Excerpts of the interview with Sandeep Aggarwal, Founder, and Chief Executive Officer of Droom
Interviewer – Being an eCommerce platform focused on selling used cars, how is Droom analysing the Indian car market? What are customer preferences regarding used cars?
India recently became the 4th largest automobile market in the world, yet only 5% of Indian households have a car and 25% of Indian households have a two-wheeler. So we have a long way to go if you compare us to the US, Western Europe, Japan, and other countries where personal mobility has achieved almost full penetration.
Now, coming to consumer preferences, in my view, if you can answer five questions, an Indian consumer can reward you with a big amount of sales. The first one is who is the seller, and can the customer trust the seller? In our case, even though even do not own the inventory, the buyer is dealing only with Droom, and he can trust Droom. Second, how do I know the exact condition of the automobile? Because this is not a brand-new automobile, it may be in good, bad, or even ugly condition. The third question is how does the customer know he is paying the right price? The product is not sold in MRP. There could be cars of the same model, with the same year and same running distance for different prices. The next big question is, are all the documents genuine? It is a used car, right? Do I have some kind of recourse or return or warranty?
In the last few years, there has been a rise in the middle-class population in India. The urban population in India has also increased along with the income and level of education. What this means is that the aspiration level of people has increased. Another big factor to look at is the average duration of owning a car. When I started Droom 8 years ago, it was nearly 6 years, but now Indian consumers tend to change their automobiles every 4 years on average. Then there is a growing desire of Indian automobile consumers to own an SUV to go for a family holiday or let us say pilgrimage. So these are some of the consumer habits which are vital in the Indian automobile market.
Interviewer – Inflation is rising exponentially in India. Will this phenomenon have any impact on the used car market in the country?
The Indian automobile sector has seen its share of ups and downs in the last 2 decades. A few years ago, the Indian automobile sector was very attractive and then electric vehicles made their entrance into the market. In 2018, we thought that within 2-3 years, customers would adopt vehicles in a large amount. But that did not happen. Even in the USA, the adoption rate was very low. This situation caused some problems such as price differential and all. Adoption of B6 variant cars for lesser fuel emission increased prices of new cars by nearly 5 lakh rupees. Apart from that, there was also a shortage of semiconductor chips.
Because of all these factors, there was a growth in demand for used cars and the introduction of the B6 variant resulted in a significant price difference between new cars and used cars.
And now coming to inflation, oil has become expensive due to various reasons in both international and domestic markets. But I don’t think the price has increased up to such a level that it would impact a consumer’s decision to buy a car or any kind of vehicle. Since we are currently coming out of a pandemic situation, personal mobility is preferred more than ride-sharing or public transport. There was an increase in demand for owning an automobile, and that demand has been affected in a small amount by inflation.
So I do not think inflation would have a huge impact on the used car market in India.
Interviewer – The central government announced a National Automobile Scrappage Policy in March last year. Will this have any impact on the used car market in India?
Talking about national scrappage policy there is two part to it, first one is how will you dispose of your car, which has now reached the end of economic life? In India, they have tried to answer this question by laying down the foundation in terms of how scrappage should happen. These terms align with the best global practices which are followed in advanced countries in the west.
The second part of the new policy is that earlier, if you buy a car, you get a 15-year registration by default. In the case of the Diesel cars in New Delhi, that was 10 years. But now with the new policy, a car user gets additional 5 years, which means that the depreciation happens for a longer period and the total cost of ownership comes down. This is good. And I am hoping the new policy would have more terms like this which would give full benefit of depreciation for the Indian consumers.
Interviewer – The used car market in India was valued at $32.14 billion in 2021. It is expected to touch $70.8 billion by 2030. What are the plans of Droom to capitalize on this growth, specifically on the agenda?
As we all know, Droom is into the business of buying, selling and renting different kinds of automobiles using an online platform. Having a complete online business structure also ensures there is no conflict of interest with other OEMs and dealerships.
Since we are into both used and new automobiles, the total addressable market (TAM) we have is pretty huge. According to our calculations, the current value of the entire automobile market in India is nearly 100 billion dollars. This value includes new and used cars.
Now if we add additional services such as insurance, loan repair, maintenance, extended warranty, roadside assistance etc, the value of such services could ago above 150 billion dollars. So if you look at the entire automobile sector in general concluding value-added services, the total addressable market as of the current quarter is nearly 250 billion dollars. This value could go up to 525 billion by 2027. In this TAM, only 2% are the e-commerce part of the business, and that will be roughly 35 billion dollars. Now Droom is handling 65% of that 35 billion dollars.
Now, Droom is primarily planning to dominate the e-commerce part of the automobile industry as a whole. This is after taking into consideration the fact that the internet penetration in India is going to increase considerably in the next 5-6 years. With an increase in internet penetration, the e-commerce part of the automobile market would also increase.
Droom is also planning to become a marketplace for electric vehicles. According to current forecasts, for every new 100 vehicles sold in the next 10 years, 60-70 vehicles would be electric and none of these companies wants physical dealerships due to the investment needed in infrastructure. So Droom would act like Amazon or Flipkart but handle automobiles instead of smartphones. OEMs based in other countries can easily sell their electric vehicles in India, like how they sell mobiles or TVs in India without any physical presence.
