Generation Start-up: Carzaty rides technology wave to disrupt the GCC's car industry
The retail car market in the GCC has long been ripe for disruption and one player that is pioneering technology-driven change is Carzaty, an online platform founded in Muscat, Oman, in 2017.
The platform, whose operations in the UAE began during summer this year, specialises in used car sales but with a twist.
It uses proprietary data and market intelligence to buy specific cars that are in demand but are scarce and expected to be sold quickly.
The company also conducts rigorous checks and reconditions the cars before selling them.
Carzaty has raised about $5.5 million in equity funding from several strategic and high-profile investors, including the venture capital arm of IDO Investments, the government of Oman’s sovereign wealth fund.
Other strategic shareholders include family-run car dealers in Oman and Bahrain, and DriveArabia, a regional car portal.
“For instance, the bulk of cars on our website today are in the affordable category such as Toyota, Nissan, Honda and Kia. We also have a few premium car brands such as Volkswagen, Infiniti and Mazda listed on our website,” says co-managing director Marwan Chaar, who previously worked for a start-up called GlassPoint Solar that focused on doing solar projects for the oil and gas industry.
“As the market evolves, there will be a shift in used car preferences as well. We will then add premium brands such as Mercedes, BMW and Audi, etc.”
“Our in-house data analytics tell us what cars to buy. That is a big shift from traditional used car retailers.”
Hassan Jaffar, co-managing director and chairman, says the platform collects about 30,000 car data points every day.
The data is then cleaned and classified to determine a car’s fair market value, says Mr Jaffar, who previously worked for global consultancy McKinsey and a hedge fund in New York, before moving to the region in 2011.
Carzaty also has digital showrooms in Muscat and Dubai. These are physical locations, where “CarMatchers” or salespersons, show customers pictures of the platform’s inventory and arrange test drives.
The company is able to keep a lid on costs by not keeping car at its digital showrooms, helping to reduce overhead costs that come with running a traditional showroom.
“That allows us to scale up the business without increasing costs,” says Mr Chaar.
The platform has adopted an omnichannel sales approach, where potential customers can be showed 30 high-resolution pictures of the car they are interested in, along with its specifications and features.
They can then narrow their choice and test-drive specific cars when they visit Carzaty’s digital showroom. Potential buyers can also look at more cars on digital screens in the showroom.
“We want to give consumers a dependable, trustworthy source of high-quality used cars. Across the GCC, the options for a customer to buy a reliable used car are very few,” says Mr Chaar.
“Most resort to classified sites where they typically buy directly from other individuals, and while cost-effective, this brings with it a [number] of issues, primarily the quality of the car and the lack of any recourse if something goes wrong, in addition to the inconvenience of finding the car, searching/speaking to many individuals, the difficulty to get the car financed and so on.”
Carzaty provides the full range of services to customers. It helps customers trade-in their existing cars and also connects would-be buyers with financial services companies that can provide funding.
The retailer uses various ways to buy used cars and these include direct purchases from consumers or from fleets and leasing companies.
“Building a brand around high-quality cars is challenging as you need to convince customers to pay [a] slightly higher-than-market price even though they are certain to save in the long run due to lower maintenance and repair costs on the vehicle. Not to mention the added value of having a car that is reliable,” Mr Jaffar tells The National.
The founders say Carzaty’s competitive advantages – quality cars, fair prices and customer service – will help provide customers across the GCC with a larger selection of cars to choose from.
“We will have car hubs in every city that we operate in as we scale [up] across the GCC. Our immediate short-term focus is on the UAE and Oman. We see huge potential for growth in these markets. Beyond that, we aim to expand across the GCC, including Saudi Arabia,” Mr Chaar says.
The start-up intends to grow in existing markets by expanding its stock levels.
It has also increased its capital allocation for car purchases.
“In terms of revenue, we have consistently been doubling annual revenue since we started. Now, with the launch of our Dubai operations, we expect continued growth,” Mr Chaar says.
However, the landscape changed with Covid-19. Although the stay-at-home measures brought about by the virus were hard at first, the business turned a page as people shifted to online shopping amid heightened health concerns.
“We were closed for about three months and it was financially challenging for our entire team. However, upon restarting operations, we were pleasantly surprised by the demand for used cars,” says Mr Chaar.
He says that three major trends have supported Carzaty’s business after the pandemic. First, customers are more willing to shop online, even when it comes to buying cars.
“If you buy from an individual on a classified website, they will not have this level of professionalism or attention to detail. On the other hand, if you buy from a trusted retailer, you can buy with a guarantee of quality. We have even sold cars to customers without them coming to our showroom at all,” he says.
Another trend supporting car sales is a reluctance to use public transport amid the pandemic.
Sales have also picked up as prices prove appealing.
The average value of a used car sold in the UAE is between 30 per cent and 35 per cent lower than that of new cars, which appeals to a growing number of clients, especially younger buyers that are yet unable to afford new cars, according to a report by consultancy Frost & Sullivan.
As a result, used car sales in the UAE are set to experience double-digit growth rates in the next five years.
“The GCC will see a major conversion in buying, from new to used cars in the coming years. When you are trying to save money in a tough economy, you are most likely to buy a used car,” Mr Chaar says.
Q&A with Marwan Chaar and Hassan Jaffar, managing directors of Carzaty
Who was your first investor?
Hassan: The first investor to commit to our seed round was Sansar Capital, a New York-based fund focused on emerging markets.
What already successful start-up do you wish you had started?
Marwan: LittleBits. It’s a phenomenal success story. In the GCC and wider Middle East, there is a lot of exaggeration of what success is. LittleBits is the story of a Lebanese woman who started this business after identifying a niche, raised the right type of funding, grew her business slowly and steadily and sold it to a larger company. This is what we need to aspire to as entrepreneurs in the Middle East. Younger entrepreneurs need to be inspired by businesses that make fundamental economic sense.
What is your next big dream to make happen?
Marwan: I want to return to the energy industry and work in the global transition to a low-carbon future.
Hassan: Invest in technology start-ups with an impact angle.
What new skills have you learnt in the process of launching your start-up?
Hassan: Before Carzaty, I always worked with people who came from a similar background as mine. Learning how to work with people from very different backgrounds was the biggest skill I gained.
Marwan: Learning the dynamics of a very unique industry, which is used cars.
If you could start all over again, what would you do differently?
Marwan: I would avoid the worst global crisis in recent history.
Who is your role model?
Hassan: Bill Gates as co-chair of the Bill & Melinda Gates Foundation.
Marwan: Salman Khan, founder of the Khan Academy.
Where do you see yourself after 10 years?
Marwan: Working on another venture on a beach in Ras Al Khaimah.
Hassan: Investing and supporting entrepreneurs embarking on journeys to solve real problems.