Why Zoopla’s founder thinks the UK used car market is ripe for disruption

Debora Carley

Alex Chesterman – Tom Stockill In early April, in the depths of lockdown, things did not look good for Britain’s tech sector. The likes of Deliveroo, Babylon Health and Citymapper were all warning of a cash squeeze. Without urgent government support, the “high-growth UK tech sector will be put at […]

Alex Chesterman - Tom Stockill
Alex Chesterman – Tom Stockill

In early April, in the depths of lockdown, things did not look good for Britain’s tech sector.

The likes of Deliveroo, Babylon Health and Citymapper were all warning of a cash squeeze. Without urgent government support, the “high-growth UK tech sector will be put at risk”, they said in a sharply-worded letter to the Chancellor. 

But famed entrepreneur Alex Chesterman didn’t share their concerns. The founder of both LoveFilm and Zoopla didn’t think “a blanket approach of government support would be good”. 

More importantly, he wasn’t seeing money dry up. By April, his start-up Cazoo – an online-only used car site –  had just raised £100m. Weeks later, it would go on to raise another £25m, landing it with a valuation of more than $1bn (£800m) less than two years after Chesterman came up with the idea. 

“We’re probably the best-funded start-up in Europe right now,” Chesterman says from his home in North London. “I guess one of the traits of entrepreneurs is that where other people see challenges, I see an opportunity.” Now, he says, it’s “time to put the foot on the gas”. 

UK Tech Investment
UK Tech Investment

At Cazoo, this means spending heavily on marketing, sponsoring football clubs like Everton and Aston Villa, buying ad space when others are pulling back – all in an effort to become a “household name”.

It’s a significant media blitz for what is essentially an online used car dealership, the business buying and reconditioning vehicles to then sell on to customers online, and delivering them straight to their doors. 

Chesterman says there is huge potential for Cazoo, a firm he says is “reinventing the current process” of how people buy cars by entirely removing the need for them to visit a dealership at any stage. 

Back in 2018, when he left Zoopla, Chesterman hadn’t been planning to go straight into another venture. He had wanted to take some time out, his view being that “the digital revolution has been going on for 15 or 20 years, there can’t be anything that remained untouched”. 

“It turns out I was wrong. The biggest space is the one that was least touched and transformed.”

The market is certainly significant. A total of 8 million used cars are sold a year, compared to around 2 million new cars. 

But how revolutionary Cazoo’s business model is is a topic of much debate.

Robert Forrester, the boss of listed car dealership group Vertu Motors, is more than a little sceptical. “I don’t think they’re a major disruptor at all to be honest,” he says. “They’ve come to the market with what people have been doing for a long time to be honest which is selling cars online and delivering them to people’s houses.”

Others are more forgiving. Ian Plummer, Autotrader’s commercial director, says Cazoo is “definitely bringing a strong proposition to the market” – but he disputes that the market has been untouched by digital.

Already, he says, 95pc of people research online before going to a dealership, with sites like Autotrader allowing lots of dealers to reach customers online, and offer different stages of the process of buying cars digitally.

“The only fundamental difference with Cazoo is they’re offering a wholly online journey with the delivery at the end of it”. Plummer isn’t convinced that most people want this. “Many consumers still get a lot of value out of engaging with the retailer.”

Certainly before Covid-19 hit, that appears to have been the case. A survey had suggested only around 13pc of consumers would be willing to buy a car and have it delivered straight to their door, without any physical interaction. 

But Chesterman says things have changed in the past few months. “If you surveyed people in the second half of last year, which we did, and asked what percentage of them would be prepared to be keen to buy a car online. That number has now doubled.”

This is down to three things, he says. The first is that the shift to online retail has accelerated, people realising they can buy more online. The second is that people are understandably concerned over public transport right now and their exposure to a virus. And the third, he says, is that “used cars are typically a beneficiary when you have tightening of consumer spending”.

Chesterman may be right. During the financial crash, the used car market remained relatively resilient, the number of vehicles sold in 2008 dipping just over 5pc on 2007 figures, compared to a 11pc drop for new cars.

“What you find is the used car market never really oscillates more than 5pc up or down because it’s a large chunk of cars that transact frequently,” says Autotrader’s Plummer.

However, it’s difficult to predict what will happen to the market during a pandemic. Figures out from the SMMT for the first quarter of the year through to the end of March suggest a significant hit. During the period, the market slipped 8.3pc. April is expected to have been equally difficult. 

Steve Thornton, the founder of car dealership group Forces Car Direct, which sells to military personnel and front-line workers, says he is wary of too much optimism within the car market. “When things aren’t going well, a lot of those people will always just try to be positive – but it was on a decline toward the end of last year.”

“People are blaming the pandemic for the car trade being on its knees, but it was already on a downward trend,” he says. “You’ve got to be very different to survive in this market.”

Chesterman isn’t too phased. “In the context of the 8 million transactions a year, we can look at whether that goes to 7 million over the next three years. But, it doesn’t actually make a huge amount of difference.” 

Such comments are perhaps no surprise. After all, Chesterman weathered similar market turmoil with his last business, albeit in a different sector. Property portal Zoopla launched just as the financial crisis hit with buyers drying up fast – and even then he grew it to become the second largest property portal in the UK.

The question is, does he think he can pull off something similar with Cazoo?

“We’re six months in, so it’s very early,” he laughs. “I mean, we’re planning growth, we want to get to a decent market share in the UK.”

Given the firepower Chesterman has behind him, this may not take too long. Right now, at least, it seems Cazoo is well and truly in the fast lane.

Source Article

Next Post

Make a vaccine? I'm trying to teach my kids the alphabet

By Kate Holton, Emma Thomasson and Stephen Jewkes LONDON/BERLIN/MILAN (Reuters) – It’s tough to do any useful work when you’re stuck at home, struggling to home-school bickering kids, let alone when you’re trying to produce a COVID-19 vaccine. British drugmaker AstraZeneca <AZN.L> had spent years preparing for a pandemic, but […]
Make a vaccine? I’m trying to teach my kids the alphabet