MagicPin holds the fort for hyperlocal space; ONDC next frontier

MagicPin is championing the ONDC space like no other. The Gurugram-based startup has emerged as the biggest seller on the UPI-equivalent for e-commerce with over 30,000 orders a day. And most likely this number will continue to shoot up as the ecommerce network adoption grows.

The ONDC, however, brings a very small portion of the business to MagicPin at the moment. Even though the vertical holds immense potential, considering that the e-commerce network is relatively a recent phenomenon, it’s understandable when co-founder and CEO Anshoo Sharma says, “The MagicPin story is independent of the ONDC… it’s big.”

So, what is the MagicPin story?

MagicPin kickstarted its journey in late 2015 with Sharma and Brij Bhushan as founders, who wanted to tap into India’s large yet fragmented hyperlocal retail sector. 

Founders also wanted to refrain from building a model that did not want to depend on deep discounting. Before MagicPin, there were a couple of waves of internet companies that relied on such a model but did not stand the test of time: think Groupon, Little, and Nearbuy. Companies such as Snapdeal, that started with hyperlocal in the early days, eventually pivoted to a different business model to sustain themselves. 

At the time, a lot of hyperlocal labels/stores/merchants wanted to go online as fast and affordable internet proliferated. But there were a few roadblocks — the know-how to go online, resources to effectively tap into the space, and most importantly very little or no parity between sale and annual/monthly subscription fees of such platforms.  

Sharma and the team tried to address this by coming up with a new approach: pay per conversion. As it implies, MagicPin charged a commission only when the user completed a transaction. This allowed merchants to go online and stick around until discovered by transacting customers.

Meanwhile, the consumer front was instantly popular: click a selfie with the bill where you have ordered food, get reward coins, use coins to purchase other things at partner stores. 

“I remember it was talk of the town then… people were like hey, I am sending these pictures and for this, I’m getting paid… it kept running,” Sharma told Entrackr. 

The initial hype helped MagicPin leverage a lot of data, which comprised points like what was the average order value, frequency of orders, and so on. 

Sharma further simplifies this by saying MagicPin is first a “data-tech company” that is solving transactions in offline retail. 

Course Correction I

Even as MagicPin had tasted success with the ‘pay-per-conversion’ model, the company still had a few problems to deal with. One of the biggest challenges was collecting money from merchants. In the initial phase, MagicPin shared the receipts with the retailers as evidence that the company helped give business. However, it was difficult to collect money from the merchants, Sharma recalled. 

This prompted MagicPin to make a big tweak in its model: invest in building a wide acceptance of its points and make customers pay through the mobile app. It’s pretty much like how Uber or other relatively new internet firms operate – bring money from the customers to the platform and then relay it to the merchant after deducting a commission. This course correction worked for MagicPin. 

By 2016-end, MagicPin had built Delhi as its core market. In another few months, the company expanded into more cities while continuing to be a “density-based business.” It entered cities such as Bengaluru, Mumbai, Hyderabad, and Pune.

Course correction II

Even as the business model had worked for MagicPin, Sharma asserted that the company was bleeding. So far, the startup allowed customers to use all points, which meant the company incurred more cost. 

Sharma describes 2018 as the year of “defining moment,” when MagicPin made another course correction:– barring using all points at one place in one go and instead allowing users only to spend a limited number of points. The quantum of points to be spent varied from store to store. 

Sharma explained the rationale behind the tweak. “It happened because we started adding newer categories. So, we not just added cities, we added multiple categories too. The move was aimed at generating transactions across categories.”

This radical change disrupted how customers engaged with MagicPin. 

“For a couple of months, everything just stood still,” he said.

However, this phase was short-lived as both consumers and merchants eventually embraced the change. It was during this time that merchants began to feel more at ease with online payments, largely due to the aftermath of demonetization.

Sharma disclosed that 2019 saw a massive surge in adoption, while in March 2020 the company recorded its best month ever. 

Course correction III: The pandemic

India imposed one of the harshest movement restrictions in late March 2020 to contain the spread of the Covid-19 pandemic. This brought the entire country to a standstill. MagicPin was no exception. 

So far, MagicPin relied upon people going out and paying merchants. Naturally, it was not possible due to the lockdown. 

“Merchants wanted to do business, but they were not getting customers. Customers wanted to access businesses, but they could not step out,” Sharma said. 

With no business prospects at the moment and capital running out, Samsung Ventures and existing investors gave MagicPin an olive branch by pumping in $7 million in the hyperlocal discovery and rewards platform. 

For survival, MagicPin launched home delivery of products from their network of stores.

Home delivery covered categories such as groceries, food, pharmacy, and so on. The improvisation helped MagicPin survive the pandemic years, including 2021. It also greatly benefited from the revenge shopping trend as the pandemic started to recede.

“The entire year of 2022 was a massive comeback,” Sharma said.

MagicPin financials

After facing depletion in scale during FY21, offline discovery, and reward platform Magicpin hacked over 59% growth in the following fiscal year. However, the company bled heavily and its losses soared over threefold during the same period.

Magicpin’s revenue from operations grew 59.6% to Rs 233 crore during the fiscal year ending March 2022 as opposed to Rs 146 crore in FY21, according to the company filings. 

Though the scale of Magicpin grew around 60%, a two-fold jump in expenses left its bottom line bleeding. The company’s losses deepened 3.3X to Rs 145 crore during FY22 against Rs 43.7 crore in FY21. Moreover, its outstanding losses registered at Rs 395 crore.

Heading towards ratios, the EBITDA margin depressed to -60.17% which could be attributed to a multifold jump in customer acquisition costs during FY22. On a unit level, Magicpin spent Rs 1.65 to earn a rupee of operating income during the same period.

While the company did not disclose its FY23 numbers, Sharma said that Magicpin has grown about 3X as compared to FY22. 

As mentioned above, Magicpin posted Rs 233 crore in operational income in FY22 and losses worth Rs 145 crore. If we do math, it looks like the company’s revenue stood at around Rs 700 crore in the last fiscal year - fiscal year ending March 2023.

“Our losses are down by 60% in FY23 YoY,” Sharma disclosed. 

He, however, declined to further share any details. But considering the company’s bottomline in FY22, the company’s losses in the last fiscal hovers around Rs 80 crore.

Cracking the hyperlocal market

Building a hyperlocal business in India has proven to be a tough nut to crack. 

Even companies like Reliance-backed Dunzo have struggled to perform. In April, Dunzo laid off 30% of its workforce. Dunzo’s revenue from operations grew over 2X to Rs 54.3 crore in FY22. Its losses, however, spiked 2X and crossed the Rs 460 crore mark. 

Dunzo’s annual expenditure and losses closely tracked revenue growth to bloat 2X to Rs 532 crore and Rs 464 crore respectively in FY22.

MagicPin, however, has gone through different phases of the internet economy evolution, and consistently changed to adapt. Its strategy is to continue to tap the density-based markets instead of quickly expanding to a larger number of cities and ending up spreading too thin. 

Even as MagicPin has 6 million monthly active users, what probably works in MagicPin’s way is that the user base is more engaging and actively transacting.

And then there is the new frontier of ONDC, which has opened a new window of opportunities for firms like MagicPin. The company has already taken the lead, but these are nascent days for the technology, and more players' entry may further heat up the competition. 

Sharma is bullish on the prospects of the ONDC with a hint of skepticism. He did not give concrete projections for the volume growth but expected to get past the 100,000 orders threshold in near future. He also cautioned about the challenges ahead in this regard, wondering how the ecosystem will evolve once the incentives (read discounts) taper down, alongside challenges of maintaining high quality of customer service.