Express grocery delivery, also termed as quick commerce, is currently the hottest theme in India's e-commerce sector. With the segment expected to grow 10-15 fold in the next five years to become a $5 billion opportunity by 2025, it is here to stay, according to a recent report from consulting firm Redseer.
During a recent masterclass episode on ‘Delivery Wars: 15-Minute Groceries, Anyone?’ moderated by Moneycontrol's Chandra R Srikanth on September 10, Dunzo CEO Kabeer Biswas said that next day delivery is most likely not going to be good enough few years down the line. He however noted that a balance is important in terms of making the economics work and how delivery partners are incentivised.
Dunzo and other firms like Grofers and Swiggy are pushing the limits on how fast they can deliver consumables at your doorstep -- currently ranging from 30-45 minutes to as fast as 10-15 minutes. BigBasket is also said to be ramping up its express delivery segment, after Tata Digital acquired a majority stake in the online grocery seller.
However, this rush to deliver products in a super fast manner has also raised several important concerns among various stakeholders in the industry -- What toll does hyper-local delivery take on its workers? Do you really need your groceries delivered in 15 minutes? Is this a sustainable business model?
Some key excerpts from the panel discussion that also included BigBasket's TN Hari, Shadowfax's Abhishek Bansal and IIHS's Aditi Surie:
The need for quick commerce
Kabeer Biswas: Are things going to get delivered faster? In the next five years, next day delivery is most likely not going to be good enough, anything you buy online is going to be delivered in two hours time. Our average delivery time for the last 15 months has been in the range of 21-22 minutes. Last week, it was 15 minutes. But we are not in electron businesses. So Newton's law does apply to us. Also balance is important, in terms of how you incentivise delivery partners and make the economics work.
Our average order value is Rs 450 with 15 percent gross margin. Today, we are contribution margin positive.
TN Hari: The need for 15 minute delivery is really contrived. I don't think there's a place for it. It's impossible to make the economics work right now. But it may work in the long run.
Abhishek Bansal: Delivery time requirement boils down to what the customer wants and what kind of catalogue you are selling to the customer, since there are different kinds of customers with different kinds of paying power. Delivering in 15 minutes is a real challenge. It all depends on what price you are willing to pay for it.
Aditi Surie: Some kind of stabilisation that can offer a more stable payroll for delivery personnel is the way to go, especially since we are in the midst of a pandemic and people do need jobs. We need to be mindful of how these products are impacting the most vulnerable of people doing these jobs.
Payments to delivery partners
Abhishek Bansal: As delivery times reduce, the earning opportunities of delivery partners improves significantly. The average pay per order has increased by 30 percent for delivery partners in the past year. We are seeing more deliveries just through higher density.
Aditi Surie: While there is pressure to deliver faster in quick commerce, they need to spend more time studying the automated system. There is no upside to getting more wages for delivery personnel. There is a challenge of inclusivity that goes into service innovation and also how delivery personnel, those from outside the city, can make this work in a profitable way.
Kabeer Biswas: The earnings are going to go up only at the rate of inflation going forward. It's going to be hard to do anything otherwise, unless you see some massive disruption in technology. We are also up against really thin margins, lesser than the delivery partners. This only works at a massive scale. Until you are not able to scale to 15-30 million transactions a month and get a density of about 250 orders per hour from the same warehouse, I don't think we will be able to see a perceived impact in earnings happen at all.
TN Hari: Let's not raise an outcry and say delivery boys are exploited because what were these delivery boys doing before this? They were working on farms at subsistent wages. The only problem I have is that it is not a sustainable business. There are very few people who want delivery in 15 minutes. The cost it takes to service this customer need is very high and therefore the probability of making money is very low.
Taking the model to tier 2-3 cities
TN Hari: Taking this model to Tier 2-3 cities is extremely difficult. You need imagination to make money in tier 2-3 cities since most companies have milked these top 100 million consumers based on convenience. But the real big businesses that will be built going forward will be those that can create products and services at price points relevant to the next 400 million consumers. You can't substitute kiranas, it is important you work with them and make them more effective.
Kabeer Biswas: We believe that this category will play out well only in top 15-20 cities, which are the top 1,000 demand centers in the country. Beyond that, it is a huge challenge to make it work.
Aditi Surie: Many kirana store owners are unfazed by the online-only stores and don’t feel the need to engage with platforms given the long term engagement and trust with customers.
Unit economics of quick commerce
Abhishek Bansal: The cost of delivery varies anywhere between Rs 40-60 depending on the city, how you are delivering it and delivery distance. The amount changes significantly the moment the weight of the delivery increases. The definition of densities and number of stores based on geographies is going to be very critical. While talking on last-mile costs for quick commerce, we should also talk on costs preceding it like the cost of storage points near the customer.
TN Hari: Piece rate payment has been around since the industrial revolution. It is the only way that aligns incentives. There will be unintended consequences and we will innovate for that too.
Safety of delivery riders
Abhishek Bansal: Quick hyper-local deliveries are safer than delivering across the city. These orders are not even heavy due to their small order and ticket size. One of the big issues that we are trying to solve as well is people end up developing a back problem due to carrying a heavy bag on their shoulders throughout the day. But express deliveries do not have this problem due to low weight and shorter distances. Penalising delivery partners is not the right approach. We choose to reward good behaviour instead.Aditi Surie: While accident cover has been in place, there is a high barrier to access some of these on ground. Companies need to make them easier to access for people. Companies need to keep in mind that while the digital economy is bringing more people to the formal economy, they are leading risky lives and we have a long way to go and work with the government to fix it.