A host of start-ups, including Delhivery, PepperTap, Gojavas, FabOne and others have come up to service e-commerce companies even as legacy cargo firms have joined the race.
They are at your doorstep handing over that much coveted latest mobile or even that gigantic four-poster bed you bought at your favourite e-commerce site. They zip around the streets on their bikes with those huge backpacks bulging at the seams. They are the delivery boys — the largely unseen blue-collar brigade which holds together the e-commerce sector growth story. Employing them are a slew of start-ups that are riding the e-commerce revolution in India, and have taken on the challenge of fulfilling the industry’s promise of timely delivery, one at a time.
Take, for instance, Gurgaon based Delhivery which is valued at $350-400 million. The company, owned by SSN Logistics, started in 2011 as a hyper-local express delivery service for brick and mortar stores delivering flowers, cakes and food items from bakeries and restaurants in Gurgaon. “A couple of e-commerce companies approached us to handle their delivery service. We soon realised that the volume of business is larger in e-commerce compared to what we were already doing. So we changed our strategy,” said Sahil Barua, co-founder and chief executive, Delhivery.
Similarly, former Indian Railway Traffic Services employees Rajnish Kumar and Amit Kumar set up Pristine Logistics. “With limited air cargo capacity that restricts the growth of the delivery business especially in the peak season, we thought of building a logistic business that uses the railways efficiently,” said Rajnish Kumar, promoter and founder director, Pristine Logistics. Early this year, it received a $25 million investment from UK-based Commonwealth Development Corporation.
Navneet Singh, co-founder, PepperTap and NuvoEx (Nuvo Express) is another of these entrepreneurs who have tapped the opportunities thrown up by e-commerce. Singh, a former merchant navy officer, joined Delhivery in 2012 to understand the basics of the delivery business. He then opted for a different route and launched two services with a twist—reverse logistics where a product is returned by the customer to the seller, on which Nuvo Ex is based; and hyper-local logistics, on which PepperTap is based. “In 2012, I thought of being a part of the e-commerce boom. So I identified the services that the industry would require. Payments and logistics were two such services,” said Singh. In
April this year Singh raised $10 million from SAIF Partners and Sequoia Capital for mobile centric grocery delivery service PepperTap.
The logistics industry has seen exponential growth in the past two years. According to the latest report by Singhi Advisors, an investment banking firm, the fast growing e-commerce sector is expected to drive the $167-billion domestic logistics industry. The third party logistics (3PL) segment which stood at $ 17.4 billion in 2013 and accounts for 7% of the logistics industry’s revenue, is expected to witness a compounded annual growth rate of 21.16% from 2013-18. “By the time e-commerce made its debut in the US, it already had a strong third and fourth party logistics set-up with companies such as DHL, UPS, FedEx boasting of a strong network in the country. But the scene in India was very different. The Indian postal service with no fast track delivery set-up, reaching up to 15,000 pincodes at its own speed was the only alternative except for a few private companies. Therefore e-commerce companies had to create a delivery system in India to ensure that their products reached consumers on time without getting damaged,” said Ashvin Vellody, partner, management consulting, KPMG in India, an audit company.
In addition to the start-ups,there are a few more players fighting for a piece of the pie. These companies are the affiliates or logistic arms of e-commerce players. For example, Flipkart runs its own delivery division eKart.
Similarly, Gojavas which earlier used to function as an affiliate of online fashion retailer Jabong.com, also works for e-retailer Snapdeal, after it invested in the delivery business. According to Neeraj Aggarwal, senior director, last mile delivery, Flipkart, delivery is the most important aspect of the e-commerce business which can make or break a firm’s relationship with its consumers. “In 2007 when the company was at the cusp of growth we got a lot of feedback from consumers. But when we approached the domestic logistics companies, many refused to participate.
So we started our own division,” said Aggarwal. Today, the division delivers close to three lakh products a day.
Likewise, this year, online furniture seller Fabfurnish started its own delivery service FabOne. “As we mainly deal with delivering furniture we struggled to deliver our products without getting it damaged. So we thought of starting our own services. This also allows us to train delivery boys to enable them to handle complex and big products,” said Mehul Aggarwal, advisor, FabFurnish. The company will be spending $15 million (about Rs 94 crore) this year on expanding its logistics arm.
Finally, there are the big logistics players such as Blue Dart and Gati. As Ketan Kulkarni, vice president and marketing head of Blue Dart says, the extension of its services to e-commerce players was a natural step as it was already present in the business-to-consumer delivery space. However, the story differs in case of Gati, which enjoyed a stronger presence in the express cargo business. Gati entered the e-commerce delivery business four years back and since then there has been no looking back. “Today it is one of the most important business divisions,” said Dhruv Agarwal, executive vice president, Gati. Gati earned R20 crore as topline revenue in FY13 from the e-commece arm, Rs 62 crore in FY14 and R127 crore in FY15. Bluedart and Gati are the delivery partners of e-commerce players Amazon, Flipkart, Snapdeal, Myntra and Jabong.
To be sure, there is no dearth of funds for e-commerce logistic companies in India.
According to investment data released by VCCEdge, the financial research platform of VCCircle.com, last year e-commerce logistics companies inked 12 deals raising a total of $100.28 million. This year so far nine deals have been struck resulting in raising of $300.26 million. Delhi based Ecom Express is the latest one to join the race. The e-commerce logistics company last month raised Rs 850 crore in fresh funding from the Indian arm of global private equity firm Warburg Pincus. “The infusion of capital will help us expand our delivery footprint in tier III and IV towns, apart from rural areas across the country. Besides this, we plan to invest in technology, deploy advanced parcel sorting system, strengthen network reliability and infrastructure and finally build the second level management team,” said Krishnan, CEO, Ecomm Express.
