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In recent years, India has emerged as the largest producer and consumer of dairy products. With a staggering production of 186 million metric tons of milk in 2018 alone, the country’s dairy market is a significant player on the global stage. Against this backdrop, Milk Basket, an online grocery delivery startup, has managed to capture attention and secure $5.5 million in Series B funding. What sets Milk Basket apart is its unique approach to last-mile delivery, an area that has posed significant challenges for many quick commerce companies in India. In this article, we will delve into the philosophy and business model behind Milk Basket’s success, explore its distinctive strategies, and extract valuable lessons for the broader quick commerce industry in India.
The Last-Mile Delivery Challenge
Last-mile delivery, the final leg of the supply chain, has long been a pain point for quick commerce companies in India. It accounts for a significant portion, estimated between 30% to 50%, of the total delivery cost. Delivering individual packages to different addresses requires substantial manpower and time, making it an inefficient and environmentally taxing process. Quick commerce companies have been grappling with finding sustainable solutions to this challenge.
Understanding the Economics of Quick Commerce
To comprehend the underlying issues faced by quick commerce companies, it is essential to examine their economic dynamics. These companies operate on a dark store model, where products are stored in warehouses optimized for efficient operations. Let’s consider some key figures:
- Setting up a dark store costs between 25 to 40 lakhs (2.5 to 4 million) Indian rupees.
- The average order value in the industry ranges from 350 to 400 rupees.
- Gross profit margins for these companies fall between 15% to 20%.
- Delivery costs typically amount to 40 rupees per order.
When examining the economics of quick commerce, three major challenges become apparent:
- Last-mile delivery costs: The expense of last-mile delivery, at 40 rupees per order, consumes nearly 50% of the gross margin.
- Average order value: Achieving an average order value of 550 to 600 rupees proves difficult in the price-sensitive Indian market.
- Capacity limitations: If the average order value surpasses 500 rupees, delivery capacity becomes a constraint, restricting further growth.
The Rise of Milk Basket
Amidst this challenging landscape, Milk Basket managed to minimize its losses and achieve impressive results. Let’s examine the factors contributing to their success:
- Milk as an entry product: Recognizing the trust and stickiness associated with milk purchases, Milk Basket positioned itself as a daily subscription service for milk and other breakfast essentials. This approach ensured frequent customer interaction and provided an opportunity to upsell additional products.
- Pre-order and consolidated delivery: Instead of delivering products throughout the day, Milk Basket adopted a pre-order system. All orders placed before midnight are delivered together in the morning, reducing delivery costs and optimizing efficiency. By consolidating deliveries, Milk Basket transformed the last-mile delivery challenge into a competitive advantage.
- Lower delivery costs: By optimizing delivery routes and leveraging the pre-order system, Milk Basket managed to reduce its last-mile delivery cost to a mere 5 rupees per order. This remarkable achievement, combined with their lower average order value of 200 rupees, contributed to their ability to minimize losses and even achieve profitability in certain areas.
Scaling Up with Reliance Retail
Recognizing the potential and success of Milk Basket, Reliance Retail, a prominent player in the Indian market, acquired the company. This acquisition has allowed Reliance to integrate Milk Basket into its retail portfolio and scale up its operations across the country. Milk Basket’s unique strategies and business model make it an attractive addition to Reliance’s expansion plans.
Business Lessons from Milk Basket
The rise of Milk Basket offers several key lessons for businesses operating in the quick commerce industry in India:
- Leveraging entry products: Identifying and capitalizing on products with high demand and frequent consumption can provide a gateway to gaining customer loyalty and expanding offerings.
- Efficiency over velocity: In the Indian market, prioritizing efficiency in operations can yield better results than focusing solely on quick delivery.
- Cost consciousness: Emphasizing cost efficiency rather than convenience can lead to sustainable business models, especially in price-sensitive markets.
- Leveraging customer trust: Building trust with customers through a reliable entry product can be leveraged to upsell additional products, fostering long-term customer relationships.
By incorporating these lessons into their strategies, quick commerce companies can navigate the challenges of the Indian market and drive sustainable growth.
Milk Basket’s success story in the quick commerce industry in India is a testament to the power of innovative thinking and optimized operations. By reimagining the last-mile delivery process, leveraging entry products, and prioritizing cost efficiency, Milk Basket managed to build a sustainable business model in a competitive market. The acquisition by Reliance Retail further validates the significance of their achievements. As the quick commerce industry continues to evolve in India, embracing the lessons learned from Milk Basket’s rise will be crucial for businesses aiming to thrive in this dynamic landscape.