Grofers, Swiggy start outsourcing their deliveries
4 min read . Updated: 23 Jul 2016, 01:31 PM IST
PremiumDevelopment comes at a time when investors are growing increasingly cautious about their bets in India and coaxing start-ups to trim costs
Bengaluru/New Delhi: Consumer-facing delivery companies such as Grofers India Pvt. Ltd and Swiggy (Bundl Technologies Pvt. Ltd), which relied on their own crew and fleet of delivery vehicles until recently, have started tying up with logistics start-ups in an attempt to increase efficiency and cut losses.
The development comes at a time when investors are growing increasingly cautious about their bets in India and coaxing start-ups to trim costs.
Grofers, which rode high on a wave of funding for so-called hyperlocal start-ups in the first half of last year, has roped in Mumbai-based Grab a Grub Services Pvt. Ltd and is in talks to close a deal with Bengaluru-based Opinio (Moonshots Internet Pvt. Ltd) to outsource a part of its deliveries, said two people aware of the development.
Grofers still services most of the orders using its own delivery personnel and fleet, said the two persons, who asked not be named. The share of third-party logistics companies may increase after an assessment of the initial outcome.
Grofers chief executive officer (CEO) Albinder Dhindsa and Opinio CEO Mayank Kumar did not respond to emails sent on Monday seeking comment.
Nishant Vora, co-founder at Grab a Grub Services, confirmed that the company had started handling deliveries for Grofers earlier this month in Mumbai and plans to scale up the partnership to other cities as well.
“A sector-agnostic logistics service that blends peaks of various businesses can only lead to positive efficiencies. A fleet which is solely dedicated to food or groceries or e-commerce will always cost more as compared to Grab’s fleet," said Vora in an emailed response.
To be sure, Grofers, which is backed by SoftBank Group Corp. and Tiger Global Management Llc, is one of the most well-funded hyperlocal grocery delivery start-ups, having raised about $165 million so far.
Its nearest rival PepperTap (Nuvo Logistics Pvt. Ltd) shut shop in April, making Grofers the largest business in the segment. The company competes with Bigbasket (Supermarket Grocery Supplies Pvt. Ltd), which has an inventory-led model. While the inventory model helps start-ups extract significantly higher margins as they buy directly from brands and manufacturers, hyperlocal start-ups operate on wafer-thin margins.
These start-ups essentially source products from retailers and get paid 2-10% of the order value as a commission.
Last month, Grofers laid off about 10% of its 2,000-strong workforce and revoked 67 job offers to fresh graduates amid a slowdown in its business.
“The primary driver of this decision is our changing growth trajectory. We grew at an insane pace last year but given that as of April this year, we have effectively reduced marketing spend next to nothing. We don’t foresee the same growth rates to continue," human resources head Rishi Arora told employees in an email then.
“This is also driven by a general slowdown in activity in the market, which we don’t see improving in the next few months, and which is a reality we want to adjust to as quickly as possible," Arora said.
Outsourcing has been a natural progression for larger companies in the telecommunications or packaged consumer goods sectors as they scaled up, but outsourcing solely aimed at cutting costs may not augur well, say experts; it may also dilute the customer experience.
“When a business-to-consumer (B2C) company starts growing, what it essentially owns is the consumers, their trust and the brand," said Rutvik Doshi, director at Inventus (India) Advisors. “Behind the scenes, who fulfils that is invisible and immaterial to the customer. As companies start growing, when they scale, they usually outsource a large part of their operation. Airtel is a classic example of this. But are the B2C companies mature enough? Have they earned the trust of the consumers? These are the questions to be asked. But if the outsourcing is just because of cost pressure, it may hurt the consumers."
Hyperlocal delivery companies had earlier claimed that maintaining a delivery fleet of their own helps exercise end-to-end control over the delivery, which in turn enhances customer experience.
Swiggy, a well-funded food delivery start-up, is also exploring a move similar to Grofers, Mint reported on 5 July. Swiggy has roped in Shadowfax Technologies Pvt. Ltd to deliver some of its orders in Bengaluru and Delhi and is in advanced talks to seal a deal with Opinio.
Swiggy currently hires third-party logistics companies during unplanned demand spikes in select areas.
Companies such as Grofers and Swiggy essentially aggregate neighbourhood stores and pick up and deliver orders to their customers, which makes a robust delivery fleet core to their business.
The companies have been trying various models to optimize cost of delivery, including paying delivery personnel based on the number of orders serviced.
“Food delivery has got its daily spikes and managing spikes and maintaining customer experience is an inherent challenge as management of delivery personnel when orders peak is difficult. Since the business model is still nascent, many food delivery companies are getting into alliances with delivery companies to gauge the demand and operating model before getting a large fleet of delivery boys on the payroll, and have a profitability impact," said Sreedhar Prasad, partner, e-commerce, at KPMG.
sayan.c@livemint.com