The next thing Droom can do is to monetise our online platform using loan and insurance services. And also there is a huge opportunity to monetise 98% of the automobile market which is not online as of now. We can make our specialities services such as Orange Book Value for pricing, inspection services, and historical record of the vehicles available to Indian consumers irrespective of whether they are using Droom or not.
So we are planning now to continue dominating the 65% of the market we have got in the online automobile sector but at the same time trying to come up with an online platform equivalent to AWS of Amazon which would help us capitalise on the Indian market as it grows 10 times in next few years.
Interviewer – So to be clear, the Droom is going to transform itself into a multifarious online platform which will use software, machine learning and such technologies and at the same time provide quality service to customers
Yes, from day one, we never saw ourselves as an automobile company which is using technology. We always saw ourselves as a technology company, as a data science company, as AI and ML company, which happens to be in automobile buying and selling. And as time passed, we started getting into the automobile ecosystem, which has a lot of ancillary services around it. So yes, absolutely that is our plan.
Since we follow a very strict startup culture, we will take it one by one. Even though I might have mentioned 5 or 6 goals in this conversation, Droom would be achieving them one by one and not all together.
Interviewer – As a marketplace of used cars in India, Does Droom have any collaboration/partnership with automobile manufacturers, if yes, how?
Yes, Droom does have collaborations and partnerships with OEMs in various ways.
One way to look at it is to see how the traditional buying and selling of automobiles happen in the country. OEMs develop and manufacture the car in bulk, and then a dealership sells it to the customer after checking the customer preferences. There is not much opportunity for the OEMs to sell their vehicle directly to the customer. But Droom can readily offer that service to manufacturers where they get a chance to make the sale directly to customers.
Secondly, the online platform of Droom gets nearly 200 million plus traffic every year. These are people who come to check out automobiles and make purchases or sales. Now, if an OEM wants to sell their vehicles directly to customers by making use of extremely targeted advertising, Droom is the perfect destination. Because we know both what the customer wants and at the same time what OEMs are looking for.
Now, the next type of partnership is when we provide our inspection and such additional services to both OEMs and customers. Let us take an example where a car company is going to buy your Swift Desire in exchange for Toyota Innova. Now let’s assume the swift desire is almost 4 years old running at 48000 kilometres. Droom can inspect your Swift and figure out the best value you’ll get for the vehicle from the car company. And at the same time, Droom can also offer inspection services to the car company and give them a green signal or thumbs down about going ahead with the transactions.
Now, the most exciting and wonderful service we can offer to OEMs is to launch their vehicles or any products on our platform. Think of a scenario where there is a launch of a vehicle, online, just like how there is a launch of the iPhone or Vivo or Redmi these days. It would be a completely new experience for both customers and OEMs, which would increase their chances of selling their cars. This offer can be utilised mostly by electricity vehicle OEMs since its adoption is still in its early stages.
Interviewer – There have been various reports in November 2021, then in April 2022, regarding the initial public offering of Droom. What is the current status of the IPO?
When we filed our IPO in the first half of November 2021 the capital markets were looking very hunky-dory. Even though many people would argue that stocks were having a meltdown in the past 6-7 months, for a person like me who is a founder of a private company, the market was pretty attractive at that time. And we cannot go wrong in our IPOs also because there is no room for error.
But then the market started becoming very choppy and very volatile. There was a meltdown in valuation in large-cap, mid-cap and even small-cap companies. Not only in Indian markets, but all around the world, capital markets were facing a huge meltdown. Now when we started IPO plans market was good but then later got bad.
So now we have planned to keep our head down towards capital markets and continue building the company, coming up with new products, reducing friction points, and increasing production efficiency and experience. There are a few things regarding products which we had planned to do later, but since new circumstance has emerged, we would be pursuing such plans a little sooner than expected.
Also, fortunately, we do not need any external capital from outside to survive or build the company. We are no longer dependent on eternal capital and that gives us an extra push in the market as our second-best competitor in the category has 25 times more monthly burn rate than us.
So when the time is right for us, well surely go for IPO.
Interviewer – When it comes to the car market, the population is a very important aspect. Apart from India, various south Asian and south-east Asian economies have huge potential for online car business. Similarly, opportunities are there in Western Europe as well as American content. What are the International aspirations of Droom in the coming few decades?
When I started Shop Clues in 2010, I had lived the majority of my life in the USA. Starting a company in India was no different from going to a foreign country and starting first time as an entrepreneur. But then after when I started Droom, I had one big Unicorn success and I planned to come up with a new-age multinational company based in India. A company similar to Google, Apple, or Microsoft.
As of now, we have a good amount of business in India which is expected to grow in high numbers in the coming future, and we have minuscule business activities in Singapore, Thailand, and Malaysia, which we are ready to take to the next level. We have a product called Orange Book Value which is available in 37 countries, 11 languages, and various currencies and has already made its mark in the international automobile market. We are also planning to expand into the Middle East in six countries like the UAE, Saudi Arabia, Lebanon, Turkey, and Oman.
But here is something very important, the Indian market is single handle bigger than all the other south Asian or south-east Asian markets combined. With the immense amount of possibilities and growth Indian automobile and service sectors related to it can achieve in the coming future, it would almost be like betraying ourselves if we focus on other markets instead of the Indian market.
So we are now going to be focussing on the growth, opportunities, and capabilities of the Indian automobile market and try to dominate and take advantage of the increasing internet penetration and the growing influence of the e-commerce revolution in the automobile sector.
And as we always say – ‘A bird in the hand is better than two in the bush’