This Diwali, quite a few e-tailers sprang to offer discounts of 20-30 per cent on the maximum retail price, but profitability seemed to be weighed down by fundamentals such as warehousing, and procurement price.

Varsha Ramanathan (name changed), who runs Chennai’s high streets, thought she would give it a shot. Three hours on designing the website, four employees for putting up posters of onlinepattasu.com and buying crackers from retail outlets, and she was ready to take calls and deliver crackers.

Her business model was to pay an upfront cost of Rs 35,000 to a manufacturer, and buy goods for cheaper rates.

She despatched personnel to the cracker-maker’s retail outlet in the city whenever her website received orders. She did not insist on a minimum order.

There were enquiries for items worth as little as Rs 200 – but deliver she did. There was ample demand but not enough staff, and only 30 orders were serviced. Hours before the crack of Diwali, she realised she had made losses and was left with quite a stash of rockets. Considering the costs of labour and printing posters, input costs surpassed revenue of about Rs 30,000.

The online marketplace for crackers is peppered with such stories but N. Alok of Festivezone, an online venture that began in January offering festival-related goods at discounts, is confident of success. “I know cracker sales are not an annual feature. After Diwali, I will take crackers off the website and design offers for the next festival.”

Being a wholesaler sourcing in bulk from leading manufacturers in Tamil Nadu such as Standard and Anil, the company turns a profit by procuring at much lower costs compared to other e-tailers. It caters to orders of a minimum of Rs 3,000, originating from Chennai, Salem, Coimbatore and Erode.

It follows a hub-and-spoke model of delivery – a central warehouse distributes goods to smaller units located in the suburbs of the cities.

Each warehouse, for which the company has to obtain a licence from the Government, can stock 15,000 kg of crackers, worth about Rs 3-4 lakh.

The online cracker market is becoming competitive. The need to offer steep discounts, sometimes at 50 per cent of the MRP, makes supply chain and labour costs critical.

The company will not talk about its revenue this Diwali, but it saw about 4,092 enquires on Thursday, the closing day, which reflects high unmet demand.

Risky affair

Ankur Bisen, Vice-President, Retail and Consumer Products, Technopak, a market research company, says the business of selling crackers online is highly seasonal and a risky affair. “Online or otherwise, the fundamentals of procurement price, labour and delivery efficiency are paramount. Since, it’s a high margin market, many are attracted to it.” Regulations on warehousing, and the waning practice of bursting crackers could also dampen entrepreneurs.

> bharani.v@thehindu.co.in

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