1. NYENRODE BUSINESS CONSULTANCY
PEPPERFRY
NYENRODE BUSINESS CONSULTANCY
Bart van Campenhout
Jassu Hermans
Asiya Suleimanova
Julie Wijmans

2. mandate
Warm welcome to the board of Pepperfry! We are Nyenrode Business Consultancy, presenting to you today the Pepperfry strategy for the next 5 years.

3. Key takeaways
90% of furniture industry in India is unorganized, highly fragmented and non-branded
Logistical problems in India
High involvement of Pepperfry throughout entire supply chain  Low dependability
Pepperfry created a marketplace by mobilizing small artisans (SME furniture makers)
75% of customers come from organic or unpaid traffic sources
Furniture industry is expected to grow from $25 to $35 billion in the next 5 years

4. KEY QUESTION
HOW CAN PEPPERFRY SCALE UP AND BECOME PROFITABLE IN THE NEXT 5 YEARS?

5. Critical challenges Not enough economics of scale to become profitable
Current business model is not scalable
Highly challenging furniture market in India
Too many value propositions, no clear focus on offerings
Packaging difficulties
Costly delivery
Fierce competition from international players like Ikea

6. Recap recommendation
Short term plan: strategic focus to house brand products. Reduce number of listings of decor. Use current merchants as a physical B&M network to sell our products.
Long term: implement a subscription cradle-to-cradle business model to leverage the rental furniture market trend amongst year olds.

7. SWOT S W O T First mover advantage and current market leader
Content creation for furniture is not scalable
Rise of rental furniture trend
Viral marketing could sell out small artisans directly
Managed to build repeating engagement with customers
Value proposition has no focus (B&M stores, different furniture types)
E-commerce marketplace is established as a reliable channel in India
Ikea will sell standardized furniture (as well)
Highly optimized supply chain and high involvement
No clear competition strategy
Customer focus start to shift to online
Logistical difficulties in India
Established relationships with over 1400 partners
Not yet profitable
Indian furniture market is forcasted to grow from $25 BN to $35 BN
Customers are used to WOM referral in furniture markets
75% organic traffic to website
Subscription model could take off in India
5.5 million registered users

8. Customer analysis Market challenges Market analysis Unorganized
Highly fragmented
Largely non-branded
Logistical problems in India
Customer analysis
Indian internet user base of million
shopped online
Furniture shoppers prefer WOM

9. ANALYSIS
Supply chain is relatively optimized, e.g., costs were initially 20-25% of goods sold.
Though, Pepperfry is still not profitable.
Conclusion: challenge is in the amount of sales, not in SC inefficiencies.
Need for upscaling.

10. Alternatives – options for upscaling1 2 3
Focusing on home brand category
Partner up with incoming entrants
Focusing on new additional target group

11. 1 Focusing on home brand category
Strategic focus to house brand products. Reduce number of listings. Use current merchants as a physical B&M network to sell our products. Add subscription model in long-term strategy.
Create economies of scale
Scalable
Reduces number of listings (and complexity)
Use current merchants network
Brings 50% of GMV
Logistic challenge
Invest in creating new home brands
Increase dependability of merchants

12. 2 Partner up with incoming entrants
Use existing supply chains to partner with incoming entrants
Capitalize on their merchandise value
Potential growth
No empty trucks
Use of current distribution model
Increasing dependability
Shift from core focus

13. 3 FOCUS ON NEW ADDITIONAL TARGET GROUP
Sell products to new market
Potential growth
No need for new SC channels
Use of current DC’s
More marketing costs
Other target groups less used to using internet to purchase furniture

14. Decision metrics Scalability GMV SC efficiency
Fits Pepperfry DNA (low dependability)
Strategic risk

15. DECISION MATRIX HOME BRANDS PARTNERSHIPS NEW TARGET GROUP Scalability
GMV
SC efficiency
Fits Pepperfry DNA (low dependability)
Strategic risk

16. recommendation
Focus on implementing home brands by adding 10 additional home brands in the upcoming 5 years

17. Home brands As of now, home brand category brings 50% of GMV
Enhance value proposition by including 10 additional home brands

