By Salman SH
The online grocery delivery space, which is broadly moving to a quick commerce 10-minute delivery format, has an unlikely contender. B2B e-commerce unicorn Udaan is betting primarily on a business model that taps into the distribution capacity of 12 million homegrown kirana shops. Rather than investing heavy capex into the dark stores model operated by the likes of Dunzo, Swiggy, Blinkit, Zepto and others, Udaan has taken a leaf out of the social e-commerce model for its grocery delivery play.
Dubbed as ‘Price Company’, Udaan’s entry into the consumer grocery delivery segment began in early 2021. Prior to this, the Bengaluru-based start-up mostly operated as a B2B e-commerce platform built on top of a logistics network of more than 70 warehouses and 500 last-mile fulfilment centres. It is now reusing this capacity for the online consumer grocery market.
Currently, most of the leaders in the grocery delivery segment, including Dunzo, Swiggy, Zepto, Blinkit, and BigBasket, acquire inventory from brands, manufacturers and wholesalers. This is stored in a distributed network of dark stores set up within city limits, usually referred to as ‘hyperlocal’ areas where population density is higher. However, due to the bulky capital requirements in this model coupled with wafer-thin margin in online grocery, some start-ups like Dunzo, Blinkit and BigBasket upsell their own private labels to realise better unit economics.
It is important to note that many of the online grocery delivery players initially started off as online marketplaces aggregating nearby grocery shops and supermarkets to source inventory. But due to unpredictability over inventory availability and pushback from supermarkets for eating into their revenues, start-ups like Swiggy and Dunzo moved entirely to an inventory model. However, none of these platform have been successful in achieving profitability or positive unit economics in the grocery delivery market.
On the other hand, Udaan is attempting to tackle the challenges in B2C grocery delivery by acquiring supply directly from FPOs, millers and farmers for perishables and by directly procuring supply from brands and manufacturers. With direct sourcing tie-ups, Price Company is able to keep the cost of inventory acquisition much lower compared to its competition.
Ankit Agarwal, business head, Price Company, said since Udaan’s core B2B business is already acquiring and delivering 9,000 tonne of daily food and perishable goods stored in its own warehouses, it is able to operate Price Company business at one-sixth of the logistics costs incurred by its competition.
However, beyond just the innovation in the supply chain, what sets apart Udaan’s Price Company is its community-led grocery model where kirana owners play an important role. As consumers create orders over the Price Company mobile app, the shop owner aggregates all the orders before the day’s end. This aggregated order is then processed and delivered at the Kirana shop’s location before 10 am the next day. The consumer then picks up the order from her nearest kirana registered with Price Company. Currently, Price Company works with over 5,000 kiranas across Kolar, Mysore and Tumkur in Karnataka.
“Since our model works on pre-sales and pre-booked orders, we are able to reduce the amount of wastage that typically eats into potential revenues. The fruits and vegetables as a category alone have around 12-15% of wastage at kiranas and small grocery stores,” Agarwal said.
Apart from this, kirana shop owners assume the role of community leaders by creating WhatsApp groups that broadcast special offers and discounts. They can also work with other re-sellers under them who promote their shop and offers on private WhatsApp groups.
With consumers directly picking up grocery orders from the shops, Price Company’s unit economics is not affected by extensive capital investments into a last-mile delivery fleet for home deliveries — as seen in the case of quick commerce players like Blinkit, Dunzo and Zepto. Price Company plans to replicate its model in around 1,500 towns and cities and between 3.5-5 million retailers by December.
Agarwal said the quick commerce model, which excludes the kirana ecosystem from its business model, can be replicated only in the top 10 cities with high population density. When it comes to small towns, he said the 10-minute grocery delivery model wouldn’t make sense to consumers.
“Consumers in small towns and cities typically have lower disposable income spends, and most of their e-commerce spends are focused on discretionary categories like mobile phones, apparel and electronics. A large chunk of their monthly spending typically goes to essential expenses like groceries and food staples that come from offline kiranas and nearby shops,” he said.
This is evident from Udaan’s monetisation data released by market research firm CLSA, which said that due to heightened adoption of kirana ecommerce during the pandemic, Udaan reported a 6x revenue growth for FY21 at `5,900 crore. “At its current scale [Udaan] has a 5.5% gross margin (potential for 8-10%) and it is breakeven at the contribution level … In terms of market focus, it generates 20-30% of its business from the top 10 cities. The next 200-300 cities make up 40%. The bottom cities represent 30-40% of revenue, where it wants to expand share, given it has defocused segments by trade and brands,” the report said.
