First Principles | Why the ‘10-minute-delivery’ business has legs
While it is true that a funding-winter has set the world over, conversations with veterans in Indian retail suggest that the India-narrative may have some other nuances to consider.
Reports from the West across media have it that the instant grocery delivery business is staring at a bleak future. With most economies in the doldrums, investors are turning tight-fisted. While it is true that a funding-winter has set the world over, conversations with veterans in Indian retail suggest that the India-narrative may have some other nuances to consider. This has to do with how the Indian consumer thinks and the kind of money that has found its way into the ecosystem. Of course, there will be bloodshed, but as things stand now, how do we look at the online grocery business?
“When you promise 10-minute deliveries, you manufacture demand,” says TN Hari. He was part of the founding team at Big Basket and is now co-founder at the Artha School of Entrepreneurship. “It is unsustainable in the long run. But instant deliveries are a smart way to get a foot into the retail business.” Tata Digital acquired a majority stake in Big Basket in May last year for $219 million. Now, why would a conglomerate such as the Tatas do that?
Several pointers emerge from a conversation with Damodar Mall, CEO, grocery retail, Reliance Retail. In India, digital democracy has percolated deep down to Tier 3 and 4 towns, he says. In any case, customers were always buying in-store and getting stuff home-delivered. Ordering online is a just contemporary way of getting home-delivery.
Mall who describes himself as a student of consumer behaviour suggests we need to imagine what his core client may look like. “For me, these are homes with at least one school-going child. Their shopping behaviour is the most interesting in shaping our business strategy.”
When their shopping baskets are looked at, their purchases can be split into dry goods and fresh goods. Dry is what they plan and budget for while fresh is purchased as and when needed. Any entity that can build the capability to deliver fresh goods stands a good chance in the marketplace. The opportunity to create a new retail business on the back of ‘instant deliveries’ lies in delivering fresh goods is what Mall believes. “For quick commerce businesses, the temptation to attempt detergents and atta will be high but these are dry goods and I don’t think such items are purchased on an impulse,” he says.
So, what does this mean for the ‘10-minute delivery’ business? Hari of Artha School believes it is a matter of time before pure-play digital entities increase their delivery time from 45-60 minutes to a few hours. And companies such as Dunzo and Zepto will morph into the logistics arms of the savvier digital-first players such as “Swiggy who have played it smartly until now”. This, Hari says, is because they have managed to hit a sweet spot of having identified 8,000 kinds of items people consume regularly and keep them stocked. Most other pure-play digital players haven’t gotten there yet.
As for conglomerates that have witnessed India change from close quarters and have the monies to stay invested, they have figured they need to have about 40,000 items stored. They have the monies to have these stocks and are now investing in places to store them.
That takes us to the future of ‘instant’ deliveries and why it may pan out differently from the West where the business looks in serious trouble. While pure play digital companies started with a 10-minute promise, that time has expanded to 20-25 minutes in Tier-1 cities, then 60 minutes and eventually 3-4 hours without consumers complaining says Hari. “This is a hard business to operate.”
When probed, Mall says a strong digital infrastructure is imperative to woo consumers. He declined to get into the economics of it all. “The share of discussion and argument of digital commerce in grocery is many times higher than their actual market. Sustained change takes a long time.” What both of them agree upon is that while new players will come in, others will get killed. But as things are, conglomerates have the upper hand.