These former investment bankers are changing grocery shopping in Singapore
January 14, 2012 by Terence LEE
The next time you read in the papers about how supermarkets in Singapore are evolving and migrating online, remember that two former investment bankers could very well have played a major role in shaping the landscape.
No, no one’s buying over NTUC Fairprice or Cold Storage.
Meet Roger Egan III and Vikram Rupani, the co-founders of RedMart, a new online supermarket that emerged in the scene last year (see product feature) and received seed funding from Toivo Annus, the co-founder of Skype, in December 2011.
Their mission: To create the “eBay for Consumer Packaged Goods manufacturers” — the makers of of instant noodles and the ever-useful toilet paper.
Don’t let their résumés fool you — these two have entrepreneurship in their bones. Vikram, who is the CFO and COO, started the first polyester and alkyd resin manufacturing plant in Bahrain after leaving his cushy job as a research analyst at a hedge fund.
Prior to that, he was an investment banking analyst at JPMorgan.
Roger, meanwhile, displayed an instinct for opportunity and propensity toward entrepreneurship early on. At 10 years old, his first business was shoveling snow off his neighbors’ driveways, even hiring other kids to do it.
But he never saw entrepreneurship as a serious way to make money. After graduation, only two career choices made sense to him.
“I was peer pressured into thinking that investment banking or consulting were the only two respectable career paths at the time,” he said candidly.
“That was the mentality of our peers before the financial crisis hit,” Vikram chimed in.
In the end, Roger left his position as an Associate at Omega Capital, and started an insurance brokerage company that went on to raise US$320 million in venture capital.
Their paths crossed when they did their Masters at the INSEAD Asia Campus.
Reflecting on his career at JPMorgan, Vikram said that there were many traits he picked up that — while not obvious at first glance — are actually important to starting their business.
“I am primarily responsible for finance, operations, and supply chain at RedMart – and being good at this requires a keen eye for detail, comfort with numbers, and ability to deal with large amounts of data – all skills which I picked up while working in banking and trading” he said.
Roger, meanwhile, had the idea of starting an online supermarket as a simple result of being busy at his banking job.
“I didn’t have time to buy groceries. I viewed the chore as a waste of precious free time. And though I passed the store on the way home every day, I would always forget to get what I needed. Running out of things is a pain — at RedMart we remind you to reorder before you run out,” he said. Roger is now RedMart’s CEO.
While neither Roger nor Vikram have worked extensively in the retail business, they see this as an advantage.
“We go in with fresh eyes,” said Vikram, “the industry we’re in has shown little innovation for decades. being part of the new generation that loves to shop online, we asked ourselves: What kind of shopping experience would we want online? After figuring that out, we started working backwards from there to understand what needed to be done on the backend to deliver this ideal experience.”
But after working out the sums for the run-of-the-mill online retail model, they realized that it didn’t make sense.
“The margins were very low on this business,” said Vikram, “to be successful as a retailer, you need very large volume and extremely efficient logistics. We thought about how we could change the business model to make the idea of competing with large established retailers as a start up sound a little less crazy.”
That’s when the whole “eBay of CPG manufacturers” idea came about.
Think of RedMart not just as an online supermarket, but a platform that allows sellers to bypass retailers.
The co-founders believe it offers several features for sellers that traditional supermarkets cannot rival.
Data analytics is a big one. “With brick and mortar stores, sellers cannot gauge the purchaser’s intent, not unless they checkout. But what about those who don’t checkout? A large data set is lost there,” said Vikram.
By capturing demographic data and layering it on top of purchase behavior data, RedMart offers manufacturers a better way to market their products.
“Instead of blanket promotions, as a manufacturer, you now have the ability to target specific demographics and shopper behaviors. Then you can measure the ROI on these marketing investments,” he added.
And while large retailers frequently charge listing fees to manufacturers, apply pressure to set product price according to their whims, and frequently use certain products as lost leaders to attract shoppers to buy other goods, RedMart has none of that.
Sellers pay no listing fees to RedMart, and they are free to set their own price.
RedMart also includes tools for sellers to complete the entire process of order fulfillment, from point of sales inquiry to the delivery of the product to the customer.
While manufacturers are certainly free to set up their own online stores to push goods to consumers, that may not be effective since shopper prefer to have as much variety of brands as possible under one platform.
From an income standpoint, their business model is more financially sustainable than the usual online retail model, since it incorporates more revenue streams from its data analytics and marketing services. As a result of cost savings, the prices of their goods are cheaper than Cold Storage and on par or slightly above NTUC Fairprice.
The concept makes sense for consumers too, since the traditional advantages of online retailing apply — lower overheads means cost savings, and unlimited shelf space means the ability to cater to the long tail of consumer needs. Ultimately, RedMart’s ambition is to have the largest variety of household essentials and personal care items of all supermarkets in Singapore, providing even niche products that are usually located in disparate places.
Fresh fruits, vegetables, and meats are out for now, since delivering these items to customers would be too difficult a logistical challenge. Ultimately, it’s about doing something well rather than being too ambitious but failing to meet customer standards.
Their decision to serve the Singapore market was also an interesting decision, since it is a small market.
But Roger counters that the market is actually not small for the goods they sell, which amounts to US$4.2B in sales annually.
There are other factors: A busy and tech savvy population, the lack of sites doing e-commerce for household essentials well by their standards, the fact that the headquarters for many CPG manufacturers are located in Southeast Asia and Asia, and the fact that Singapore is small and densely populated, which makes logistics simpler.
In its short two months of existence, RedMart’s novel approach has already received validation. It received seed funding from INSEAD professors Patrick Turner, Serguei Netessine, and Neil Bearden, in the form of a convertible note. Family and friends helped out too.
But what they did not expect was that Skype co-founder Toivo Annus, who founded and runs venture firm ASI, would be interested to chip in.
“The power of social networking stepped in — our classmate and Skype’s first employee, Taavet Hinrikus, tweeted about RedMart when we launched Beta. His former colleague, Toivo Annus, saw his tweet and asked us for a call to find out more about what we’re doing,” said Roger.
“After a lot of due diligence, he told us that he’d like to invest immediately. We were floored. We didn’t actually need the money at that point, but when the co-founder of Skype says he’d like to give you money — you take it every time.”
RedMart will be having a booth at Echelon 2012, held from 11th to 12th June. Organized by tech blog e27 for the third year running, Echelon 2012 is a key startup launchpad in Asia with over 1,100 delegates in attendance and 50 startups exhibiting in the Marketplace. Check out SGE’s coverage of Echelon 2012.
Find out more about SGE’s research arm: SGE Insights, providing customized in-depth research reports to help you navigate the business of technology in Asia.
About The Author
Terence LEE - Editor
Terence writes mainly about technology trends and startups in Asia. He believes in crafting smart content: Not just a regurgitation of text, but well thought-out pieces that serve the reader using a combination of data, design, narratives, analysis, and visual impact. His articles have been published on Venturebeat, Yahoo!, Straits Times, Today, and The Online Citizen. He also co-founded NewNation.sg, a satirical news site covering Singapore affairs. Engage him on LinkedIn and Twitter.Read other posts by Terence LEE