Wakefit: How to race to Rs 1,000 crore in sales without losing money

Wakefit makes mattresses, pillows and furniture. How exciting can that be, you wonder. Prepare to be surprised.

Chaitanya Ramalingegowda looks sedate. With not a hair out of place, the calm Co-founder and COO of Bengaluru-based Wakefit looks like the classic, successful engineer-MBA who won’t speak much. As I followed him on to the stage for a 30-minute one-on-one conversation at the recent Startup Brands conference, organised by afaqs!, I muttered to a colleague, ‘I hope this session doesn’t end up with me talking to myself.’

How wrong I was.

Wakefit was established in 2016 in Bengaluru by Chaitanya and his Co-founder, Ankit Garg, who is the CEO. It began with the aim of making mattresses and selling them online. It subsequently moved into furniture and has raised Rs 450 crore along the way. According to a news report last year, it was valued at Rs 2,800 crore during the last round of funding. 

To know more about Ankit and Chaitanya’s fascinating journey, read on:

The idea

As is often the case with startups, it was a personal experience that instigated the journey. “Ankit (Garg, now the Co-founder and CEO), who was familiar the foaming mattress business, was getting married. While looking for one he realised there was no correlation between the cost of the mattress and the price at which it was being sold. 

However, when I checked the balance sheets of some of these mattress manufacturers, I found they weren’t very profitable. That’s because most of the money was being consumed by the distribution channels.

The partnership

Chaitanya had tried two startups, and Ankit had had a go with one. When they worked together at a funded startup, “We always joked that the difference between us was that while I lost all my money in two startups, he managed to lose his in just one venture!"

“We realised that companies are raising and blowing up capital in racing towards a milestone dictated by the next round of funding rather than one demanded by business fundamentals. 

“Also, many companies were operating as if they were in a winner-take-all market. In a market of that kind, it is okay to lose money acquiring your customer because you are in a land-grab phase and once you have acquired enough of them, you can make money. But entrepreneurs were applying this logic indiscriminately in all kinds of markets.

“So we said to ourselves that if we raise capital we will use it truly as growth capital – for things which cannot be funded through internal accruals and existing cash flow.”

On building trust for a product - mattresses – online that people have trouble deciding on even at a dealership

After its launch in 2016, Wakefit depended predominantly on building word of mouth. For the first one and half years, the company did not even have a Google or a Facebook ad account. “We were completely broke. We were focused on just the customer experience, and nothing else, both before and after the purchase. We were one of the first companies to make 3-4 post-sales calls. We told customers how to take care of the mattress and things like that. We made no attempt at cross selling or upselling. Customers were amazed and started giving feedback on public forums recording this experience.”

In 2017, based on customer interviews, it dawned on the team that only after sleeping for a fortnight do customers know for certain if they have bought the right mattress. To encourage buyers to test the product in the privacy of their home, Wakefit introduced a 100-day-trial policy.

Recalls Chaitanya, “We were boot-strapped and super worried that if the returns were the same as for apparel, that is 20-25 per cent, we were screwed.” Today, the 100-day trial has become a standard industry practice.

“People warned us that customers would misuse it – for example, they might order mattresses for weddings and then return them. But the return rate has been a steady 3 per cent."

Looking back, says Chaitanya, “What this experiment taught us is that 99 per cent of the rules are made for 1 per cent of bad actors. Most people just want to buy the right mattress. They are not interested in their money back.”

The expansion beyond mattresses

Wakefit focused on selling only mattresses from 2016-18. By then company felt confident that it could enter adjacencies in the bedroom space with offerings such as bedsheets, comforters and pillows.

Meanwhile, as the customer base swelled, people who had bought beds elsewhere began asking Wakefit what the right mattress size and type might be. “As this kind of feedback grew, we thought, hey, we know manufacturing and distribution: what if we started making bed frames? We already had powerful D2C channels. Could we use it to serve our customer’s larger need?”

So, the cofounders went about exploring furniture market in the same way as they had mattresses. “We created a small manufacturing unit in which we had just one SKU (Stock Keeping Unit) with just one design and one size. We ran it for 10 months like that because we didn’t understand wood. We sought constant customer feedback to learn what they liked and what they didn’t.” That’s how the cofounders got the hang of the furniture business.

Earlier this year, Wakefit announced that it had set up a giant furniture manufacturing unit at Hosur, an hour away from Bengaluru. It is spread over 600,000 sq ft – or 14 acres, or about 10 football fields, take your pick! It has the capacity to produce about 2,000 sofas, 3,000 dining tables and 5,000 beds - every day. (Wakefit also has units in Bengaluru, Delhi and Jodhpur)

Why no one before has invested in such a big way in manufacturing

“Manufacturing is not glamorous. You have to deal with the heat, the dust, labour problems. Some government department you have never heard of will turn up and either penalize you or ask for a bribe. Companies before us have tried to build this category believing that they could do it while sitting in a nice AC office in Mumbai or Bangalore.  It doesn’t work like that.

“Today we are three times as large in revenue terms than the best known furniture company. Yet we are less known.”

