Hyperlocal delivery startups like Roadrunnr, Opinio revise cost per delivery to optimise economics
Hyperlocal delivery startups are realising the theorem that there is no free lunch, as pressure mounts on them to optimise the economics of delivery.
Companies such as Roadrunnr, Opinio and Shadowfax, which count food deliveries as their major source of revenue, have revised the cost per delivery to an average Rs 40 jointly and are competing on services and technology rather than undercutting the market.
“Last year we had invested in creating a market and proved that food deliveries can be efficiently done in less than 20 minutes. This year, we will monetise our tech capabilities and fleet to efficiently scale our logistics capabilities,” said Mayank Kumar, chief executive of Opinio. The startup, backed by Sands Capital and Accel Partners, has a presence in six cities and fulfils an average 20,000 deliveries a day from 3000 merchants including food technology companies Tiny Owl and FoodPanda.
“We started with an introductory price of Rs 20 per delivery per order for the merchants we work with and have revised the prices over the last two months to Rs 40 in the cities we are present in,” said Kumar of Opinio.
That is a big change when compared to the introductory price of Rs 10 to Rs 15 charged by its competitors ShadowFax and Roadrunnr and in some cases even free deliveries, according to at least ten restaurants and food delivery platforms that ET spoke to in Delhi and Bengaluru. "Shadowfax did delivers at Rs15 per order when they launched in Gurgaon," said one restaurant.
“We had started with free deliveries in the introductory phase. Since July 2015, we have stopped doing free deliveries for small merchants and usually do that for large chains or aggregators who can promise up to 500 orders per day,” said Mohit Kumar, cofounder and CEO of Roadrunnr. The company has also tweaked its model to include only pre-paid customers for free introductory deliveries, for up to a week. And later charges Rs 40 per delivery.
While initially they burned a lot of money to win customers, they are now trying to reduce the cash burn, even as a few players fell by the wayside due to fund crunch. Food-tech platforms such as Swiggy, Tiny Owl and Food Panda too have increased the commissions they charged from restaurants, ET reported last week.
Roadrunnr, which claims to do close to 35,000 deliveries a day across ecommerce and food space, was among the first movers in the food-delivery logistics segment. Since then, it has been difficult for the hyperlocal players to increase the charge due to a significant impact on the volume of orders.
According to an executive working with an on-demand food company, the burn rate for the hyperlocal delivery companies ranges from Rs 100 or more per order. “Even at Rs 75 fixed as the cost for delivery, it is difficult for the last-mile delivery players to make money,” said the executive, who did not want to be identified.
While a large number of hyperlocal players are looking to increase the share of revenue generated from ecommerce companies to stay competitive, volumes are still largely dictated by on-demand food deliveries.
“We maintain a fixed number of delivery staff for each fulfillment centre and hyperlocal partners help us handle peak deliveries. There has been a revision of prices of late by the players and we will continue to work with them as long as the costs work out for us,” said Revant Bhate, head of marketing at on-demand food delivery app Faasos.
“Our price was revised to a base price of Rs 45 per order driven by long-term business sustainability and unit economics. Target audience and quality of service is different for different players so standardisation of price is not something that can easily happen,” said Abhishek Bansal, CEO of Fidelity Investments-backed Shadowfax which claims to deliver 12,000 orders a day for companies such as Pizza Hut and McDonald’s.
Fixing a flat base rate was a move which was scaled at the beginning of 2016. “We had dropped our pricing six months back when there was a stiff competition from new hyperlocal delivery players in the market. We revised it a month back by Rs 5 as there is sanity in the market,” said Pratish Sanghvi, director and co-founder of Zomato-backed Grab.in. According to the company, it processes 15,000 orders a day in eight cities.
“Food deliveries work on wafer-thin margins. On a blended basis, which includes food deliveries and a larger share of ecommerce as well as B2B deliveries, the hyperlocal players can arrive at a flat cost,” said Manish Saigal, managing director at Alvarez & Marsal India.