My tryst with delivery..

Its not destiny that's holding back e-commerce profitability, its delivery. And with news that even commerce behemoth AMAZON is looking at cost cutting measures it's a good time to share reflections and learnings from my hyperlocal commerce tryst and ask.. Is there ever going to be a model that can make money? Can e-commerce be profitable, ever? Is the hidden gem hyperlocal commerce? Read on for thoughts from my experience of building a zero-commision hyperlocal commerce co in India.. albeit at a far far smaller scale, but hopefully with what might still be a very very applicable business model.

This also comes at the back drop of many other interesting events that have unfolded in 2022.. Jio and WhatsApp's much awaited 'end-to-end' launch was announced. I'd love to know - have you placed an order yet? Jio Mart has been around for a while, and spoke about their Hyperlocal aka Offline to Online strategy centred around 'kirana' stores, but I am yet to see it fructify into something meaningful.

And it's heartening to come across start ups.. 'still' trying to solve for challenges in the Hyperlocal / Offline to Online commerce space.. its been 7 years since my first attempt at it (yup, even I can't get over how long ago we were building for O2O ??).

So, this note goes out to all the 10-minute delivery, still-figuring-grocery, Amazon-beating idea executors and any other co / startup brave enough to tackle the mighty Indian hyperlocal retail market. Aka to all the likes of Zepto, Dukaan, BlinkIt (Grofers), Jio Mart, WhatsApp kart, dead-maybe-not-gone PayTM Mall. I adore you and what you're trying to do. It needs doing. I only hope someone does it right.

In some small way I hope this note helps figure how.

Its 2015, and mobile is HOT.. like transactions are now mobile-first hot. I was a child of mobile, born into Mobile Internet when it was 1 million users old; and bred by Bharti Airtel , back then the most innovation-driven, entrepreneurial freedom giving company in India. If you thought 'decentralised' is hot today, Airtel had it mastered way back in 2005 [decentralisation of decision making that is].

So when transactions started going mobile and we saw what we thought were web companies win the mobile world, aka 'our' domain, it irked and challenged us to launch and win that market. The obvious application to a 'true' Mobile-first market was.. hyperlocal. Mobile + Location = Hyperlocal Commerce Nirvana ??. At that time mobile provided the best opportunities to give a true hyperlocal experience to users via a mobile app.

And so we launched markt.ooo - market of markets.

Don't worry if you've never heard of it. We died before we flied (I know thats not a word, but hey.. sometimes rhymes are more important).

Core thought behind it: Zero-commision Offline to Online Marketplace. Non-grocery. Markt.ooo helped retail stores sell in-store inventory, online. Electronics, Toys, Stationery, Clothes, Shoes etc. Delivered within 30 minutes (remember we are in 2015, not 10-minute 2022).

What happened? Its now 2016.. we've built a fully working, transacting product; Ranked in YourStory Media 's MobileSpark 2016 Top 10 mobile startups to watch out for.. told we're ready for $1 million by a pretty famous VC co.. and then we die before we even hit 1000 orders. Because in 2016.. it was as if all of commerce was dying, with even local hero Flipkart on the brink of collapse. It's difficult to imagine so today but I can bet Sachin & Binny remember it all too well.

LEARNINGS (from the hundreds of Retailers we met)

1. They Don't Have Margins

Lets start with the zero-commission. Why is it important? Retailers have no margin to give away. 0. Zilch. Between paying rents and running their store, most retailers barely take anything home. Or just enough. Much of the margin is stored up the chain.. with brands and distributors. Hence zero-commission was not only critical, it was the only way to make it feasible.

