Why Amazon And Flipkart Are Struggling To Beat Meesho In India's Smaller Cities

The e-commerce pie has been splitting for a long time now — the generic e-commerce, the glamorous q-commerce, as well as the steadily growing value commerce. Banking on small-town buyers and catering to lower average order values (AOV), Meesho has become the prime player in this category.

E-commerce majors Amazon and Flipkart have been expanding into value commerce in addition to q-commerce as both these forms have been eating away at the basic pie. Flipkart relaunched Shopsy, and Amazon always had Amazon Bazaar, which is growing faster than its basic e-commerce business.

While Amazon and Flipkart have made headway into smaller markets eyeing growth, they're mostly serving their existing customers in smaller cities. Value commerce, however, banks on bringing a new tribe of consumers onboard.

“What Meesho offers to tier-2 and tier-3 consumers are products that are similar to what tier-1 consumes, but at their location, at their price,” says Ninad Karpe, founder and investor at Karpe Diem Ventures.

The Many Moats Of Meesho

This model has captured the country's latent spending power far away from the glitz, glamour, and money of the cities. Its annual unique transacting customers (AUTCs) reached 274 million in Q1 FY27 — which makes up around 27% of India's internet users. As much as 88% of Meesho's consumers are outside the top-8 cities, with 1.04 million sellers.

While a lower average order value (AOV) might be seen as a drag factor by other larger players, products with low unit prices also encourage impulse-led buying, which aids the discovery-led selling strategy of Meesho.

While its lower-priced merchandise is a pull factor, it's not the only moat Meesho has managed to build over time. Experts say that low prices can be copied, but Meesho has the lowest-cost, highest-liquidity ecosystem.

“This is a five-sided flywheel: Consumer density → seller density → assortment → logistics density → better personalisation and discovery. Once that starts compounding, it becomes difficult to replicate,” says Adarsh Menon, partner at VC firm Fireside Ventures.

The first moat is consumer habit, wherein Meesho has managed to build a ‘first' meaningful e-commerce relationship with consumers. The next flywheel is personalisation and discovery. “In value commerce, consumers frequently don't know exactly what they want; shopping can look more like scrolling through a bazaar than typing a specific product into a search bar. That makes recommendation technology particularly powerful,” adds Menon.

ALSO READ: Festive E-Commerce Season Off To Strong Start, Flipkart DAUs Hit New High: BofA Report

The Many Zeros Of VCom

The value commerce model is much more complicated than e-commerce or even q-commerce. Its success mantra involves an extremely wide set of product assortment — which means bringing as many sellers onboard as buyers. It brings hitherto unseen products to the fore by addressing a fragmented supply base of manufacturers, wholesalers, traders, and small sellers who are unserved by the existing e-commerce players. Over a million transacting sellers create an enormous depth of unbranded and long-tail assortment.

“The resulting supply base is characterized by a large, long-tail, and predominantly unbranded assortment which is particularly suited to discovery-led shopping,” says an Ambit report titled ‘Underserved, not unprofitable'.

Meesho lowered the entry barriers for sellers to go online with an attractive zero-commission proposition, aiding their transition to digital commerce which allows incremental demand. But now, this model is being replicated by the larger players.

“Zero commission was Meesho's headline differentiator, and this no longer belongs to Meesho alone. Flipkart says its zero-commission model is a key driver of its active seller base nearly doubling in 15 months, and Amazon has waived referral fees on products below ₹1,000. So the commission advantage that Meesho had has been neutralised,” says Menon.

Menon, however, insists that Meesho enters this highly competitive phase with considerable scale. As of June 2026, it reported over 274 million annual transacting users, over a million annual transacting sellers, and 2.83 billion orders.

Experts believe that while Meesho's commission model can be replicated, the more important moat is its ability to fulfill orders that average around Rs 265. And it has been consistently bringing down its logistics cost per order — ahead of competitors, as indicated in the table below. Moreover, when it comes to volumes, Meesho is ahead of its competitors.

E-Commerce Logistics Has Miles To Go

Value commerce logistics works in a rather different manner than standard e-commerce logistics. While Amazon and Flipkart have gigantic fulfillment centres, warehouses, and more, Meesho's model is primed for low-value customers. Meesho is a pure-play marketplace that does not hold inventory or warehouses. It enables transactions amongst consumers and sellers.

The asset-light business model also has its own method of ‘arranging' logistics. “Valmo is the key differentiator. It's a fully-owned logistics infrastructure that, with its asset-light model, brings multiple logistics partners into the fold. With relatively better unit economics, it also serves a large number of pincodes,” says Kunal Bajaj, research analyst at Choice Broking.

As per the Ambit Capital report, this asset-light architecture makes Meesho the least capital-intensive model among retail and logistics peers. Its fixed assets are at 2% of capital employed, compared with 15% for Flipkart and 40-60% for Amazon India.

While most e-commerce players have a conventional vertically integrated logistics company, Valmo orchestrates and connects thousands of logistics operators. “Valmo disaggregates fulfilment across first-mile, sorting, and last-mile partners, with algorithms selecting the lowest-cost viable combination for each order, lowering seller shipping costs,” Ambit says.

Large e-commerce players deliver expensive products at speed with sufficient guardrails and security—they have a different cost structure. But value commerce works on another plane and cannot be pushed through this premium network. “For example, Amazon's automated truck locks stop iPhone pilferage and add pure cost to a Rs 250 Indian wear,” says the Ambit report.

Menon explains that value commerce has to be pushed through a separate lane instead of the premium network, which has its own cost structure: consolidated pickups, slower delivery promises, and a different seller mix.

“Flipkart and Amazon both have enormous advantages in existing logistics density. Flipkart's Ekart has continued expanding nationally, and Amazon has similarly been investing deeply in lower-cost fulfilment. I wouldn't underestimate them. They certainly can compete—but low AOV is ultimately an economics problem, not only a technology problem,” Menon adds.

The Magic Number

Meesho has been reinventing itself since its inception. In 2015, it was a hyperlocal player that helped small suppliers receive digital storefronts. Between 2016 and 2020, it brought in women as resellers to attract more buyers, and by 2021, it became a marketplace aided by Covid-led online behaviour, wiping off reseller margins.

Like many of its new-age business peers, however, it is yet to step over the golden threshold and deliver profits. Valmo operates on a no-profit, no-loss basis to provide consumers with the advantages of low cost. Its fulfilment fees contribute 91% of revenue but are largely pass-through, and the remaining 9% comes from advertising.

Advertising, however, is pure margin and is a lever that's not yet fully monetized. While most of its sellers might not be able to advertise heavily, this is an area where its zero-commission advantage comes in handy.

“Meesho charges no commission, so the margin a seller would otherwise surrender stays with them, and bidding on ads is the only productive way to deploy it. The auction is also the densest in India, with thousands of near-identical listings; only price wins a slot,” the Ambit report said. This, however, is truer for manufacturers as opposed to traders or resellers who are also a part of its seller ecosystem.

There are other emerging levers, too. “A large chunk of the IPO proceeds have gone into technology. They can provide analytics to their sellers. For example, a t-shirt maker in a tier-3 city who is unaware of the costs, buyers, etc., can receive handholding via technology. They can receive information like how to list, at what price, how these fragmented orders could be delivered, etc.,” says Bajaj.

All in all, Meesho might be ahead of its big competitors now, but experts also say that the value commerce pie is so big that more players might also come in eventually — solving a newer set of problems. Before that, Meesho will have to build a base and eventually a profitable business that keeps them higher for longer.

ALSO READ: Meesho Mega Blockbuster Sale Sees Strong Orders, Peak Hits 75,000 Per Minute

Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.