Meru Cabs

Case is intended to be a part of instruction material developed for teaching at a Marketing class in Business Schools.
Case facts are taken from the Wikipedia article on the company with some additional facts provided. Case facts are for discussion
only and are not intended to be a demonstrator of correct or incorrect handling of management situation.

The taxi cab industry in India has been largely unorganized with most taxi cabs in India being owner
driven, with individual owners owning not more than one or two vehicles. Government oversight has been
restricted to the issuance and renewal of individual permits (also known as badges in the trade) allowing
the holder to operate a licensed taxi cab. A number of owner drivers are members of taxi-drivers unions
that sometimes engage in violent activities against transport initiatives such as Airport transfer buses.
Most taxi users recollect having faced issues with unpredictable pricing and poor service levels.

In 2006, the Maharashtra State Government, as part of its initiative to make Mumbai a world-class city,
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launched the Fleet Taxi Scheme under which the government invited applicants for up to 10000 radio
taxis to replace Mumbais aging black-and-yellow bumble bee cabs. Perhaps under pressure from the
taxi unions, the government made clear that no new permits would be issued for the radio taxis but
existing permits could be converted.

Meru Cabs, founded by Neeraj Gupta, was amongst the first companies to enter the Radio Cab business
in Mumbai under the Fleet Taxi Scheme. Neeraj had traveled abroad and wished to emulate taxis in
places like Singapore. He envisioned offering GPS tracked air-conditioned cars with credit card payment
machines and receipt printers. Meru started out with buying 45 Mahindra Logan cars in 2006. In early
2007, India Value Fund invested Rs 50 crore in the company and by 2014, their fleet has grown to 6500
cars across 7 cities Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Ahmedabad and Jaipur.

Initially, Meru started with recruiting licensed drivers who had their own taxi permits, on a fixed salary and
put them through a rigourous training program involving soft skills (how to behave with customers) and
hard skills (how to drive / routes to various destinations within the city). Soon, however the company
moved to a subscriber model where a driver with a permit empanels himself with the company and pays
the company a flat fee per day for use of the vehicle and access to radio bookings. The fee ranges
between Rs 900-1200 per day depending on the city. The driver keeps the fare collected for the day and
pays for the fuel while the company pays for maintenance of the vehicle and the EMI. The company has
invested in a call centers to take customer calls and IT infrastructure to route the trip information to the
devices in the vehicle. A driver can accept the trip by pushing a button on the in-car device.

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http://www.visionmumbai.org/images/projects/fleet%20taxi%20service%20scheme,%202006.pdf
It seemed like an idea whose time had come, but even six years after they had commenced operations,
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Meru had yet to turn a profit . In 2013, the company was hit by a driver strike that lasted the better part of
a month. The strike was called by the Meru Chalak Sena, a union not recognized by the company, but
backed by the Shiv Sena. A number of drivers, concerned with the uncertainty brought on by the dragging
strike, departed and went back to owning / driving a yellow cab or a cool cab. The investor, IVF was
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seeking to exit the company and had hired a Wall Street investment bank to find suitors .

By 2014, the company had turned EBIT positive in 4 of the 7 cities it operated in. However competition
has been heating up. Ola cabs and Uber have entered the Indian market and they operate under a
completely different model. While Meru has an asset-based model, with the company owning its fleet of
taxis, Ola and Uber work on the aggregator principle. Independent vehicle owners empanel themselves
and their vehicle with Ola / Uber after an interview and vehicle evaluation process and against a deposit
of Rs 20,000; they are issued an android device to install in the car. For a daily fee of Rs 400, they are
fed information about trips requested by customers that they can accept. All expenses towards fuel,
maintenance and the EMI are borne by the owner-drivers.

While Ola is yet to turn a profit, its valuation already exceeds Merus. Olas growth story appears to have
spawned a number of other players like Taxi For Sure, BookmyCab, YourCabs, Savaari and TaxiPixi. In
early 2015, Ola obtained another round of funding that allowed it to acquire Taxi for Sure for USD 200
million.

Questions for discussion:

What factors might be responsible for Merus rapid growth? And for the problems it appears to have
faced?

What part of Olas business model has allowed them to overcome the obstacles faced by Meru?

In Singapore, most radio taxi cars are owned by the company where the drivers are either salaried
employees or subscribers (i.e. the Meru Model) and most companies are very profitable. What gives?

Assignment

Consider industries such as Retail, Airlines, Goods transport, Private Railway Operators, Defence
Contractors, IT, BPO, KPO). What would an entry strategy for a new player be affected by?

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http://forbesindia.com/article/work-in-progress/merus-flawed-business-model-negates-its-brand-value/33480/1

http://www.rediff.com/money/report/meru-in-search-of-profit-track/20120928.htm
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http://articles.economictimes.indiatimes.com/2014-02-24/news/47635606_1_meru-cabs-ivfa-india-value-fund-
advisors