Ankur Warikoo working on a new script for Nearbuy

An old lady runs through the narrow corridors of a slum, chasing two thieves, who had apparently robbed her bag. Twenty seconds into the chase, the old lady grabs them and hits them on to the ground. The video ends with a message - "Karate classes for just Rs 149."

This was the advertisement of Groupon India, the Indian subsidiary of US-based ecommerce marketplace Groupon Inc, in 2013.

In a video advertisement released last year by the company, a man is seen impatiently surfing TV channels and a voice-over in the background asks if he was wondering what to do or where to go out to eat. And then pops up a mobile phone on the screen asking him to download an app called Nearbuy that helps in discovering the best things to do, eat or buy, in the vicinity.

The short video message was an introduction to Nearbuy, the rebranded Groupon India.

The two advertisements pretty much sum up the transformation of Nearbuy since its earlier avatar as Groupon India. Change in identity to tweaking offerings, Nearbuy has been through several processes of transformation since 2011. From a discounting platform for products and services, Nearbuy has pivoted to offering local deals on services and its chief executive Ankur Warikoo is confident that the company has finally found the direction it wants to move in.

The beginning of it

Groupon entered India in January 2011 when it bought SoSasta.com, owned by Friday Media Pvt Ltd. SoSasta.com was renamed as Groupon, but the name had to be taken down because of a law suit filed by someone who already owned the title Groupon in India. It was hence rebranded as Crazeal (short for Crazy Deal). In 2013, Groupon, however, won the case and SoSasta.com was finally rebranded as Groupon.co.in or Groupon India.

But it was not to be for long.

In August 2015, in a major move, venture capital firm Sequoia Capital invested Rs 100 crore into Groupon India for a significant minority stake. Groupon India broke away from its $3 billion parent and was renamed Nearbuy even as Groupon remained the largest minority shareholder in the entity.

Frequent changes in identity, however, didn't help company's fortunes as it continued making losses. Its net loss for financial year 2014-15 was Rs 54 lakh against Rs 18 crore in 2013-14, according to VCCEdge, the data research platform of VCCircle. These are the latest numbers available for the company. Nearbuy's losses had hit a high of Rs 38 crore in 2012-13. Revenue, however, grew impressively in the period in question as net sales went up to Rs 132.4 crore in 2014-15 against Rs 84 crore in 2013-14, reflecting a 58% growth.

Tech focus

Warikoo, who has been at the helm since 2011, is now pushing the technology front harder than ever before to garner more sales. An Indian School of Business graduate and a former Rocket Internet executive, Warikoo believes only technological change can save the deals industry, moving forward.

"The Groupon way of deals and discounts won't take us to the next level. There we were reselling what already existed. We have to create a new way of selling."

The context for this change is that in the offline world, the biggest challenge for services operators, such as restaurants, spas, salons and movie halls, is capacity utilisation. In other words, they have only very little control over how much demand comes in at a point in time.

According to industry estimates, the average occupancy of restaurants in the country is about 27%, in multiplex chains, it's about 40% and average occupancy of spas and salons is 25%.

Nearbuy has developed a patented technology that allows merchants to measure what is the real-time demand in terms of customers. "In other words, we are telling merchants on a mobile app how many customers are nearby. That is real-time data," says Warikoo.

Here is how it works: Merchants have an app called Nearbuy Business. Once someone has signed up with Nearbuy as a merchant, he or she will get this app for free and it will show you how many Nearbuy customers are near by at a given point in time.

"Let's assume that you own a restaurant. You see that there are 300 customers around you. The simple question that we ask is how many customers you want right now. Let's say your answer is seven, because you have seven free seats. The minute you answer seven, our patented algorithm will scan the 300 customers around and determine a price at which you must be selling to get seven customers," he said. Once the price has been decided upon by the merchant, push notifications go to the suitable Nearbuy customers.

The app, Warikoo claims, knows how these customers behave and what they have browsed in the past. It also knows what they are searching for right now, which merchant they have gone to and which they have abandoned. There are 3 million customers using Nearbuy app, according to Warikoo.

The response to the new tech interventions has been extremely good, says Warikoo. "This is absolutely free of cost. We only charge when we sell." The realisation that Warikoo had was that the challenge in the industry was not deals and discounts, which was the Groupon model. The challenge was discovering the price at which to sell their unutilized capacity.

"The Groupon way of deals and discounts won't take us to the next level. There we were reselling what already existed. We have to create a new way of selling," says Warikoo.

Path to profitability

Taking a break from the deals and discounts models and bringing the focus on unit economics has given Nearbuy a much-needed boost "We make very healthy margins and we are still growing the business. While we are making losses on a monthly basis, those are due to the investments made for the future," says Warikoo.

The company is about to accomplish 3 million downloads of the app. Almost 60% of the business comes through the app now, which is up from 32%, six months back. Nearbuy has nearly doubled its mobile business share and is generating almost half a million walk-ins a month. Almost 66% of the business is repeat customers and the average transaction value is Rs 1000, the company claims.

As Groupon, the company had presence in six cities. Now, it is present in 33 cities with almost 48000 merchants on board.

As per a Forrester report released last year, the coupon sector is likely to have grown at a compound annual growth rate of 57% between 2012 and 2016. With more and more coupon websites and e-retail firms focusing on taking advantage of the mobile penetration, online shopping is not only more affordable but also a lot more convenient, the report had mentioned.

According to Forrester, the coupon business in India is around 13.5% of the total e-commerce audience in India, growing at the rate of 62.9% with 7.6 million unique users a month.

Clearly the potential is huge. But are coupon sites taking advantage of it?

Sanchit Vir Gogia, chief analyst at Greyhound Research, says, "Growth in the coupon market has plateaued. Facebook and Google are getting very aggressive across the country. These are players that have exclusive footprint all over the country to. Coupon players will be competing with these behemoths."

He adds that coupon players will have to devise a clear strategy for growth in such a competitive market.

Keeping it sharp

On its part, Nearbuy is working on all fronts to consolidate its business and move forward with a clear strategy. For instance, it has closed down its food delivery and product businesses in the course of the transformation from Groupon to Nearbuy. It also, pruned its workforce by 10% though Warikoo clarifies some of it was part of the regular appraisal process.

"We realised that the economics of food delivery business is not viable. So we decided not to pursue that opportunity and let go of the people who were working on that," said Warikoo.

Having rediscovered itself, the company is now working on expansion. In September, it raised venture debt of Rs 15 crore (about $2.25 million) from non-banking financial company BlackSoil Capital Pvt. Ltd. "Venture debt is a smart way of generating capital because you are not giving away equity, but you are only giving a small rate of interest. The rate of the equity will always increase faster than the rate of interest," says Warikoo.

The company is now working on the next target of expanding its foot-print. "In the current financial year, we are growing our business two and a half times. While keeping our losses constant, we are continuously investing in building the market," says Warikoo.

He isn't averse to raising fresh funds if "building the market" requires that. "We are never going to say no to good money. At the same time, we are not desperate for money. So if the right partner comes with the right terms, we are open to it."

---