Can Retailo’s SaaS gamble pay off?

A few years ago, a quiet tech revolution began brewing in Pakistan’s labyrinthine retail sector. As Pakistan’s tech sector finally started to attract serious amounts of venture capital from global investors, the sector that attracted the most money by far were the multiple players that set about trying to modernise this large segment of the Pakistani economy.

Four companies jumped into the fray, and each raised massive sums of money, or at least massive by Pakistani standards: Bazaar ($108 million in total capital raised), Dastgyr ($41 million raised), Retailo ($60 million raised), and Tajir ($19 million raised).  

The thesis was straightforward: the retail sector may  have narrow margins, but its filled with multiple layers of middlemen for every product. Cut out the middlemen, pass on part of the savings to the retailer, and therefore the consumer, and create a comfortable margin for yourself. And the pandemic made Pakistanis more open to transacting online, which made the opportunity even more irresistible. Three of the four companies got their start in 2020, with only Tajir having started earlier in 2018.

But the streets of Pakistan are paved with more than just ambition. As the kiryana store owners watched these tech whizzes roll in with their apps and promises of efficiency, many could not help but smirk. After all, their shelves were stocked with stories of failed revolutions. Retailo, however, believed it could be different. They aimed to digitise and streamline the procurement process, cutting out the middlemen and giving these small shops access to products with a click of a button, promising next-day deliveries and the ease of a digital marketplace.

Fast forward a few years, and only Bazaar appears to be largely committed to that initial vision with some degree of success. Most of the others have seen the hype die down. And Retailo, it seems, has decided to go off into a different direction entirely.

The startup faced a grim reality: Pakistan’s logistics landscape was far more stubborn than the founders initially envisioned. Dreams of a streamlined B2B distribution model started to buckle under the weight of harsh market realities—rising costs, entrenched competitors, and a bruising economic landscape that seemed unwilling to budge. And so, with survival on the line, Retailo turned to something that tech founders are famously good at: the pivot. The new buzzword? SaaS—Software as a Service. But can this pivot truly be Retailo’s knight in shining armour, or is it just another desperate gambit to stay afloat?

Retailo’s original vision

To understand Retailo’s early model, it is important to grasp the context of Pakistan’s retail sector. With an estimated 600,000 small kiryana stores, each selling an average of around $40,000 worth of goods annually, with average gross margins of around 6%, the market is vast—worth approximately $60 billion—but highly fragmented, operating through inefficient supply chains.

Specifically, every single product typically has multiple layers of middlemen in its supply chain. There are layers of middlemen between the farmer who produces the raw materials and the manufacturers, and there are then typically still more layers of middlemen between the manufacturers and the retailer who finally sells the product directly to the consumer. For some minimally processed food products such as rice, there can be as many as 12-15 layers of middlemen between the farmer and the consumer.

None of these earns a particularly high margin, but they exist for a reason: they are solving the informational asymmetry problem between the producers and end-consumers. How much raw food is being produced at every farm, where are the small factories located that can process it all, where can I store goods between the times they are needed and the times they are made available, and then how much of the product is needed at each retailer that actually sells to consumers?

Informational asymmetry is a problem that lends itself exceptionally well to being solved by a marketplace software that connects the seller directly to their end-buyer and keeps a fraction of the transaction for itself as its take-rate for facilitating a more efficient transaction. And given the fact that food is still by far the largest component of consumer spending in Pakistan, it makes sense that software-focused tech startups decided to focus on this sector: a large prize, no dominant player, and lots of inefficiency that software can actually help solve.

Retailo’s product offered small stores a one-stop solution for their procurement needs. The idea was simple: store owners could use Retailo’s app to order everything they needed, with deliveries arriving the next day. Retailo aimed to aggregate demand, negotiate better prices, and ultimately cut out middlemen to bring manufacturers closer to retailers.

