Online grocery delivery. (Image: BloombergQuint)

Online grocery delivery. (Image: BloombergQuint)

Grofers To Dunzo Bet On Stressed Riders For Making It Big

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It’s around 2:30 p.m. on a Wednesday. Yadav, a former car sales executive, parks his scooter next to a dozen others outside one of Grofers’ mini-warehouses in India’s booming satellite town of Gurugram. He steps inside for the second time in about half an hour.

Within minutes, he returns with half-a-kilogram flour and other staples. “The second order is already up,” said Yadav, who doesn’t want to disclose his first name out of employment concerns.

Yadav doesn’t waste time talking, so this correspondent hops onto the pillion seat. He swerves through the traffic, and takes the wrong side of the road to avoid a U-turn to save time. A car approaches, head-on, passing ominously close.

The location was not precise, and some time is wasted in asking for directions. The parcel reaches the destination in 20 minutes. Grofers promises to be at your doorstep in 10 minutes, but rarely pulls up drivers for being late.

Partners like Yadav are the backbone of India’s on-demand delivery of vegetables and staples to shampoos. Now, companies are pushing them to drop packages within minutes to win over customers. In the world's second-most populous country not creating enough jobs, it's easy to build a fleet of such riders.

Dunzo saw an opportunity early, and the Indian unit of Amazon.com Inc. and Reliance Industries Ltd. to Swiggy are chasing it as well. But like most internet-driven businesses, the so-called hyperlocal delivery is not profitable. And, it’s still not clear if the model can survive in a chaotic country like India.

Investors are piling in though.

Earlier this month, six-month-old startup Zepto—founded by Stanford dropout teenagers Aadit Palicha and Kaivalya Vohra, and aiming to deliver groceries in 10 minutes—raised $60 million (Rs 449 crore) at a valuation of around $250 million (Rs 1,873 crore).

Reliance Jio Infocomm Ltd., the telecom unit controlled by Asia’s richest man Mukesh Ambani, is in talks to invest $250 million in Bengaluru-based Dunzo.

It’s around 2:30 p.m. on a Wednesday. Yadav, a former car sales executive, parks his scooter next to a dozen others outside one of Grofers’ mini-warehouses in India’s booming satellite town of Gurugram. He steps inside for the second time in about half an hour.

Within minutes, he returns with half-a-kilogram flour and other staples. “The second order is already up,” said Yadav, who doesn’t want to disclose his first name out of employment concerns.

Yadav doesn’t waste time talking, so this correspondent hops onto the pillion seat. He swerves through the traffic, and takes the wrong side of the road to avoid a U-turn to save time. A car approaches, head-on, passing ominously close.

The location was not precise, and some time is wasted in asking for directions. The parcel reaches the destination in 20 minutes. Grofers promises to be at your doorstep in 10 minutes, but rarely pulls up drivers for being late.

Partners like Yadav are the backbone of India’s on-demand delivery of vegetables and staples to shampoos. Now, companies are pushing them to drop packages within minutes to win over customers. In the world's second-most populous country not creating enough jobs, it's easy to build a fleet of such riders.

Dunzo saw an opportunity early, and the Indian unit of Amazon.com Inc. and Reliance Industries Ltd. to Swiggy are chasing it as well. But like most internet-driven businesses, the so-called hyperlocal delivery is not profitable. And, it’s still not clear if the model can survive in a chaotic country like India.

Investors are piling in though.

Earlier this month, six-month-old startup Zepto—founded by Stanford dropout teenagers Aadit Palicha and Kaivalya Vohra, and aiming to deliver groceries in 10 minutes—raised $60 million (Rs 449 crore) at a valuation of around $250 million (Rs 1,873 crore).

Reliance Jio Infocomm Ltd., the telecom unit controlled by Asia’s richest man Mukesh Ambani, is in talks to invest $250 million in Bengaluru-based Dunzo.

Grofers executive delivering an order. (Photo: BloombergQuint)

Grofers executive delivering an order. (Photo: BloombergQuint)

Grocery is the next big category for online retailers as it contributes 65% of India’s $850-billion retail market, according to Technopak Advisors. While frequency of repeat customers is high, Indians prefer to buy daily items from millions of small kirana stores found in every neighbourhood.

To draw customers, Dunzo, Swiggy’s Instamart, Zomato-backed Grofers and Zepto offer to drop anything from a toothbrush to pulses and spices within 10 minutes.

