DealCart: social commerce in Pakistan

This interview was conducted and edited by Timothy Motte. 

Biography:

Ammar Naveed is the co-founder and CEO of DealCart.

DealCart is a startup transforming how Pakistan’s middle-income households shop by offering high-quality, low-priced everyday essentials through an online platform designed for first-time internet users. DealCart is heavily influenced by the Chinese Pinduoduo model.

To date, DealCart has raised over $7M in funding and is one of the highest-rated shopping apps in Pakistan. Before DealCart, Ammar worked at Careem for over six years. Careem was acquired by Uber in 2020 for over $3B.

Why did you start DealCart?

When Haider, my co-founder, and I began discussing ideas for a company, we approached the conversation around three pillars:

1. Pursuing something that could create a meaningful, tangible impact on society.
2. Tackling a problem with a large addressable market, ensuring long-term scalability.
3. Building in a domain where we had the experience and skills to effectively execute.

In Pakistan, average households spend 30-50% of their income on groceries. In contrast, around 3-4% is spent on education and health. Pakistanis spend too much money buying basic necessities, due to rampant inflation and supply-chain inefficiencies that jack up prices. As a result, they aren't able to invest enough in their education and health. Saving them 10% on their grocery bills could help them double those key life investments. 

If we could offer a cheaper and more convenient grocery buying experience, we’d also have that large market we were searching for: 250m people and the corresponding growth in digital retail spending. We identified which parts of the supply-chain we could circumvent, guaranteeing lower prices. 

We considered another tailwind: Pakistan’s rapid digitalization. Pakistanis are increasingly using their smartphone, initially for social media, then for online purchasing. We are well-positioned, as the online buying behavior wave is cresting but e-commerce penetration remains low. Players such as Daraz (backed by Alibaba) exist but don’t have the best reputation for reliability. 

We saw a gap to build something better.

What did DealCart’s MVP look like?

We went to our local Metro (a supermarket chain) and bought a bunch of groceries. We then posted up in Haider’s basement and created WhatsApp groups, where we told people they could get these groceries for cheaper if they bought as a group. We then dispatched the groceries ourselves.

In parallel, we started building basic tech infrastructure to move off of WhatsApp. We raised VC money a couple of months into the experiment, off the back of promising traction.

What unfair advantages did Careem equip you with?

A mindset for scale. The concept of hyper-growth tech startups is still new in Pakistan. For many, the gold standard of business is a slow and steady one. Few people in Pakistan have operationally experienced a blitzscaling endeavor such as Careem. 

My Careem days taught me how to execute on that ambition and get comfortable with chaos. Inevitably, growing a company at an ungodly growth rate is bound to break some things. Not many are at ease with that state of mind. 

I also learned a lot about the price sensitivity in developing markets. For example, Pakistan/Egypt aren't the UAE/KSA, where higher purchasing power meant higher margins, allowing for a splurge on OPEX. Successfully operating in these countries implied frugality, thinning your cost structure enough to offer competitive prices without digging the company into a financial hole.

Most importantly, I witnessed the importance of having a vision that creates impact at scale. A clear vision motivates you and your team to push harder through challenges by reminding you of the greater purpose behind your efforts. 

When I read customer reviews sharing how saving 5-10% on their grocery bills made a difference in their lives, that sense of purpose is reaffirmed. 

How is DealCart different from Pakistan’s other e-commerce players, such as Daraz which you mentioned?

We’re philosophically different. At the core, we see ourselves as enabling people to save on their daily essentials to invest in a better future. 

At an operational level, Daraz is a marketplace, while DealCart is a retail play. We own the customer experience, because we buy our own inventory in bulk, store it in our warehouses and dispatch it ourselves. A common complaint about Daraz is their poor customer experience, which we wanted to challenge, by managing the end-to-end experience. 

Additionally, Daraz is focused on higher ticket items such as electronics and fashion, while we’ve carved our niche in groceries and everyday necessities. 

Internal DealCart slide

You say DealCart offers lower prices. What levers do you pull to make that happen?

Three main things.

First, we work heavily with local suppliers. Unlike FMCG giants,  these local players haven’t spent a lot on branding and distribution, which DealCart helps with. By offering our distribution muscle, we can negotiate better rates, a value shave we pass onto customers. 

Second, we work from a single warehouse in Karachi and offer next-day delivery. This is different from the quick-commerce model, which promises 20-30 minute delivery but requires expensive infrastructure (ie: multiple physical dark stores). Since we deliver the next day, our model allows us to stack multiple orders, fill the delivery vans leaving in the morning to the brim, optimizing delivery costs. Another value shave we pass onto the customer. 

Lastly, we offer group buying within the app. Ordering in bulk renders a cheaper per unit price. We’ve enabled our users to join “groups” for specific items and order together via the DealCart app, resulting in lower prices once again. 