• In Grocery its easy to own the Margin - 30-70% of it.. you become the retailer, setup up dark stores. Deliver in 10 mins (yeah, right!) etc. etc.
• For non-grocery not so much. Zopper tried and failed to enable retailers just for electronics, ended up as insurance co and then a POS co. Even electronics did not have enough margin. And if Amazon can do 1-day or even same day delivery, how far away is 1 hour delivery? So how do you compete with Amazon?
• It's all in the margins. Amazon charges a hefty margin to Sellers while most products sell in the 8-15%, the often popular categories like Fashion can go as much as 24%. Compare that to Dealers/Distributors + Retailers and you're looking at the typical 3-7% + 10-15% i.e. 15-25% collective and very comparable margin. And then there are more Amazon Fees - Delivery fees AND Warehousing fees, yes thats not for free.. but guess where it is for 'free' - at Retailers. It begs the question.. are Retailers the dark horses of dark stores?
• What it then comes down to is.. Delivery. While I have no math on long-mile delivery costs neither for Amazon nor for traditional retail, what I recall is margins of distributors have to include their headache of delivery.. but when it comes to last-mile delivery that's where the fight is tight.. margin wise. Single product delivery is a non-starter.. between the costs of the delivery person and the delivery vehicle, no math works right to reach profitability unless end users are willing to pay significant money for 'convenience' or deliveries are hyper-optimised for time and frequency of items delivered.. something hopefully the likes of Dunzo Deliveroo and Zomato have mastered. Question is, has Amazon?

2. They Don't Have Time

• And dare I say they don't care. Surprisingly, atleast in markets like India, the retailer has their 'loyal' walk-ins intact (atleast so far) because what they sell does not come from famed brands that sell on likes of Amazon but from the un-organised, or better put un-branded product pool, operating at prices nearly impossible for e-commerce to profitably service.
• But there are some that do care. Because, they're being hit - these are the retailers that do sell branded goods, several hundreds of billion dollars worth. And they need saving, even if they don't think it today. ["India’s retail sector is worth $836 billion in FY 2022, with an 81.5 percent contribution from traditional retail, organised brick-and-mortar retail makes up 12 percent of the overall retail market, followed by online sales channels at 6.5 percent." - indianretailer.com]

So how in the world do you beat the still struggling-for-profit Amazon? Can one even dare to? How do you make hyperlocal profitable? If at all.

SOLUTION (please think of these more as Hypothesis, that still need proving; dare I say they pave the way, for a high chance, of a path to profitability ??)

1. Go hyperlocal, go zero-commission: As hard as it may be to fathom, your margin is not in 'products'. It's in..
2. Advertising.. don't just bank on it, build on it. Hyperlocal advertising is underestimated, underserved, under-leveraged. Unless you're Alibaba that makes.. wait for it.. 60% of its revenues from Advertising. Remember Ad Revenue =100% gross margin revenue.
3. And in Supply.. control it.. become the Distributor to the Retailer. Thats 5-7% gross margin revenue.
4. Own the POS.. and ALL the in-store payments. Thats 1-2% gross margin of ALL transactions. And its huge [Remember the $836 Bn up top ??].
5. Charge for that convenience.. In the UK/US you easily pay upto $4 for delivery + a 10% order value tip (and even thats not enough to cover costs); compare that to India's Rs.30 and you know why it's tough to touch profitability.

If done right, this combination can churn up the much-needed, so-far-far-far-far-elusive e-commerce 'profit'. But there is a catch.. anyone that really wants to wing it, needs to WING THEM ALL.

So if you're thinking hey let me solve that one problem and beat Amazon, thats not going to happen. The time for that has gone, long gone. And if you're like Dukaan? that went from we'll enable retailers for commerce to now saying hey we're shopify for retailers.. let me tell you a secret.. we did exactly that.. Marketplace for retailers, Marketplace for retailers + any sellers, Shopify for Retailers charging Rs.10,000/store etc. till we were marketplace for no one.

One interesting meeting comes to mind. Founder of an early e-commerce venture told us if you don't have $200 million don't bother with this play.. that was 7 years ago.. Today, you probably need $2 billion.. and thats just to 'start' the play.

If I had to bet, I'd say Jio Mart is best placed to bring on a big challenge. But they have to get it right. There was a time I thought Paytm Mall would certainly win it (they could own a lot of POS remember) but they fettered away their focus. Flipkart too is a strong contender with Zopper and PhonePe but is weak in Hyperlocal.. so Jio Platforms Limited (JPL) , with all the right acquisitions so far, the right partnerships, the right strategy and the right team (imagine Dunzo is acquired 100% and leads this), can win and beat Amazon.. and more importantly achieve the holy grail of e-commerce profitability ??.

A lot of this maybe over simplification. If you are building something I just hope some of these thoughts help.. it's really the do-ing that will matter. So.. fret not and.. Build on. ??

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P.S our 'died' ending wasn't all that bad.. we were lucky enough to escape with a somewhat-meaningful acquisition. Though I still do wonder what it would be.. if pigs could fly. ??