The challenge to building a marketplace software and having it be successful is that you need to induce demand at both ends of each transaction. You need to offer incentives to both buyers and sellers to want to come to your platform, which is typically quite expensive and requires a startup that wants to be successful in this business to be able to raise large sums of money. Having brought in $60 million in venture capital funding, the second largest in the industry, Retailo probably felt like they had a chance at success. 

Despite the appeal of its value proposition—saving time, offering competitive pricing, and providing efficient delivery—Retailo faced a number of challenges. While its vision seemed compelling, the scale required to achieve real market influence proved elusive. The company reached a peak of $50 million in annual sales, which represented only 0.1% of the potential market. This minimal market share reflected the inherent difficulties of scaling in Pakistan’s highly fragmented retail landscape.

This struggle for scale was not unique to Retailo. In a market dominated by deeply entrenched practices, even the best ideas can find themselves running headfirst into the walls of tradition. Was Retailo’s original vision simply too ambitious, or was it a case of failing to adapt quickly enough to the market’s realities? Spoiler alert: it is probably a bit of both.

Why do logistics startups struggle in Pakistan?

Now, let us talk about logistics—the Achilles’ heel for any startup that dares to enter this market. Retailo soon learned that logistics startups face particular challenges in scaling and sustainability. In order to make a meaningful impact in the $60 billion market, Retailo needed 4-6% market penetration—a feat that would require significant capital investment. Wahaj Ahmed, Retailo’s co-founder, estimated that achieving this kind of scale would need between $200 to $400 million in capital—far beyond what the company had raised or could realistically hope to raise.

As interest rates began to rise in the United States, investors all over the world began to move their money back to the United States, the safest market to invest in, causing funding to dry up virtually everywhere else in the world. Pakistan, a market that had only just started to get meaningful amounts of venture capital in 2021 and 2022, suddenly found itself locked out of the global venture capital market, which was terrible timing for startups that had raised large rounds during that time and needed even bigger follow-on rounds to keep the growth engine going. 

If you are wondering why all this capital is needed, imagine trying to convince manufacturers to work with you when you barely make a dent in the market share. You need to look like the big fish in the pond, or at least a fish worth noticing. Without that capital, Retailo found itself to be too small to make a splash, and too cash-strapped to grow bigger.

Moreover, the company’s margin pressures were significant. In its initial years, Retailo operated on razor-thin margins of just 1-2%, eventually improving to 4% by year three. Even then, this was not enough. Achieving sustainability required reaching margins of 6-7%, which Retailo struggled to attain. Spoiler alert (again): logistics is expensive, and in a country where every penny counts, maintaining decent margins can feel like a pipe dream.

Ahmed elaborated on the key obstacles that came with scaling, “Three things change with scale—gross margins improve, logistics costs drop through economies of scale, and a network effect kicks in, attracting more customers.” 

Sounds wonderful, right? 

Well, unfortunately, achieving this virtuous cycle required massive investment, something increasingly out of reach in a capital-starved market like Pakistan.

Retailo also faced resistance from established players within the distribution ecosystem. Picture this: a new kid comes to the playground with shiny new toys, and the kids who have been there forever are not impressed. That is pretty much what Retailo faced. This resistance was further amplified by macroeconomic challenges. High inflation and political instability made it even harder for Retailo to gain a foothold. With capital-intensive growth becoming more difficult amid these pressures, Retailo ultimately realised that the cost of achieving its vision in Pakistan was unsustainable, or at the very least, unattainable under current market circumstances.

The writing was on the wall: the logistics game was not working out as envisioned. Would Retailo abandon ship or stay afloat by any means necessary? Well, this is where things get interesting.

The pivot to SaaS

By mid-2022, Retailo began to rethink its growth strategy, prompted by rising interest rates and a tightening funding environment. The company reduced costs and focused on profitability. Yes, the old ‘burn and grow’ philosophy was not cutting it anymore. But by 2023, further macroeconomic instability in Pakistan, including a significant currency devaluation, made scaling the B2B distribution model untenable. Let’s face it, you cannot move mountains if your shovel just got a lot more expensive.