18. implementation
Pepperfry needs to become the online and offline furniture platform by leveraging their local network of merchants and adding a subscription model to their BM

19. Using the merchant network
Having own stores not scalable and costly
A Indian consumer is not used to travel further than 10 kilometers to a furniture shop
Indian consumer expects assembly services
Solution:
Leverage the local network of merchant to push the home products into the Indian market.
The merchants will be used as service points to offer the Indian consumer the service that they are used to
Use data to optimize local inventory (product views on website, customer visits and interests in stores)

20. Status quo analysis

21. Category:
Utilities
Decor
Furniture
# of listings
n/a
70, 000
10, 000
supplier base
Standard manufacturers
Semi-standard
Non-standard
Avg. selling price
INR 1,500
INR 2,500
INR 18,000
% of revenue
20%
80%
% of transactions
5%-25%
30%-50%
45%-55%
Decrease the # of Décor listings by 50% to curated listings
Enhance furniture segment by 10 additional home brands in 5 years
100% of revenue comes from Décor and Furniture category
Furniture is a leading category bringing 80% of profit
However it is difficult to scale as it is non-standard

22. Target audience: Case hypotheses
Growing middle class
480 mln Internet users in India
25-30 mln modern, tech-savvy, mobile young professionals residing in booming metros
This segment desires self-expression and is highly conscious of their home décor
5.5 mln registered customers
55-60% of all transactions are lead by repeat customers

23. Home brand rental Service
Furniture rental market is estimated at $3 billion
Potential for subscription
Pepperfry audience is 30 and above years old
Rental is estimated at year old > great potential for building relationships early

24. Target audience & persona
Aviral Gupta
29 years old
Got a job as an IT specialist in an international company head quartered in Mombai
Moving out from his home village to kick start his career
Found a good apartment for a good price
Apartment is spacious but unfurnished
Avi dreams of moving to Boston in the coming 5 years
Challenge
Avi needs furniture to settle down in his new apartment, but he does not have a budget to buy expensive furniture
Avi needs the basics: a bed, sofa to host his friends, table to work on his codes and a good lamp to help him go through dark nights
Solution
Rent home brand furniture for a year or more!

25. Financials Cost division assumptions m INR 2017 2018 2019 2020 2021
2022
Sales marketing
1000
Supplying
1500
1790
1823
1853
1878
1894
Content marketing costs
500
469
410
333
250
172
production costs
1806
2193
2661
3225
3905
4724
total
4806
5452
5893
6411
7033
7790
revenues projection total
m INR
2017
2018
2019
2020
2021
2022
total
2580
3225
4031
5039
6299
7874
subscription
161
403
756
1260
1968
sales
3064
3628
4283
5905
Bottom line
-2226
-2227
-1862
-1372
-734 84

26. risks What to do with furniture when it’s depreciated (>5y)?
What to do with furniture that is swapping owners (pressure on logistics)?
Would merchants sell our products?
Where can we store furniture for rental?

27. Tackling risks Cradle-to-cradle strategy
Transition to next owner by means of contracts
Current renter gets discount on next contract if transfers contract to new house owner
If customers want to
Storage: you have to storage furniture always

28. Sell them through both traditional and subscription models
conclusion
Focus on house brands
Sell them through both traditional and subscription models
Because they are easily saleable and more profitable in terms of supply chain efficiency and gross margins
How can Pepperfry scale up and become more profitable in the next 5 years?

29. Financial appendices ratio movements % revenues 2017 2018 2019 2020
2021
2022
Supply chain costs
10%
9.00%
8.00%
7.00%
6.00%
5.00%
Gross margin
30%
32%
34%
36%
38%
40%
Subscription sales 0% 5%
15%
20%
25%
Listing runs
2017
2018
2019
2020
2021
2022
Décor
70000
63000
56000
49000
42000
35000
House brands
10000
12000
14000
16000
18000
20000
Total
80000
75000
65000
60000
55000
2017
2018
2019
2020
2021
2022
subscription sales projection (plans sold)
4500
9000
13500
18000
22500
subscription revenues (m INR)
161
403
756
1260
1968
subscription refurbishment costs (m INR)