High cash burn, too many strategies: The troubles of Meesho, a once sought after unicorn

The last few months have been tough for Meesho. 

The company started out as a social commerce platform in 2015 and slowly became the posterboy for the segment with a $4.9 billion valuation it attained last year. But, with a change in strategy, high cash burn, no profit in sight and intensified competition from big players—Flipkart and Amazon—Meesho, which is in the market to raise funds, is struggling to answer tough questions from investors, say multiple people aware of the matter.  

Entrackr spoke with 10 people aware of Meesho's situation for this story. “The statements provided by Entrackr are factually incorrect and speculative in nature. As a policy, Meesho does not respond to speculative commentary," said Meesho in a response to our detailed questionnaire.

One investor who reviewed Meesho from an investment standpoint told  Entrackr that with their pivot from social commerce to an e-commerce firm, Meesho is back at the starting line. 

“Meesho has little idea of what it is building. It is moving from one strategy to another—social commerce to B2C, international expansion to small-town groceries, zero-commission to ad-monetization,” said this investor, requesting anonymity. “It simply cannot spend its way out of its confusion. Not now, when it is surrounded by deep-pocketed, focused competition, who can outspend Meesho at every point. I fear that after spending more than half a billion dollars in 2 years, Meesho is now back at the starting line.”

But why the sudden fall from grace? The answer lies in the choices Meesho made. 

And the ones it did not. 

A hard pivot and too many pies

For more than five years, Meesho pegged itself as the destination for resellers. “We want to use our platform to connect small businesses with millions of resellers,” Vidit Aatrey, Meesho’s Founder & CEO, pitched over and over again.  And then, suddenly, Meesho changed track in mid-2021 when in one swift move it pivoted from a reseller model to a B2C platform. 

The reasons for this were valid as a business because Meesho’s army of resellers had no control over either the products or the supplier and they had no real experience or training in selling leading to poor servicing of orders, with mounting complaints from users, this has led to Meesho now competing with deep-pocketed players: Walmart-backed Flipkart and Jeff Bezos’ Amazon.   

Another foray the company did a few months prior to this pivot was their expansion into the groceries segment. In April 2021, Meesho announced plans to start grocery delivery services in more than 200 cities. However, nearly a year since Farmiso is still to scale beyond a handful of cities. The hyper-competitive grocery sector is dominated by Amazon, Flipkart, Tata Digital-controlled Big Basket, BlinkIt, DealShare, Swiggy and JioMart, who have built key capabilities around procurement and logistics. With deep pockets, all of them have shown the appetite to fund losses at scale. Meesho will find it hard to get a toehold in this space. 

Competing with the bigwigs

With smaller rivals like Glowroad and Shop101, Meesho could have driven the social commerce market in India at its own pace. But that’s not the case when you compete with larger companies. 

Flipkart, instead of waiting for the battle to come to its door, took the battle to Meesho’s domain by starting its social commerce app Shopsy in July 2021. Shopsy has not only unsettled Meesho but also taken away a lot of its resellers. Moreover, Shopsy’s zero-percent commission model and its 700-city grocery plans have further taken the sheen off of Meesho. 

“It has made a strategic blunder and is now competing with nearly every large e-commerce business in India. In its anxiety to build a business that it promised to its investors, it has moved away from a strong position in social commerce to now a challenger across many verticals. Another Paytm in the making,” said another investor who Meesho had pitched to recently to raise more funds.

Another hit for Meesho came when southeast Asia’s popular e-commerce platform Shopee launched in India last year, chewing up Meesho’s future growth prospects. Having built a $150 billion business in 13 countries across Asia, South America and Europe, Shopee is known for aggressive pricing, its vast assortment and attractive promotions. Shopee is also offering a no-commission based structure to acquire sellers and buyers in India.  As per the media report, it clocked 100,000 orders a day as of November last year.

“As Shopee scales up in India, Meesho is now caught between Flipkart and Amazon on one side and Shopee squeezing its business from the other side,” said one of the analysts tracking social commerce space, requesting anonymity.

Founder and CEO Vidit Aatrey, however, remains positive despite the growing competitive landscape. He had told Entrackr in a previous interview in October, “lots of clones have come, this [Shopsy] is another clone. They [Flipkart] have copied the same app. And so far it has been there for a few months and I haven’t seen any of our users use it.”

A flywheel in reverse

Meesho loses money at multiple touchpoints: discounts on products, subsidised logistics, high marketing costs, high returns and high corporate overheads of running multiple strategies like social commerce, groceries, international forays (was shuttered soon after the announcement) and more. Adding to it is a zero-commission model for the sellers. 

With all this, it is then no surprise that Meesho is burning close to $40 million each month, per estimates of people aware of the details. “The market hates that kind of burn,” said another investor aware of Meesho’s financial health and strategy, requesting anonymity. “They are also trying to get into branded e-commerce and more categories— $200 million won’t cut it; they will need to raise a billion plus.”

 Investors who have a ringside view of Meesho’s operations and financials echoed similar thoughts expressing concerns about the continuing high-burn at Meesho, which seems to think that increasing marketing spends is their answer to any kind of business challenge. “While that strategy was acceptable in 2021, the sentiment is turning against high-cash burning businesses in 2022,” said one of the investors mentioned above. 

Update: We have updated the story with Meesho's full comment.