Faced with an insurmountable challenge, Retailo decided to pivot—not just geographically but fundamentally. Retailo shifted focus from Pakistan to Saudi Arabia, and from a B2B distributor to a SaaS provider. 

Could this move change their fortunes, or was it merely a desperate grasp at straws?

Retailo’s pivot centred on two key pieces of technology: a routing and delivery solution and a sales management tool. 

Originally developed to support Retailo’s distribution operations, these tools became the company’s primary product offerings. Instead of running a distribution business, Retailo began selling these technologies to existing players in the distribution ecosystem.

“We had invested close to $3-4 million in building this technology over a course of three to four years. It was a robust stack,” said Ahmed. “We realised that selling these technologies as SaaS solutions was a viable way forward in a lower-risk environment.” By moving away from capital-intensive distribution and into SaaS, Retailo reduced its operational costs significantly and opened up new opportunities in less restrictive international markets. 

You know what they say; if you can’t beat ’em, sell ’em software.

But with every pivot, the lingering question remains; how sustainable is this change, and is it enough to truly alter Retailo’s trajectory?

Why SaaS?

The pivot to SaaS was not just a necessity, it also presented new opportunities. 

SaaS requires far less capital than distribution, which involves large inventories and complex logistics. It also allows for geographical flexibility, as SaaS solutions can be sold globally. This model also offered higher profit margins and scalability potential compared to traditional B2B distribution.

Retailo’s technology had already demonstrated its value. “We sold our SaaS product to companies like Tapal and National Foods,” Ahmed explained. “The technology stack we developed, routing, delivery, sales management, was robust and we believed it had a broader application.”

But shifting from logistics to SaaS meant a fundamental change in how Retailo positioned itself. The company was no longer offering a tangible service that filled shelves in small grocery stores, it was selling an idea, a process, a software solution that required a different kind of trust and buy-in from its potential customers.

Now, you might be thinking, “Isn’t selling software easier than dealing with trucks and warehouses?” 

Well, yes and no. 

There are challenges to SaaS, such as adapting the technology for broader customer use and dealing with longer sales cycles. You see, convincing someone to buy software is not easy. Retailo’s experience in Pakistan and Saudi Arabia provides it with a unique understanding of the distribution challenges in emerging markets. This expertise could give Retailo an edge over more software-focused competitors, but only if they play their cards right.

The SaaS model does provide hope, but success is far from guaranteed. The pivot may have offered a lifeline, but it also placed Retailo in a competitive tech landscape dominated by international giants and aggressive regional players. Can a company born out of the logistical struggles of Pakistan carve out a niche for itself in the global SaaS industry?

Retailo’s pivot has dramatically changed its prospects. The shift from a cash-burning B2B model to a lean SaaS entity makes it more attractive to investors, especially in the current market. “The new restructured entity is much more palatable to investors than the larger, unprofitable B2B entity,” Ahmed shared.

Yet the looming question remains: will this pivot truly lead to long-term success, or is it merely a strategic retreat to survive a challenging business environment? 

The journey from B2B distribution to SaaS has not been without its difficulties, but it demonstrates Retailo’s resilience and adaptability. In the competitive world of tech startups, the ability to pivot, especially recognising what isn’t working and finding a viable new path, is often what determines survival.

The stakes are high for Retailo. They have demonstrated an ability to survive, but can they thrive? The transition from a logistics company to a SaaS provider is not an easy one, and success will require not only a great product but also strategic market entry, customer acquisition, and continued innovation. Retailo’s experience serves as a powerful case study on the challenges of digital transformation in emerging markets, the importance of capital efficiency, and the potential for technology-driven pivots when original business models fall short.

For now, Retailo stands at a crossroads, facing a decision that could either propel them into a new era of growth or see them fade into another footnote in startup history. Will they crack the code, or will this pivot just be one more story in the long list of ambitious endeavours that couldn’t quite make it? No one knows—not even Retailo.