Pepperfry Consulting Report: Strategies for Profitability in a Competitive Market

University of Muenster Consulting U M C C U M Anna Theile, Max Noever, Erich Daniel, Simon Jeurissen Pepperfry Becoming profitable within the next 18 months Presenting to Murty and Shah Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Your Agenda U M C Management Summary Analysis Alternatives/Recommendation Implementation Financials/Conclusion 4/4/2025 University of Muenster Consulting 2 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Problem Statement U M C Solid revenue growth over the past six years, but inability to generate profits due to high costs and low margins in the volume business Growing online furniture market attracting large new competitors Goal: Become EBITDA-profitable in the next 12- 18 months Situation Focus on furniture category to decrease complexity Extend franchise business to more than 70 concept stores Actions Increase gross margin by 2.5 percentage points Become profitable by 2020 Outcome 4/4/2025 University of Muenster Consulting 3 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Key issues U M C Internal issues External issues Historically limited sales channels and target group Different attitudes and states of mind among different parts of the population But: High awareness among target groups due to effective digital and offline marketing Transport distribution in India is highly difficult due to insufficient infrastructure, especially in rural areas Unprofitable growth! High cost of category management Uncertainty about the impact of new competitors such as IKEA Dependency on high utilization levels in logistics to benefit from economies of scale 4/4/2025 University of Muenster Consulting 4 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Pepperfrys market environment U M C Mixed: Large competitors (IKEA) entering the market, but high hurdles to enter Pepperfry s niche Threat of New Entrants Industry Rivalry Many competitors in furniture and furnishing market, but overall good position of Pepperfry Supplier Power Buyer Power Furniture: Many possible suppliers, therefore low power of the individual Rather low due to growing target group and already competitive prices Utilities and decor: Rather high in light of growing competition and absence of home brands Threat of Substitutes Rather low, as Pepperfry s business model cannot easily be replaced (niche strategy) Long-haul logistics: Low after contract has been auctioned, but high dependency But: Potential threat in future 4/4/2025 University of Muenster Consulting 5 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Assumptions for the Development of Alternatives U M C 1 Due to rather fix margins, costs are treated as a percentage of revenue. 2 Overall internet literacy and e-commerce affinity in India will continue to increase over the next five years. 3 India s macroeconomic development continues to advance, resulting in a growing middle class. 4 There are enough potential franchisees to meet Pepperfry s goals regarding the opening of offline stores. 5 Supplier power is assumed to remain at the current level for the next five years. 4/4/2025 University of Muenster Consulting 6 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Strategic Alternatives for Pepperfry U M C 1. Go rural! 2. Go specialized! 3. Go future! Leverage the trend towards furniture rental in the short-to medium term Build an online furniture & furnishing market in non-metropolitain areas Focus on decor and utilities segments Leverage changing state of mind regarding home decoration Become a pioneer in the sharing economy Focus on a broader target group Continue to build franchise business and open offline studios in rural areas Leverage changing state of mind regarding the acceptance of e- commerce Start in large metropolitain areas Focus on a younger target group (20- 30 years) Gradually expand across regions in India Build home brands in decor and utilities to become more independent from large brands Focus on high-margin furniture business and home brands in the long run 4/4/2025 University of Muenster Consulting 7 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Evaluation of Alternatives U M C Criteria # Go rural! Profit potential Market positioning Supplier dependency Uncertainties 1 Go rural! 2 Go specialized! 3 Go future! Less important criteria Highly important criteria Positive implication(s) Mixed or uncertain implication (s) Negative implications 4/4/2025 University of Muenster Consulting 8 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Decision on a Strategic Alternative U M C Criteria # Go rural! Profit potential Market positioning Supplier dependency Uncertainties 1 Go rural! 2 Go specialized! 3 Go future! Base Pepperfry s five-year business plan on the Go rural! strategy. 4/4/2025 University of Muenster Consulting 9 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Timeline U M C Go live Go live 2 Find new Zones Find and school franchise partners Find new Zones (Wave 2) Find and school franchise partners Development of product portfolio and store concept for rural areas Run first rural stores and gain experience 2023 2019 2020 2021 2022 Build Storage Room Slightly change store product portfolios towards furniture Negotiate with logistic partners Start preparations for possible IPO Find adequate area for stores and rent 4/4/2025 University of Muenster Consulting 10 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Risks and Contingencies U M C A) Building storage room may need a lot of capital and running cost Instead of building rent storage rooms B) High dependency on logistic carrier may cause problems Negotiations of long term contracts C) Last Mile Delivery may fail in rural areas Set collective points in center of rural areas D) Inhabitants of Rural Areas may not have access to Internet Grant mobile devices and access to internet at stores D B Impact C A Probability 4/4/2025 University of Muenster Consulting 11 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Keep Focus on Furniture Category U M C 2017 2021 D cor (40%) Furniture (60%) Category Gross Margin 20% 30% - 50% 45% - 55% 40% Pepperfry s goal 60% 80% Overall Gross Margin 2021 46% Furniture D cor Furniture D cor 4/4/2025 University of Muenster Consulting 12 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Keep Focus on Furniture Category U M C 2017 2021 D cor (40%) Furniture (60%) Category Gross Margin 20% 30% - 50% 45% - 55% 40% Pepperfry s goal 60% 80% Overall Gross Margin 2021 46% Furniture D cor Furniture D cor 2017 2021 D cor (30%) Furniture (70%) Category Gross Margin 20% 30% Our suggestion 30% - 50% 50% - 60% 70% 80% Overall Gross Margin 2021 50.8% Furniture D cor Furniture D cor House brand margin 10% higher, increase to 50% of GMV Assumption: 4/4/2025 University of Muenster Consulting 13 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Financial Forecast U M C all figures in million USD 2016 2017 2018 2019 2020 2021 2022 2023 Revenue without 28.6 38.7 63.9 105.4 173.8 286.8 473.3 780.9 Revenue with 28.6 38.7 67.7 118.5 207.4 363.0 635.2 1111.6 Gross Profit without 12.9 17.4 28.7 47.4 78.2 129.1 213.0 351.4 Gross Profit with 14.5 19.7 34.4 60.2 105.4 184.4 322.7 564.7 Difference 1.7 2.2 5.7 12.8 27.1 55.3 109.7 213.3 4/4/2025 University of Muenster Consulting 14 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

Problem Statement U M C Solid revenue growth over the past six years, but inability to generate profits due to high costs and low margins in the volume business Growing online furniture market attracting large new competitors Goal: Become EBITDA-profitable in the next 12- 18 months Situation Focus on furniture category to decrease complexity Extend franchise business to more than 70 concept stores Actions Monday Morning Actions Set up a project team to start looking for potential franchise areas Plan an executive meeting to communicate strategic plans for Pepperfry.com s way into profitability 4/4/2025 University of Muenster Consulting 15 Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation

University of Muenster Consulting U M C C U M Anna Theile, Max Noever, Erich Daniel, Simon Jeurissen Pepperfry Becoming profitable within the next 18 months Thank you Alternatives/ Recommendation Financials Conclusion Management Summary Analysis Implementation