In May this year, Delhivery raised close to $85 million in a new round of funding led by venture capital firm Tiger Global Management Llc. The funding came less than eight months after it raised $35 million in a Series C round. Delhivery’s Barua says it all depends on how well the business is managed. “We are trying to turn the entire business very cost-effective. I am trying to bring down the cost of delivering per box from $2 to 55 cents,” explained Barua.
Observers point out that contrary to popular belief, it is technology that is the determining factor in the logistics business. “The most important aspect that investment companies look at before investing in an e-commerce logistics provider is how quick and good the management is in solving operational problems through technology. In the online delivery business technology is the game changing factor and to what extend a company relies on it, makes a lot of difference to investors,” said Ritesh Banglani, partner, Helion Ventures, an India focused venture fund based in Mauritius.
The business model has also gone through a transition. “Earlier, delivery firms followed a marketplace model as per which they would list their services on e-commerce websites, that could be accessed by sellers. A seller would then select a firm offering the cheapest rate, thereby compromising on the consumer experience as the product would take more time to reach the customer,” said Pragya Singh, associate vice-president, retail, Technopak Advisors, a management consulting firm. Today to ensure smooth function and maintain quality the logistic industry follows a model called managed marketplace. Under this, in addition to its own affiliate, an e-commerce firm inks several long term deals with two or three courier companies depending on their networks in different regions. For example, Delhivery works with 1600 e-commerce companies, apart from 40,000 merchants and 60 companies. Barua of Delhivery says that the company has been profitable at an operational level. “While you do get to make real money in this business, survival depends on the quality of service you provide. One wrong step and you could lose a client,” he said.
To be sure, the aggressiveness of the start-ups has increased the pressure on affiliates that now are looking at bolstering services. “We work at assuring a great service to key clients and expand on the back of it. Every deal has an exit clause,” said Vijay Ghadge, COO, Gojavas. Apart from Jabong and Snapdeal, the company also works for Healthkart and FabFurnish.
Distribution being a vital pillar of the logistic business, established players such as Blue Dart and Gati are already ahead of the pack. For Kulkarni of Blue Dart, the large network presence is a big reason why e-commerce companies, despite running their own delivery divisions, depend on third/fourth party assistance. But building a large network requires both time and investment. “In the last one year we have invested about R60 crore to add more fulfillment centres and warehouses in addition to increasing our coverage. The company today has more than 4000 vehicles covering 12,000 routes,” said Agarwal of Gati. The company’s network cover 99% of the country.
But this has not stopped the affiliates as well as the start-ups from spreading their wings. Barua of Delhivery says that the company which started on an initial investment of R60 lakh, within six months of its operations was running 12 offices in the country and providing its service to 150 pincodes. “Today we provide service to 3000 pincodes and have 555 offices across the country. By the end of this year we plan to add 400 more cities to our network.
Additionally we will be building nine fully automated transportation centers and 20 fulfillment centres,” he added.
Gojavas too claims to be on an expansion spree. The affiliate of Jabong and Snapdeal claims to have increased the number of pincodes it reaches out to from 2300 in February to 2800 in April this year. “We have already expanded our presence from 110 cities to more than 270 cities. By the end of this quarter we plan to extend service to 350 cities and 3000 pincodes,” said Ghadge of Gojavas.
However, the sector has its peculiar challenges, notably the peak in demand for their services during the festival and sale seasons. For instance, eKart which handles three lakh shipments a day for Flipkart, sees a huge spurt in orders during the festive season. Similarly, Gojavas that delivers 100,000 to 1,25,000 parcels on a regular day, delivers more than 1,50,000 packets per day during the weekends or during a period of sale. “The question is how do e-commerce logistics companies ready themselves to meet the sudden spurt in orders and do they really want to expand capacity for that one day of big sales. And after that day what would they do with the additional resources?
Whether it is the old established players or the start-ups or even affiliates, the challenge resides in predicting demand and then utilising the manpower later,” said Ashvin Vellody, partner, management consulting, KPMG in India.
Agrees Vishal Sharma, vice president,operations and strategic initiatives at e-retailer ShopClues, who says expanding reach and managing mammoth orders are the two areas that logistic companies need to continuously work upon.
Many of them are already trying to create alternate delivery models which would help them in anticipating the increase in order volumes especially during peak times, points out Agarwal of eKart. “We plan to set up pick-up centres in high density pockets in urban cities. Moreover, we are thinking of starting electronic boxes which are just like post boxes, where our delivery boys can drop the parcel. We are also in the testing phase with drones for delivery,” he explained. eKart currently delivers to 3600 pincodes and plans to expand to 4000 pincodes by March next year.
These e-commerce logistic companies have a dual identity as they double up as collection agents for cash-on-delivery sales. At times, they are responsible for returning money to a customer if a product is returned. For Barua of Delhivery, the challenge resides in making the payment system transparent. “We have to build capabilities that allow us to deal with the cash of other parties. Currently we remit the cash within two days, whether handing over the collected cash to e-commerce players or returning the cash to consumers,” said Barua. In 2013, Delhivery had acquired the offline cash collection network of Gharpay, a doorstep cash payment network.
Even as cash-on-delivery remains the most popular mode of payment, newer payment options such as card-on-delivery, mobile payment wallets, etc., are gaining ground. “We are trying to bring about a change. Delivery boys carry wireless devices that allow consumers to swipe debit/credit cards. Moreover, to make online payment mode the preferred option, we are trying to make mobile wallets popular amongst consumers,” added Agrawal of FabOne.