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instant food delivery segment many
questions were raised about delivery
partner safety as well as the 10-minute
food delivery whether it's even possible
or is it simply a marketing gimmick over
the last 10 years e-commerce Market has
seen the evolution of quick Commerce is
one of its most in-demand verticals
while experts will find that this was a
natural progression for online retailers
as we've seen with all the d2c players
post pandemic CAC or customer
acquisition cost has increased as well
so then how does it make sense for uh
you know someone to be in business like
this and be profitable
hi everybody the quick Commerce wave has
taken the entire e-commerce industry by
surprise what once looked like a fancy
marketing gimmick of 10 minutes delivery
now the same space has million dollar
companies like tanzo zepto swiggy and
even zomato and not just that even the
big guns like Reliance are so Keen about
the space that Reliance has invested 200
million dollars into dunzo and even
dmart is slowly sneaking into this space
but on one side while this looks like a
logistical Miracle on the other side as
of now it seems to be an economic
nightmare with all these companies
reporting hundreds of crores of losses
every single quarter so in this episode
today let's try to understand how have
these quick Commerce companies Master
the logistic system to give you a 10
minutes delivery how do they intend to
become profitable and most importantly
how could these quick Commerce companies
go on to threaten the positions of
giants like Reliance and D mud this
video is brought to you by Golden pie
but more on this at the end of the video
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foreign
wave and the landscape of Indian
e-commerce lies in this wise coining of
words by aviral bhatnagar wherein he
categorizes e-commerce with three words
cost convenience and catalog and in the
race of offering one of these Seas
companies are more likely to compromise
on the other two Seas so you'll see that
while misho offers cost big basket
offers a great catalog and swiggy
instamart offers convenience and Amazon
offers both catalog and cost which is
why it's clearly one of the most
powerful players in the market so if you
look at quick Commerce the quick
Commerce game is a convenience game and
you will choose to order from dunzo even
though it's not cheaper than Tmart even
though it does not offer a vast catalog
like big basket why because while demand
and big basket might take anywhere
between 4 hours to one day to deliver
tanzo will be able to deliver the
products in less than 30 minutes now the
question over here is how are these
companies able to deliver groceries so
fast and how do they intend to become
profitable well these companies use
something called the dark store model
and if you've already read about it you
know that it's nothing but a micro
Warehouse wherein you have some two to
three thousand products stored these
warehouses are just like a kirana store
but they do not sell to walk-in
customers and are specially designed to
act as a super efficient micro warehouse
and all thanks to data analytics these
tools are so strategically located that
they're as close as 1.5 to 4 kilometers
away from the customer base so as soon
as you place the order with the app the
logistics is designed in such a way that
every single action of the delivery
staff and the warehouse system are
curated such that they can give you the
fastest delivery possible so if this is
very very clear to you let's have a look
at some numbers and see what exactly is
their scope of profit
according to this Economic Times article
it costs anywhere between 25 to 40 lakhs
to set up a dark store and a typical
dark store is 2000 to 2500 square feet
large it has a total of 13 to 14 staff
in the store who are mostly Packers and
the average order value is 350 to 400
rupees for the industry and here's the
most critical part of all the gross
profit margins of these companies are
anywhere between 15 to 20 percent now
what is gross margin it's your total
revenue minus the cost of goods and
services divided by the revenue so if
you shop for 400 rupees which includes
bread milk and vegetables then the gross
margin is the revenue which is 400
rupees minus the cost price of the
products divided by 400. so here if it's
20 margin then the cost of products to
the company is 320 rupees and the gross
margin is 80 rupees so this is pretty
excellent right 80 rupees profit per
order and thousands of orders going out
every single day from each one of these
drug stores so these dark stores are
practically a cash machine right right
well not really because this is not net
profit but gross profit margin so this
80 rupees margin does not include the
indirect fixed cost like office expenses
rent administrative cost or even
delivery cost and this last mile
delivery is one of the most expensive
cost variables in the chain because if
you do the math a delivery buyer gets a
salary anywhere ranging between 25 to 35
000 and on an average a rider clocks 20
to 30 deliveries a day as of now so
let's take a safe average of 30 000
rupees salary with 25 deliveries a day
so we have 750 deliveries a month and
the cost per delivery is 40 rupees and
sometimes this cost could even go up to
60 rupees per order because of the
inefficiencies in the delivery
allocation
but right now let's not get into that
and consider this to be 40 rupees now if
you take out 40 rupees delivery charge
from a gross margin of 80 rupees we only
have 40 rupees margin left per order now
according to money control Pro's
research this dark stone in Mumbai
touches 600 orders a day so assuming 600
orders per day they would have 18 000
orders a month so with 18 000 orders in
a month with a 40 rupees margin
excluding the delivery charge that
leaves the store 7.2 lakh rupees per
month but this store has 34 employees
with salaries ranging between 18 to 20
000. so even if you take the lower limit
of 18 000 rupees the salary cost itself
amounts to 6.12 lakh rupees and now if
you start taking out rent or installment
of the place along with electricity
bills software marketing and maintenance
you will see that it's very less likely
that this dark store is profitable so
this really looks like a cash rate right
but you know what guys the best part is
that in order to turn profitable this
variable of average order value just
needs to go up by another 100 to 150
rupees and suddenly the same dark store
will become a money machine so let's go
ahead and do the math again but this
time let's increase the average order
value to 560 rupees and now if you do
the math with 600 orders a day and 18
000 orders a month a 20 gross margin
would be 112 rupees deducting delivery
cost of 40 rupees we have 72 rupees per
order multiply that by 18 000 orders we
suddenly have 12.96 lakh rupees and
gross margins excluding the delivery
charges and now if you take out salaries
we have a comfortable 6.84 lakhs in
margins to pay for maintenance marketing
rent or installment software and other
expenses and when it comes to software
Services if you have 100 to 200
profitable dark stores then the cost
incurred per store decreases by a large
extent so it's basically a game of skill
