Delhivery to set up 50 dark stores; eyes Rs 100 crore revenue boost from 2-hour delivery service

Sahil Barua, MD and CEO, Delhivery

Listed logistics unicorn Delhivery is planning to set up 50 dark stores across the top eight metropolitan cities in India, as it continues to expand its sub-two-hour rapid delivery service for direct-to-consumer (D2C) brands, the company’s top management said in an earnings call on February 7.

“Broadly, I expect that this (rapid delivery) business will add somewhere between Rs 80-100 crore of revenue to Delhivery through the financial year. And the margin structure will broadly be similar to the express business as a whole,” said Delhivery CEO and MD Sahil Barua, while speaking to analysts after announcing the company’s December quarter results.

The Gurugram-based firm announced the launch of its quick delivery service in January to cater to the growing demand of D2C brands for quicker deliveries. The service is currently live in Bangalore, Hyderabad and Chennai, and the company has plans to expand it to cities like Delhi NCR, Mumbai, Pune and Ahmedabad.

This comes at a time when demand for quicker deliveries has been picking up, with quick commerce firms like Blinkit, Zepto and Swiggy Instamart aggressively increasing investments to expand their footprints and gain larger market shares.

“We have gone live with two core customers, with another fifteen scheduled to start at some point over this quarter and early part of next quarter,” Barua said.

To fulfil orders, Delhivery charges brands a fee on each order – which includes a warehousing fee – typically in the range of Rs 80-100 per order serviced.

According to Barua, given the increased limit on delivery times – two hours compared to 15-20 minutes of quick commerce players – Delhivery is able to get away with setting up just 50 stores which are “not too expensive to set up.”

“Depending on what the demand pattern looks like, we may add a couple of stores here and there, but I don’t expect it will be significantly different (from the initial target),” he said.

Though in its initial days, the service is growing rapidly. In fact, according to Delhivery’s December quarter results, while its core Express Parcel business has reported a marginal revenue growth of 3 percent YoY to Rs 1,488 crore, volumes from its D2C business, as per Barua, have increased 30 percent YoY.

Furthermore, management said that the company is close to achieving breakeven for most of its initial dark stores.

“Volume uptick in most of the dark stores has been pretty reasonable, given that we started barely 45 days ago. The first set of dark stores are already approaching 500 orders per day...And the breakeven point for these stores is much lower than it is for the broader quick commerce industry. Broadly speaking, we breakeven at around 700-800 orders per dark store per day. So, we are nearly there,” Barua said.

Regardless of the initial growth, the company does not see rapid commerce as a large growth opportunity. The firm will keep this service limited to the top markets.

“Rapid commerce is more of a feature, an add-on product for the top eight cities for specific SKUs and customers. Relative to the broader scale of e-commerce, it is still a fairly small opportunity,” Barua said.

This is primarily because of the limited demand in metro cities, which, as per Barua, contribute just 8 percent to the total e-commerce volumes in India – specifically for orders sourced and delivered within these regions.

“Moreover, a majority of e-commerce is soft lines and long-range items which don’t lend themselves to quick commerce. This cuts down the market further in half to about four percent,” the CEO said.

“For instance, if you are cosmetics brand, having 100 SKUs, all of them do not work for quick commerce. At best, maybe about 10-15 will lend themselves to quick commerce. You are really talking about a small percentage of a small percentage..,” Barua explained.