ShopUp, Bangladesh’s largest B2B commerce platform, has demonstrated promising growth in its latest financial year, ending June 2023. ShopUp connects mills and manufacturers with small neighborhood shops, creating a seamless network for food and essentials. According to the company, it currently serves 31 million people across the nation through its network of small shops. In this exclusive interview with Business Inspection, Md. Ziaul Haque Bhuiyan, Chief of Staff at ShopUp, provides insights into the company’s financial performance, growth initiatives, and future plans.
Question: The company increased its revenue by roughly 55%, and at the same time, we can see a loss of $49 million in FY 2023. What were the contributing factors for these?
Answer: Our 55% revenue growth in FY23 was driven by strong consumption patterns in key categories such as FMCG products and daily essentials like sugar, rice, and oil. Our extensive delivery network and fulfillment infrastructure enabled us to support over 31 million people in Bangladesh, who access food and essentials through ShopUp’s network of small shops. We achieved consistent distribution through direct partnerships with leading brands and manufacturers, facilitated by our micro-fulfillment hubs. By the end of FY23 in June, we increased our number of micro-fulfillment hubs by over 20%, bringing the total to 427.
The financial report covers the period from July 2022 to June 2023. After this period, we’ve made substantial strides towards profitability, achieving EBITDA profitability by December 2023. Notably, our actual losses during this period decreased by 17%, excluding ESOP expenses. It’s important to mention that the ESOP expense is a non-cash expense that has accumulated over the five years since the company’s inception, but it was only expensed in this financial year.
Question: The financial statement also shows an accumulated loss of $118 million. What does that mean?
Answer: The $118 million figure from the statement, accounts for the entire period of ShopUp’s existence, till our last financial year ending June 2023. From our point of view, this is a necessary investment that enabled us to build this business. It’s to be noted that both the top and bottom lines have improved year over year, resulting in EBITDA profitability in December 2023.
Question: Both the net loss margin and topline improved last year. What’s the next financial performance milestone that you’re targeting?
Answer: Our goal is to achieve full-year profitability next year, aiming for Profit After Tax (PAT) profitability. While our topline increased by over 55% for the reported financial year, it has continued to grow significantly in the six months following June 2023, demonstrating consistent and sustained growth. We hope to build on this momentum.
Question: We have also noticed a slight drop in net cash. Will this have an impact on your runway?
Answer: Despite the change in our cash position from USD 87.1 million to USD 69.5 million during the period from July 2022 to June 2023, we remain in a very strong position. Our significant improvements in achieving EBITDA profitability, combined with our current cash balance, make runway concerns less relevant for us at this time. We are actively exploring new investment opportunities to further our vision of building the largest commerce model for the emerging world. These expansion plans are designed to cement ShopUp’s position as a premier tech-enabled distribution platform in emerging markets, fostering financial inclusion and streamlined commerce for consumers.
Question: ESOP expenses were a big part of the burned amount. Can you explain this strategy?
Answer: The ESOP expense is a non-cash expense that has accumulated over the lifetime of the company but was expensed only this financial year. The amount accumulated over the years since the start of ShopUp has been recorded and expensed in this year, leading to a large increase in non-cash expenses for the financial year ending June 2023. Our ESOP plan is aligned with our vision of ensuring that those who are building ShopUp can share in the company’s success and growth. This approach is fundamental to our objective of fostering a sense of ownership and commitment among our employees, driving long-term value creation for the company.
Question: The company’s cost of sales increased by roughly the same amount as revenue, mainly due to increased costs for finished goods consumed. What initiatives are in place to bring costs down?
Answer: Our cost of sales as a percentage of revenue has declined by 4.5% year over year, making us gross profit positive. We’ve implemented several initiatives to further reduce costs. First, we are leveraging our scale to negotiate better terms with suppliers, thereby reducing our cost of goods. In parallel, we’ve been developing in-house supply chain technology to ensure optimal efficiency, which helps minimize waste and optimize inventory management. Our business model also allows for better cash flow management and reduced financing costs. Additionally, we are expanding our micro-fulfillment hubs, with a goal to establish a network of 700 hubs by 2025, which will improve distribution efficiency and lower logistics costs. These combined efforts are aimed at reducing our overall cost of sales.
Question: What is the biggest growth initiative for the company right now?
Answer: Our key growth initiatives are twofold: expanding our reach in Bangladesh through our hub expansion strategy for our core business, and entering new markets in the Gulf region through exclusive partnerships.
We plan to expand our distribution hub network in Bangladesh to 700 by December 2025, which will enhance market penetration across various product categories and the value chain.
With our strong cash position of 69.5 million in the balance sheet, we can focus on strategic initiatives in our bid to build the largest commerce model for the emerging world. Right now we are exploring an expansion into the Gulf region, leveraging our successful model to tap into these fast-growing emerging markets. This expansion unlocks new geographies for us, helping us grow and better serve the needs of emerging markets.
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