At present, Walmart-owned Flipkart offers a 90-minute fulfillment through its dark stores Flipkart Quick. Tata Group-backed BigBasket, which controls nearly a third of the online grocery market, has its own offering BB Now. Amazon Fresh promises to serve in about two hours.

But do Indians really care about rapid deliveries?

Ankita Singh, who placed the order that Yadav ferried, isn’t too thrilled. “It’s more of a one-off for me,” she said. Singh prefers scheduled, bulk supplies once a week or month.

Food and grocery is a $550-billion market (Rs 4.1 lakh crore) and nearly a third of the money is spent on staples, which are purchased monthly or fortnightly, according to Arvind Singhal, chairman and managing director of retail consulting firm Technopak. Another third is spent on fresh fruits and vegetables, a segment that even big online grocers have not been able to crack, he said.

What’s left are the other household goods like soaps, detergent, and snacks, he said. A customer might run out of these things, according to Singhal, but doesn't want them desperately.

“There’s no real merit in the 30-minute delivery as far as food and grocery is concerned. There will always be exceptions, but the volume of addressable market is almost negligible when it comes to big cities,” Singhal said. “In small cities, the problem doesn’t exist as kiranas are mostly next door.”

The hyperlocal service providers, obviously, do not agree.

Swiggy delivery executives wait outside Instamart store. (Photo: BloombergQuint)

Swiggy delivery executives wait outside Instamart store. (Photo: BloombergQuint)

While high online grocery penetration has remained elusive in India for the past seven-eight years, it’s now at an inflection point as adoption rises with the 10-minute delivery format, Grofers said in an emailed statement to BloombergQuint.

“Customers love quick commerce—the retention rates and net promoter score tells us this is a service that they want and need.”

Grofers said it has 10 lakh quick commerce users, and its average weekly retention rate is 50%. That means, half its users order every alternate week. Swiggy, according to its blog in September, has more than 7.5 lakh users on its platform.

Profit Not In Sight

Still, rapid grocery model is easier said than done. Grofers, BigBasket and Flipkart are trying it the second time, after having shuttered it once.

Dunzo, one of the earliest adopters of on-demand but not rapid deliveries, has been spending Rs 18 crore a month as of March 2021. The company reported a loss of Rs 226 crore on a revenue of Rs 46 crore in 2020-21.

Grofers didn’t disclose how much it earns on every order. Dunzo, Big Basket and Swiggy have yet to respond to BloombergQuint’s emailed queries.

Commissions earned in grocery are at 12-18% of the ticket size, three industry executives told BloombergQuint—they wanted to stay anonymous as they aren't authorised to disclose financial details. By comparison, food delivery earns platforms 20-25%.

For unit economics to work, value and the number of orders per trip are key factors. Customers are not willing to pay for delivery. And average ticket size ranges from Rs 35-50, and is mostly discounted. Even average order value is much bigger, at around Rs 1,500 in scheduled grocery.

Grofers said its stores on average are doing 500 rapid trips. One of its oldest dark stores does 1,400 a day on an average. According to executives at the warehouse BloombergQuint visited, it fulfills about 700.

Palicha, founder of Zepto, which operates in four cities, said the secret lies in being fast.

“The faster you deliver, the cheaper it gets,” he said over the phone. Global peers are doing three to three-and-a-half orders an hour on an average.

Zepto’s average time is 8.47 minutes, and one warehouse serves about 3-3.5 km of radius. Grofers’ riders cover up to 5 kilometres, Yadav said.

Palicha didn’t disclose the average value per trip but is optimistic about hitting full capacity of 2,500 orders a day from each dark store in the coming months.

That means, more riders zipping through India's streets where pedestrians jostle for space with cows and motorbikes to cars.

Outside Grofers dark store in Gurugram. (Photo: BloombergQuint)

Outside Grofers dark store in Gurugram. (Photo: BloombergQuint)

There is pressure to ensure the parcels reach as quickly as possible. The customer expects it in 10 minutes and that’s the most important thing for the company, Grofers’ delivery executive Yadav said. There are, however, no penalties for missing the deadline, he said. “It happens a lot of times as it depends on traffic and distance.”

For Naresh Solanki, it’s even more hectic. He is a temporary rider who is paid Rs 50 per order. “I start at 7 a.m. and end at 11 p.m.,” Solanki said. “The more deliveries we do, the more we earn. And we got fast.”

Yadav is better off since he is on the company’s payrolls with fixed working hours. But even he is not sure about continuing for long. “The pay has reduced and there is risk.”

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