The peculiarities of the furniture market

“Everyone treats this as a single market but customers don’t think of it in that way. Their view is determined by their stage of life. At some stage they want a mattress and a bedframe; at another they want a dining table, and so on. So, it is basically need based. That is why we decided to disaggregate the market and treat each segment as a separate market and strive for leadership in that. We are presently the No 1 nationally in mattresses, all sleep accessories, bed frames and sofa recliners.

“Forty five per cent of our furniture sales have come from people who have bought a sleep product from us in the past. About 50 per cent of our mattress sales are from people who have bought furniture from us before. So there is healthy cross selling.”

Mattresses vs Furniture and sales by region

This year, about 70 per cent of the sales will come from mattresses and the rest from furniture. Wakefit has about 500 SKUs across 15-20 sub categories.

Tamil Nadu, Karnataka and Andhra Pradesh contribute about 50-55 per cent of sales. The big markets outside the south are Maharashtra and Delhi NCR.

“We are proud that Tier II markets contribute about 50-55 per cent of our revenue. Why should only people who earn over, say Rs 1 lakh per month, have a beautiful home? It should also be accessible to someone who earns Rs 25,000-30,000 per month. That’s our dream.”

Conflict with IKEA whose one key plank is affordability 

“Fortunately or unfortunately for us, IKEA has become a place for biryani – not furniture – in India. The government’s policy has also aided that because a lot of their furniture is imported. So we have a greater design range – not just Scandinavian – and we are 30 per cent less expensive. But you are right, affordability is a big priority for IKEA.

“Still, one difference is that in India people don’t think of furniture as use-and-throw. In the West, IKEA is an entry level brand until people move on to other brands. We, on the other hand, are trying to offer affordability together with a 5-10 year durability that customers want.”

Reaching the typical customer: who and where is she?

“We have tried exploring NCCS, Tier 1 and Tier 2 classification; we have looked at incomes. We failed spectacularly in all of these. We base our customer now on their psychographic profile. 

“So, we have people ranging from a monthly income of Rs 25,000-Rs 2-3 lakh per month. Forty per cent are from Tier 1 towns and the rest are from Tier 2. Going by NCCS, we have solid representation from both A1 and A2. These are people who want a good product at a price that makes them feel smart. Think of them as buyers of Xiaomi or of Jio or Amazon. It doesn’t matter if you earn Rs 5 lakh per month, you still go to Amazon because it has an amazing variety of products at good price points.

“We have to be wherever the customer is. We became the leader in mattresses by converting their behavior from offline to online sales. We were able to crack it with the 100-day-trial policy because there is a strong experiential angle to the product. But in furniture, there isn’t. In furniture, the questions are like, Will this go with the rest of my home? Is this a true manifestation of who I am? That’s why we went offline in February this year.

Offline vs Online

Currently, about 10% of Wakefit’s monthly revenue comes from offline sales. “Offline and online store purchase are both influencing one another,” says Chaitanya. The company expects that in three years, about half its sales will come from offline. From 10 stores today, Wakefit targets to have about 25 by the end of this financial year and about 50 by the end of next.

That’s rapid offline expansion, I noted, and asked if the push was because online growth was slowing down. “Not at all,” he claimed. “Instead of buying one product at a time online and then coming back months later for another, people buy maybe three products all together at a store.”

Cost of customer acquisition

This cost has been steadily rising.  “Advertising on Google and Facebook is a pain as everyone knows. As you scale up, the cost keeps increasing. 

We don’t see D2C as a website; we see it as something that enables a customer relationship. Whether we sell on our website or on Amazon or Flipkart, the one thing we want is the customer’s name, phone no and address. That becomes the snowball which keeps growing and on which you are able to build retention. About 35 per cent of our purchases are made by repeat customers.

Is Wakefit the right brand name for a furniture range?

“We wondered about the brand name in 2020 when we launched furniture. Whenever we face a quandary, the solution lies in talking to customers. Ankit and I each spoke to about 100 customers and the leadership team did this, too. What we found was that to customers Wakefit stood for great product at value for money prices. Second association was ‘mattresses’. Third association was with sleep. 

After this, we decided that we are worrying too much over nothing. If a company called Pepperfry can exist, so can Wakefit!

How is Wakefit positioned?

“Positioning comes much later. The furniture value chain problem had not been solved in India. It was very inefficient. People were either making furniture at a small scale or importing it from China or Malaysia and then trying to sell it without understanding the consumer. We have gone in exactly the reverse way.

"We had to be full stack and begin with first understanding consumer needs:  designing it, prototyping it, engineering it, manufacturing it, delivering it and installing it. We are solving the hard problems first and positioning will happen on its own – so that we have a great product at value for money prices. Brand is something people talk about when you are not in the room."

And lastly, the big question: how does Wakefit keep doubling its turnover each year with minimal losses?  

“We all have a split personality,” grins Chaitanya. “We are very optimistic in terms of the market on the one hand and very paranoid on the other when it comes to costs.” 

I was fascinated by the company’s view on how growth capital should be used: “Our approach is that if you can solve the problem with logic and data, you should then deploy money only to fund the solution. Never deploy capital to solve a problem.” 

He adds that the loss margin this year will be 4-5 per cent. “Till 18 months ago we were a tax paying EBIDTA positive company!”