and are cutting back on non-essential grocery items, essential items like wheat, lentils, rice, sugar, ghee, and milk remain popular, while other categories show slower growth compared to these essentials. Offering cheaper grocery essentials has helped DealCart continue to scale.
Naveed observes that there are two main key trends that have positively impacted his work. “Firstly, digitisation in Pakistan has been steadily increasing, providing a favourable environment for us to grow. Secondly, high inflation has forced people to prioritise spending on essentials like food, leading to a shift towards lower-cost grocery items, including downgrading to cheaper product tiers. These trends illustrate how economic conditions have influenced consumer behaviour.”
Building on this, Naveed shared that DealCart has introduced its very own private labelled products, which offers better margins that can be passed on to customers. “Our mission is to reduce the cost of living for our customers and help them invest in a better future. Given that 45 to 55% of household expenses in Pakistan go towards groceries, our efforts are crucial in providing financial relief,” Naveed concluded.
Profit learnt that DealCart’s private label was introduced over seven months ago, with a focus on testing private label products, such as household cleaners, which have proven popular. Naveed explained that from a consumer perspective, this may seem odd, but financially, it makes sense. “For instance, a branded cleaner might sell for Rs 450 with a 10% margin, yielding Rs 40 profit per bottle. In contrast, a private label cleaner might sell for Rs 250, but yield Rs 70-80 profit, offering better value for customers and higher margins for the company,” he said.
The company’s bulk buying model has also been kind to it, especially during an economic downturn. As a consumer, you have two purchasing options when you shop at DealCart. If you’re buying shampoo, you can choose to buy it in a group and pay Rs18, which is quite cheap. Alternatively, you can opt to buy it individually, which costs more than Rs18, however, Naveed says you would still get it for much cheaper compared to purchasing it from a local shop. “We offer both group-buying and individual purchase options to accommodate different preferences and budgets,” he said.
According to Naveed, DealCart has achieved profitability on an order level in the last few months. “We don’t lose money on each transaction – we are order-level profitable. And now we are planning to scale to cover our fixed overheads. Last year, our business grew significantly, over 400% in dollar terms, and our customer retention rates are exceptional. Our success is partly due to offering savings during a period of high inflation in Pakistan, where incomes are stagnant and expenses are rising. This has resonated well, particularly among the middle-income segment we target.”
He also shared that DealCart currently ranks as the highest-rated shopping application in Pakistan ““Customer service and trust are significant issues in Pakistani e-commerce, often resulting in negative experiences and low NPS scores. But DealCart has managed to consistently achieve an NPS between 55 and 65 and is one the highest rated shopping applications in Pakistan. We address every negative review diligently, ensuring continuous improvement in customer experience. We sincerely believe that to unlock e-commerce growth in Pakistan, we have to solve for customer experience and build that layer of trust where people are comfortable purchasing online.”
