Social commerce platform DealCart closes $3 million funding round

After a $4.5 million pre-seed funding round two years ago, grocery retail platform DealCart has raised 3.4 million, with Mubadala-backed VC fund Shorooq Partners leading the round. The latest funding is the first of two tranches the startup has decided to raise.

In recent times of record inflation and a fragmented retail sector, 45 to 55 percent of Pakistani household spending is spent on groceries. DealCart started as a group-buying platform, providing affordable everyday essentials to underserved communities, with a mission to help customers reduce their cost of living. The company said the new funds will be used to improve product development and expand its team.

Ammar Naveed, Co-Founder of DealCart, said Profit the last round of fundraising was much more difficult compared to their pre-seed round. He structured the difficulties that came up during fundraising into two levels.

“First, at the international level, there was a noticeable retreat from venture capitalists, especially in the face of rising interest rates. This change created a challenging environment for securing investments globally. Second, Pakistan, as a frontier market, faced additional scrutiny. Economic and political instability in the country added another layer of difficulty. This meant that investors were hesitant to invest in frontier markets in general and Pakistan in particular,” explained Naveed.

But he added, in reassurance, “Things have improved significantly in the last three to four months. Now we are seeing that they have started showing increased interest and have started engaging in business activities in Pakistan. This renewed interest makes me more hopeful than it was six months ago. While it is not certain that investments will come in the next two to six months, the fact that investors are starting to have conversations and engage in business activities is a positive sign. The fact is that Pakistan has one of the largest and youngest populations in the world and remains a largely untapped market where founders and investors can build significant companies.”

Despite the bleak state of funding in local and global tech markets, Naveed says there are certain startups that VCs bet on if they see potential. He explained how DealCart was able to secure its latest funding.

“VCs are looking for opportunities with significant track records. In Pakistan, the average household spends around 45 to 55% of its budget on groceries, which is a huge market opportunity that excites investors. I don’t see a world where a country like Pakistan, with a population of around 250 million, doesn’t have a few big e-commerce players in the next few years,” he explained.

Naveed added that maintaining low cost structures is essential to compete in the grocery sector. Companies need to develop models that deliver groceries at the lowest possible cost, which attracts investors. Unlike QR models that promise deliveries within 30 minutes or 1 hour, which require extensive infrastructure like multiple warehouses and delivery drivers, DealCart’s approach avoids such high costs. QR expenses are usually passed on to customers who are unlikely to pay an additional 10-15% when they are already spending a large portion of their budget on groceries.

However, DealCart understood early on that customers were looking for more affordable grocery items, so it focused on competitive pricing. This helped the company minimize expenses without compromising customer expectations.

DealCart Investor Omer ZabitDirector at Shorooq Partners, in a statement issued to Profitsaid, “E-commerce requires a certain amount of infrastructure to scale, such as logistics and payments. With improvements in both these sectors, we see the e-commerce sector growing rapidly. PostEx is an example of a company that is driving a lot of infrastructure development in logistics and last-mile delivery.” He explains that this is the reason why E-commerce in Pakistan is still in its infancy but is growing rapidly.

He also added that they are optimistic about investing in Pakistan as mobile banking has emerged as the largest channel and digital payments are playing a key role in the growth of e-commerce in the country.Money flow is a prerequisite for a thriving e-commerce sector. Mobile payments and Raast will help bridge the trust gap in payments and make the entire process seamless. For the first time in Pakistan’s history, digital payments have surpassed recorded cash withdrawals.”

With the support of investors, DealCart will invest the new capital in developing physical and technical infrastructure to support scaling. The remaining capital will be used to increase brand awareness and promote DealCart’s private label products.

What does DealCart do and how does it work?

It is an understatement, but keeping a startup afloat, even if you are seemingly doing everything right, has become nearly impossible in the current economic climate in Pakistan.

Profit I was curious how DealCart is coping with the current situation.

Talking about cost cutting and efficient spending, Naveed said, “We are focusing on tier two and three products to help customers save money. Initially, we saw aspirational purchases but now with rising inflation, there is a shift towards these cost-effective options. To reduce costs, we operate out of a single warehouse, avoiding high operational costs like in a fast-paced retail business and act as a distribution arm for tier two and three products, reducing their distribution and marketing costs.”

When inflation hits, shopping patterns are bound to change and those in the retail industry have to adapt quickly to avoid losing the race. However, these trends do not always spell disaster for businesses if they are able to find loopholes that can work for them. Even as people are increasingly reluctant to pay their dues and cut back on non-essential groceries, essentials like wheat, lentils, rice, sugar, ghee and milk remain popular, while other categories show slower growth compared to these essentials. Offering cheaper essentials has helped DealCart grow further.

Naveed notes that there are two major trends that have positively influenced his work. “First, digitalization in Pakistan has been steadily increasing, providing us with a conducive environment to thrive. Second, high inflation has forced people to prioritize spending on essentials like food, leading to a shift towards cheaper food items, including downgrading to cheaper tiers of products. These trends illustrate how economic conditions have impacted consumer behavior.”

Based on this, Naveed added that DealCart has introduced its own private label products that offer better margins that can be passed on to customers. “Our mission is to reduce the cost of living of our customers and help them invest in a better future. Considering that 45 to 55% of household expenditure in Pakistan goes on groceries, our efforts are crucial in providing financial relief,” Naveed concluded.

Profit learned that DealCart’s private label brand was launched over seven months ago, with the aim of testing private label products, such as household cleaners, which have proven popular. Naveed explained that while it may seem odd from a consumer perspective, it makes financial sense. “For example, a branded cleaner may sell for Rs 450 at a 10% margin, earning Rs 40 per bottle. On the other hand, a private label cleaner may sell for Rs 250 but earn Rs 70-80 per bottle, offering better value to customers and higher margins for the company,” he said.

The company’s bulk buying model has also been a boon to the company, especially during the economic crisis. As a consumer, you have two options when you shop at DealCart. If you are buying shampoo, you can opt for a bulk buy and pay Rs 18, which is quite cheap. Alternatively, you can opt for an individual buy, which costs more than Rs 18, but Naveed says that you still get it at a much lower price compared to buying from a local store. “We offer both bulk and individual buys to suit different preferences and budgets,” he said.

According to Naveed, DealCart has achieved order-level profitability in the last few months. “We don’t lose money on every transaction – we are order-level profitable. And now we plan to scale to cover our fixed overhead costs. Our business has grown significantly in the past year, over 400% in dollar terms, and our customer retention rates are exceptional. Part of our success is due to offering savings during a period of high inflation in Pakistan, where incomes are stagnant and expenses are rising. This has worked well, especially in the middle-income segment that we target.”

He also shared that DealCart is currently the highest rated shopping app in Pakistan. “Customer service and trust are significant issues in Pakistani e-commerce, often resulting in negative experiences and low NPS scores. However, DealCart consistently achieves an NPS between 55 and 65 and is one of the highest rated shopping apps in Pakistan. We diligently address every negative feedback, ensuring continuous improvement in the customer experience. We truly believe that to unlock e-commerce growth in Pakistan, we need to solve the customer experience problem and build that layer of trust that makes people feel comfortable shopping online.”