You don’t have dark stores, but you ran an experiment with physical DealCart kiosks. Why?

For around 60% of our customers, DealCart is their first e-commerce experience. These customers see our ads but don’t have any “physical” space to refer to, which is contrary to the way they habitually shop. For new e-commerce customers, it’s scary to order online from a company you’ve never physically encountered. It feels phony. 

We thus set up some DealCart kiosks at certain strategic locations to consolidate our legitimacy for that set of customers. The result of that experiment is that while it helps, changing customer behaviors takes time and effort. The transition to online shopping will happen but it won’t be instantaneous. 

We’re also tackling this trust issue in the online world. We have a DealCart Facebook group where users can leave product reviews, ask questions… The goal is to build social proof that we are a legit company selling legit products. Both physical presence and social proof help customers change their habits from offline to online shopping.

You also sell fresh fruits and vegetables, a cornerstone of Pinduoduo’s (PDD) success in China. How do you handle those logistics?

Evidently, we can’t reason the same for fresh fruits than for commodities such as rice. We can order rice in bulk and store it in our warehouse until it is ordered but we can’t do that for fruits. 

For fresh produce, we take all orders on the app until midnight. Orders are then sent to the sellers we work with, who usually open at 4am. By 6am, sellers deliver the products to our warehouse, which we then ship out with our morning delivery batch. This helps us deliver fresh products and reduce waste. 

Did you internalize your delivery infrastructure?

No, we work with independent contractors, on a similar model to Uber/Careem. 

PDD used the “float” (the delta between when the customer paid them and when they paid the supplier) to invest that money in growth. Are you doing the same thing?

We’re buying our products directly from the supplier, so we’re actually paying the supplier before we pay ourselves. That creates the inverse problem: we have a working capital hole between the time we pay the supplier and the time customers buy that inventory. 

To assuage that gap, we’re working on convincing suppliers to let us buy on credit. That’s been a tough ordeal. DealCart launched at the same time Airlift (a Pakistani quick-commerce company) spectacularly failed. That cooled down many suppliers’ willingness to grant us credit. 

It’s taken two years of assiduous relationship building, but we’re finally getting to the stage where we’ve even almost reached a negative cash-collection-cycle (getting paid by customers before we pay suppliers).

What else have you done differently than PDD to localize for Pakistan?

In China, the consumer market was already comfortable with e-commerce. That isn’t the case in Pakistan. 

We have a heavy user evangelization effort to do, especially on the group buying concept, which isn’t intuitive for people who’ve never used e-commerce before. For example, we’ve added an individual buying stream for users to get comfortable with buying online and then eventually move to group-buying.

What payment rails do you use?

Up until two months ago, all payments were made via cash-on-delivery (COD). That’s a logistical nightmare, on top of being expensive. Drivers need to drop off the cash, we need to manually reconcile it, keep our cut, etc… 

Now, we’re pushing our customers to pay digitally. We’ve integrated with JazzCash, a Pakistani digital payments provider and are now accepting credit/debit card payments well. Our next major challenges are in the fintech space: we want to equip users with a wallet, a savings account, help them with bill payments and mobile top-ups, explore how we could digitally equip local ROSCAs (community-led credit unions)...

You’ve added several gamification components to the app. Tell us more.

We’ve integrated simple and interactive games to the DealCart app, such as an online cricket game. These games serve two main purposes.

First, they are a great advertising channel for the suppliers with whom we work. Pepsi sponsored our cricket game during the Cricket World Cup, for example.

Second, they are a great nudge for customers to buy. Brands sponsoring these games will often run special promotions for players. For example, you get X% off this particular product if you reach a certain score. Customers playing these games are twice as likely to buy than customers that don’t play.

Do you have any ethical qualms about these games encouraging consumption?

Not really, because most of the products we offer are basic necessities. It’s not like we’re nudging customers to buy an Apple Watch on credit. We’re nudging them to buy onions, which they’ll get for cheaper if a brand sponsors the game and which they’ll need at some point anyway. Our core value proposition remains building an app where people can save money. 

What are some other efficient growth tactics you’ve used?

Our share and earn feature is powerful. If there’s a group deal for example, you can invite friends and family to join said group. If they join and buy, you get coins which you can use to redeem discounts. 

So DealCart makes money via its margins on the products it sells, as well as advertising?

Yes. 6 months after launch, we were already generating ad revenue. As the traffic grows on the platform, we see this as a separate business altogether. 

DealCart is unit profitable, meaning that minus administrative costs, you make money on each order. What parameters can you play with to attain that unit profitability?

My co-founder and I started our careers when VC money was freely available and sensible unit economics were somewhat of an afterthought. With DealCart, we wanted to build an economically sustainable venture, which implied rapidly getting to unit profitability. 

This isn’t simply a matter of personal preference. VC funding markets have tightened, reducing capital availability. The situation is even tighter in Pakistan, where our macros (inflation, political instability) dissuade most foreign VCs from taking the plunge. 

