Written By, Prof. Abhishek Sinha
Our household has been one that rarely does planned monthly shopping for groceries and a lot of times it leads to the last-minute realization that a particular item that is urgently needed is out of stock. Earlier it used to be an unpleasant situation but it is no more now. With Bigbasket Now in our city, the kid orders urgent Requirements very easily so everyone Is happy.
It is definitely a win-win situation for the consumers. According to one of the consulting firms Redseer Strategy Consultants, this segment will grow exponentially. Surely it will, but the moot question is, will this business model of quick commerce be profitable anytime soon? Going by the economics of order size, gross margin, and delivery commission, it looks like an uphill task. Challenges are many. Out of curiosity, I started talking to some of these delivery guys (who have become a regular feature in our household) and have made a small analysis.
Business Model of Quick Delivery Players
So What Does Profits?
Increasing the delivery times from 10 mins to 30 mins, is this going to accelerate profitability?
Many of the players are trying to move out from 10 mins to a delayed delivery.
Pros
- Cover larger areas with the same store, get more orders per store
- Club multiple orders for delivery in a single trip
- Lesser no. Of stores required
- More time for picking and packing, reduction in manpower
Cons
- Increased delivery times may result in customers preferring local grocers for urgent requirements.
- For multiple order deliveries in the same trip, travel expenses increase, and the delivery person would expect a higher payout, in turn reducing profitability.
While this increase in delivery time will surely contribute to better realisations per trip, this can be to only a certain extent due to the factors already discussed.
Will Increasing the no. of categories for ordering- will that drive profitability?
- Profitability is majorly impacted by gross margin per order and delivery commission.
- Players will need to carefully choose categories which give higher order value and gross margins and are frequently ordered.
Steps to Profitability
- Increase no. of dark stores to cover a much smaller area (from current radius of 3 km to 1.5 km)- Reduce delivery person commission but focus on generating more orders per store to provide decent earning for the delivery person.
- Increasing Average Order Value
- Increasing turnover per store
- Use quick commerce to acquire customers andmove them tomonthly/planned requirementordering on the platform.
- Charge delivery fees from the customers (some of the players are already doing)
By: Prof. Abhishek Sinha
