Offline-Dominant Models Will Unlock Deep Customer Value

Offline-Dominant Opportunities

Education

Healthcare

Consumer
Brands

Education

Problem Statement Test Prep Upskilling Preschool Market

Education is one of the largest markets in India and accounts for $225 billion in revenue annually. Edtech platforms have focused on solving the problem of access to quality education by leveraging the reach of the internet but have struggled with poor completion rates and outcomes.

A hybrid approach to learning that augments the method of online delivery with in-person interaction would solve for deeper engagement with personalized attention.

We believe that an offline-dominant approach is a superior model to pure online learning due to the following reasons:

An offline-dominant approach forces learners to carve out time for learning, thus instilling discipline and rigour

In-person interaction leads to higher learner engagement, resulting in better completion rates than pure online models

It builds a sense of community among learners and enables them to benefit from peer-to-peer learning

Offline-dominant models enable higher monetization due to favorable learner perception

Given the materially different texture of omnichannel educational brands, here are some of the aspects that founders should consider when building such models. These businesses have a longer gestation period owing to long feedback cycles.

These models require scaling with caution since it is very difficult to reverse incorrect decisions around location, offering, etc. owing to the offline component of the business. However, if executed correctly, offline-dominant edtechs can build a very strong outcome-driven brand and become fairly profitable.

We believe that the following spaces lend themselves well to an offline-dominant approach -

Test Prep

TAL Education and New Oriental are two large edtechs in China that exemplify the power of this omnichannel approach in the after-school tutoring and test prep market. At its peak in 2021, TAL had an overall revenue of $4.5 billion, 28% of which was contributed through their online live learning platform, while the remaining was driven by hybrid courses delivered through a network of 1098 learning centers.

In India, for younger learners as in the case of JEE/NEET, an offline-dominant approach solves for discipline and better learner outcomes.

Various edtech platforms, including Unacademy are expanding through a network of offline centers for these exams. For older learners, including working professionals who are preparing for government exams such as UPSC, NEET PG, etc., online would continue to be an important medium of delivery.

Upskilling

The higher education market will see the emergence of offline-dominant education brands that deliver deep skilling through in-person learning and drive better placement outcomes than the incumbent market. The higher education landscape in India consists of 1000+ universities and 42k+ colleges with an aggregate annual revenue pool of $25 billion.

Mesa School of Business and Masters' Union are some examples that have taken this approach of conducting an in-person full-time program focused on business talent for the tech ecosystem to challenge the traditional MBA.

Preschool market

Another area of excitement is the preschool market. With more than half of Indian families being nuclear and the number growing, along with an increase in dual-income households, there is a clear void in the early phase of child growth.

Catering to the evolving needs of Indian families, the sector offers various models, including full day care, after-school care, and facilities located on standalone premises, within school premises, or office premises.

Healthcare

Problem Statement Offline First Plays Offline as an Enabler

The healthcare services market in India stands at >$100B, growing >10% year over year. Insurance penetration, while accelerating, continues to be low and insufficient. Consequently, we have one of the highest out-of-pocket expenditure rates globally—in FY22, 80-85% of in-patient hospitalisations did not have coverage. In fact, a leading banker estimated that a third of their retail loan portfolio goes towards healthcare expenses.

As a consequence, unlike insurer-led economies, “where” to access healthcare becomes an individual call.

There is also ambiguity about “how” to best access healthcare — ensuring the right prognosis, sufficient exploration of alternatives, and comfort with the individual healthcare provider.

It is one of the most expensive, complicated, and stressful calls one makes in their lifetime.

Consequently, consumers seek completeness of the journey. This naturally favours players withoffline or omnichannel capabilities. It also facilitates greater trust in such providers, leading to:

A larger share of wallet being addressable

Unlocking deeper TAMs

Offline-Dominant Plays

We’re excited about single-specialty plays that take a patient’s problem statement and partner with them through the entire journey. Similar to consumer products, we are seeing premiumization underway in healthcare, with increasing patient preference for branded, as well as specialised players. In the post-COVID world, patients are also keen to access services outside of multi-specialty hospitals, to reduce the risk of hospital-acquired infections.

From a provider’s perspective, specialisation enables trust, word of mouth, and hence, brand. This focus also ideally leads to higher asset utilisation versus comparable departments in multi-specialty plays, leading to attractive return on capital.

Within this universe, we are keen on categories at the interaction of:

Accelerating demand

Existing fragmentation

Mid-range AOVs (₹20K-200K, making centre-level economics attractive while limiting the barrier to trust a fledgling brand).

This includes:

fertility

women and child

oncology

dermatology

diagnostics and pain management

Historically, healthcare brands were often limited to being regional winners, on the back of star doctors’ sphere of influence. Today, there is increasing evidence of companies being able to set up tight and scalable processes, to build a national footprint:

Hospitals

Clinics

Rainbow Hospitals is now the largest paediatric hospital chain in India, with 18 hospitals and 3 clinics across Hyderabad, Vijayawada, Bengaluru, Delhi, Chennai, and Visakhapatnam

$150m

Revenue in FY 2023

Indira IVF has scaled to 120+ centres nationally, with revenues of ~$150M in FY23 at a ~15% PAT

$110m

Turnover

Cloudnine Hospitals, with its focus on the mother and child segment, achieved a turnover of ~$110M in FY23, operating across 12 cities in India

Offline as an Enabler

We also see tech-first healthcare plays building certain offline muscles. Across disease management, diagnostics and asset-light surgery players, referring doctors are becoming a key source of acquisition.

Further, phygital models are on the rise.

Players like 1mg and PharmEasy have set up offline pharmacies complementing their e-commerce offerings. Practo operates >30 dental clinics, with another 100 planned for this year, in addition to launching dermatology clinics as well.

Consumer
Brands

Problem Statement Why go offline Our Learnings

Within consumer brands, the most popular playbook by new-age founders has been to go digital first. This design helps the brands stay close to the consumer and evolve quickly to find the right value proposition for their target customer.

However, as consumer behavior evolves and more consumers become digitally savvy, the lines between online and offline are getting increasingly blurry. Almost 65% of offline consumer purchases are digitally induced, where the customer either discovers, compares or completes the transaction online, and hence new-age brands have an unfair advantage to win in this channel as well.

Moreover, e-commerce penetration in India is 5-6% and brands have recognized the need to play where the market is to become large. Although the timing to go offline varies by category with consumer electronics having a much higher online share at 10.4% whereas Grocery/Food has a much lower penetration at 0.7%, brands should plan to have some offline presence in their journey to continue growing faster than e-commerce growth in the country.

For some categories, going offline first is the most desired option for multiple reasons, such as:

Lower AOV making D2C unit economics unviable -

Snacks

Food

Other FMCG

Really involved purchase for the customer with a high AOV where touch and feel is critical -

Automobiles

Jewellery

Premium products across categories where delta for the customer is in the experience and difference in product can be communicated well with a touch and feel -

Premium ethnic apparel

Footwear

Eyewear, etc.

For other categories, as brands evolve in their journey to go offline, their business models seem to merge with the incumbents, and they have to make different design choices for this new lever of growth. Some learnings from brands who have been able to do it successfully are:

Launching smaller SKUs or lower priced SKUs to increase adoption in General Trade.

SUGAR Cosmetics launching a more affordable sub-brand with SUGAR Pop

Increasing focus on working capital optimization so that receivables from the channel don't cripple scale

Launching Exclusive Brand Outlets (EBOs) only when the brand has enough assortment to attract the customer into the store and reach throughputs to make it net positive to the P&L -

The Souled Store with its wide assortment has been able to achieve best-in-class EBO economics

Make efforts to stay close to the customer even offline to ensure the D2C DNA keeps churning learnings.

Atomberg investing in having direct representation in as many markets as possible, including towns with populations between 50k-1L

Offline-Dominant Models Will Unlock Deep Customer Value Across Education, Healthcare and Consumer Brands

Successful new-age consumer brands have also leveraged offline retail for growth.

Education

We believe that an offline-dominant approach is a superior model to pure online learning due to the following reasons:

Test Prep

Upskilling

Preschool market

Healthcare

Offline-Dominant Plays

Offline as an Enabler

Consumer
Brands

For some categories, going offline first is the most desired option for multiple reasons, such as:

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