Back to your question. 

One first has to optimize their operational costs. That’s why we opted for the single warehouse model instead of the quick commerce, dark stores one. Our development team has a heavy back-end focus, automating our internal processes. For example, we’ve built a system that automatically dispatches orders to relevant drivers based on the most efficient routes, minimizing “dead” time between deliveries. Another system helps us optimize our picking and packing tasks. 

Then, you need to increase the average order value (AOV). In other words: how can you offer more services to existing customers and increase their lifetime value (LTV)? To do so, we’ve expanded into different categories like breakfast, meat and electronics. Our fintech plays should help our case there as well. We implemented ad revenue early on, which also improves our unit economics, and we see this grow as traffic on DealCart’s platform increases.

Lastly, retail is a volume game. As we grow and our order volume increases, we’ll be able to negotiate even better rates with suppliers. That has a positive impact on unit margins.  

You mentioned inflation. Currency depreciation is another Pakistani problem. If you make money in local currency, how do you protect your bank account from melting in value?

We did see the currency depreciate between 2022-23, however over the last 20 months, it has been stable. In any case, our revenue is growing faster than our currency is depreciating. So far, we’ve managed to keep that problem at bay. 

Second, most of the products consumed in Pakistan include some imported elements. In that case, the supplier has already accounted for depreciation and repriced their product accordingly. We don’t have to handle those calculations. 

What’s been your biggest strategic mistake?

 The following arguably isn’t a mistake, but we didn’t expect the international money markets situation to get so bad. 

A business like ours requires significant funding to get to a scale where we become self-sustainable and also create a large impact on the society. As the VCs receded from frontier markets, fundraising was significantly more challenging than we anticipated after our 1st round. 

If we had known, maybe we would’ve built a less investment-intensive model. However, given how big this opportunity is and its impact, this is something that we are excited to continue doing and are bullish on.

Internal DealCart slide

What’s a structural risk to DealCart’s business?

In Pakistan, shopping is a social activity. We’re betting on the fact that more and more consumers will prefer to shop online, saving time and money. In essence, we’re betting on a profound, societal behavior change. We’ve seen that change in almost every foreign market, as e-commerce penetration grows. We’re expecting Pakistan to follow the same pattern. 

What’s your heaviest challenge?

Again, retail is a business of volume. More volume means we can buy products at better rates and improve our margins, but reaching that volume requires expanding to other cities (outside the current city in which we operate), and that requires additional capital. 

That VC money will likely come from abroad since Pakistani VCs lack sufficient firepower. Unfortunately for us, Pakistan isn’t the sexiest of markets at the moment, making that foreign VC funding tough to obtain. 

As a result, we’re focused on sustainable-stable growth rather than going for a “land-grab”, which at a large scale will unlock even better margins. 

Having said that, Pakistan remains a woefully untapped market when it comes to digital businesses. With digital penetration increasing, we expect VC money to grab opportunities in the near future. 

What do foreign investors misunderstand about the Pakistani ecosystem?

Many stop at the headlines. They read “inflation / political instability” and mentally write off the entire market. 

I wish VCs dug a bit deeper. VCs such as Sturgeon Capital, Shorooq Partners and 500 Global have done their homework and understand that Pakistan is a rapidly digitizing market of over 250 million people in need of various digital services.  

Pakistan gets a bad rap compared to other emerging markets. Our macros are way better than Egypt’s, for example. Our currency has actually been appreciating for the past year.

Also, nascent startup ecosystems generally take seven to eight years of sustained VC investment to reach their first tangible exits and get the flywheel going. Pakistan got unlucky because the global VC crash came in the dead middle of that momentum. 

But it doesn’t mean the very thesis that attracted VCs to the market in 2021 has disappeared. It's a matter of when and not whether foreign VCs will be attracted back to the market in the near future.

What does the Pakistani ecosystem need to grow?

It needs local capital. Traditional business owners need to start investing in this space. If you look at other markets such as India and the Middle East, you see a lot of local businessmen investing in startups. In Pakistan that hasn't been the case yet (at least at a scale that is required for the ecosystem to take off).

One of the key areas where both the government and private sector are making progress is in promoting digital payments. Pakistan's digital payment ecosystem has grown significantly, with transactions surging by 35% in FY24. 

That said, we face infrastructure challenges similar to other developing countries. Events like internet outages not only disrupt operations but also negatively impact country branding and customer trust. The government is working on multiple initiatives, including adding additional bandwidth to improve internet speeds in the country. 

It seems almost inevitable for a country with a population of 250 million to become increasingly digitized and produce large-scale, consumer-tech businesses. As e-commerce penetration grows rapidly, the ecosystem presents significant opportunities for entrepreneurs and investors alike. It remains one of the largest untapped consumer markets, waiting to be disrupted.  

The Realistic Optimist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice.