The biggies have built dark stores, warehousing, last-mile deliveries and launched private labels, but still struggle with low margins.
The milk delivery space has seen some action in recent times, with the entry of start-ups such as Milkbasket and DailyNinja, which operate on a business model that relies on tie-ups with milkmen. According to RedSeer Consulting, the delivery of daily essentials commands only an 8% share in the $97 million e-grocery market, but it accounts for the highest number of transactions — around 38%. Given the high frequency of orders, bigger players such as e-grocery chain BigBasket, Amazon and Swiggy, too, want a piece of the milk delivery pie.
But it isn’t an easy business to run. With Bengaluru-based start-up Doodhwala suspending its operations last month, the viability of such a business is under question.
Most players in this segment work on the subscription-based model, and deliver milk and daily essentials such as bread and eggs to customers early in the morning. There is no engagement with the customer as the products are kept at their doorstep. The start-ups in the segment have tied up with local milkmen, and then use them to onboard customers on their app.
DailyNinja, a Bengaluru-based start-up, claims to have tied up with 2,800 milkmen in seven cities. “We don’t have our delivery fleet or warehouses; we partner with existing milkmen and this decreases our last-mile delivery costs,” says Sagar Yarnalkar, the company’s CEO and co-founder.
The emergence of this model has attracted funding to the segment as well as the attention of bigger players. In 2018, BigBasket acquired Pune-based Raincan and Bengaluru-based Morning Cart, while Swiggy took over Mumbai-based Supr Daily. The milk delivery segment has seen funding go up from $0.32 million in 2011 to over $30 million in 2018, according to data from start-up analytics firm Tracxn.
BigBasket had been mulling a foray into this space but could not devise a cost-efficient way. “When milk delivery start-ups emerged, we decided to acquire them and make them more cost-effective using the subscription model,” says Anand Bhaskaran, head, digital marketing, BigBasket. The company claims it gets 2.5 million orders a month through its BB Daily service.
Earlier this year, Amazon introduced Amazon Fresh in Bengaluru for the delivery of dairy and other daily essentials. The service has now been extended to Delhi-NCR, Mumbai and Hyderabad. This, despite already offering groceries through Amazon Pantry. With its deep pockets, the company is doing things a bit differently by offering all-day delivery of daily essentials. Siddharth Nambiar, director, category management, Amazon India, shares that the company offers free delivery for order value exceeding Rs 600.
Even though these players have tried to bring down the last-mile delivery cost, the margins for milk as a product are still very low. Experts say these players will have to expand their offerings to up revenues.
Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY, is of the opinion that the success of these businesses depends on whether they can deliver non-milk products as efficiently. “These players need to deliver fruits and vegetables which can be marked-up due to a lack of clear pricing, and thereby increase their margins. And that is difficult as the supply chain of non-milk products is very complicated.”
Some companies have partnered with supermarkets to deliver groceries and extend their offerings. But this comes with its own set of challenges. “Most retailers or stores don’t operate with big margins, so they cannot afford the last-mile delivery charges,” says Alagu Balaraman, partner and MD, Indian operations, CGN Associates. Besides, general stores in several localities are known to offer free home deliveries to customers.
The biggies have built dark stores, warehousing, last-mile deliveries and launched private labels, but still struggle with low margins. “The last-mile delivery cost could be between Rs 30-50 and the order size for daily essentials is very small. Hence, it is a big challenge for these players to get more products into the consumer’s cart,” says Rajat Wahi, partner, Deloitte India.
Analysts say that having one app to cater to all the home delivery needs of customers would be ideal. That would, of course, mean extending their offerings. “They can explore pharma delivery or even B2B tie-ups with pharma chains,” Pahwa adds.