this is how a dark store could actually
become profitable with its given
capacity and the reason why all these
quick Commerce companies are racing
those groceries is because you would
shop for electronics probably only 10
times a year you would shop for personal
care products probably once or twice a
month but you would order groceries four
to five times a month and that too on a
planned schedule and if this is
unplanned this frequency could even go
up to 12 to 15 times a month so this way
the dark stools frequency operation
makes it profitable the employee's time
is fully utilized and most importantly
with consistent orders you have a moving
inventory which eventually becomes
predictable now the question over here
is these numbers look fantastic right
then why are these companies incurring
so much losses and what exactly are the
challenges that could actually fail most
of these companies in the quick Commerce
industry of India
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well if you look at the calculation the
first challenge for the quick Commerce
companies would be to achieve 20 gross
margin which is extremely idealistic
because if you see even a giant like d
Mart has a gross margin of only 16.34 as
of June 2022. secondly achieving Peak
efficiency with delivery staff is
extremely challenging and this number
that we have taken to be 40 rupees per
delivery that could even go up to 60 to
100 rupees per delivery and then that
order is no longer profitable but the
challenge over here is that the delivery
boys keep on leaving and joining the
company so if you look at the attrition
rate the monthly attrition rate in this
industry is 18 to 20 per month so one in
every five of your delivery boys in your
company will leave every single month
and this is the reason why they have to
recruit extra delivery staff so that
they could make up for the attrition at
the same time keep up with the demand
and because of this extra delivery stuff
the cost per delivery sometimes
increases to 60 to even 100 rupees the
third challenge is about achieving an
extraordinary number of orders per day
because you see guys this quick Commerce
concept actually comes in the US wherein
the average distance between an American
house from the closest local grocer is
around three to four kilometers
similarly Walmart is 6.7 kilometers away
and Target is eight kilometers away but
you tell me how close is your nearest
grocery store and I bet you that 90 of
you will have a grocery store in less
than one kilometers and most of you
would have a grocery store at a walking
distance from your house so you see
zepto is not just competing with other
quick Commerce companies like dunzo and
instamart but also with every single
Grocer in that particular locality
number four like we saw in our
calculations if Z2 and done so like
companies want to become profitable they
need to push towards having an order
value of 500 plus but the problem over
here is that market research says people
use Quick Commerce apps to do unplanned
grocery shopping as in if you want to
make a sandwich you would just open up
zepto and Order bread sauce cheese and
vegetables or sometimes people just
order Coke and chips for movie night so
with these kind of unplanned shopping
it's very less likely that the order
value would cross 500 to 600 rupees and
at the same time if the company makes it
compulsory to order for 500 or 600
rupees then again the core offering of
quick Commerce which is the factor of
comfort itself is defeated and this
brings me to the fifth Challenge and
that is their differentiating factor
from our local kirana store so if zepto
starts taking up more than 30 minutes to
deliver because of over demand you would
rather order from your local grocery
store because today most grocery stores
would give you a free home delivery
similarly if they do not deliver fresh
items once or twice then again the local
grocer becomes more preferable and
lastly do you realize the product
assortment on these apps is one of the
most important reasons why it is more
convenient to order via zepto as
compared to placing an order on WhatsApp
to your kirana store but if your kirana
store itself starts taking orders from
the app do you realize this Delta
between zepto and Kiran store actually
starts coming down and for this there
was this app called my kirana in Pune
I'm not sure if they're still
functioning but this app simply got all
the kirana store products listed on the
app and you could get an Amazon like
experience while altering from your
local grocery store so when you place
your order your local grocer gets the
order and he sends his chotu to your
doorstep within 20 minutes and I'm not
sure how they made money but as far as
my understanding is concerned these kind
of apps actually make money by charging
a subscription to the kirana stores so
if these kind of apps start coming to
the market they would further shrink the
market share of zepto-like companies on
top of that if the Garment comes out
with its own app or an initiative like
ondc to democratize the logistics of
e-commerce then again it's going to be a
big big problem so you see this game is
extremely tough and the company that
overcomes all these challenges will
obviously go on to become a legendary
profitable company who would then go on
to become as big as T-Mart or Reliance
retail because of their speed and
efficiency but if you ask me I
personally do not believe in this quick
Commerce and I just think reliance or
demand might just go on to buy one of
these companies and turn these dark
stores into a dmart dark store or a
Reliance dark store because if you look
closely while dmart and Reliance have
the scale products and supply chain
dunsu and zepto-like companies are
collecting a gold mine of data into
finding the most efficient last mile
delivery system so this way dmart will
be able to sell its products at a very
very affordable rate at the same time
they'll be able to use the dark store
Network to deliver products 24 7 or
maybe even in less than 30 minutes these
are the working models challenges
competition analysis of quick Commerce
industry and its players in India and
this brings me to the last part of the
episode and that are the study materials
to help you understand this trajectory
of the emerging quick Commerce wave of
India but before we move on I want to
thank our partners for this episode and
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moving on to the study materials the
first thing I'm attaching is this money
Control Pro article that throws light on
the challenges and a few case studies
about the operations of dark stores in
India this will help you understand both
the economics and the operation of these
darksters the second thing I'm attaching
is a market research report on the quick
Commerce industry and its growth factors
and thirdly I'm attaching a few ink and
80 articles that will give you an
in-depth understanding of the trajectory
of these companies in the quick Commerce
industry of India so do have a look at
them and let me know what you think
that's all from my Saturday guys if you
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thank you so much for watching I will
see you in the next one bye bye
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