Hyper local? Ohh, they are rich. This is the impression you get when you look at their (Grofers, Olastore, PepperTap and BigBasket) ads in Newspapers and radio.
Huge discounts, awesome delivery promises and completely customer-centric.

(Note: I am not an expert on business strategy, following is just what I think. If you find something is flawed, please feel free to point it in comment)

But I feel, current strategy of buying from nearest store and delivering is a loss making proposition.

  1. Delivery cost
  2. thin margins
  3. losing out on ability to mine data and making supply chain efficient.

I personally believe, Indian retail is already costly and inefficient. Sky high real-estate prices and wafer thin margins. On top of it, there is little room for retailers to give a cut to delivery chains like grofers, Olastore and PepperTap.

Let’s compare their counterpart from US, InstaCart.

InstaCart has profitable model in place, how? See the following.

  1. Annual Subscription fees for instacart express $ 99. This means, the customers will try to maximize their spend by using InstaCart more number of times instead of jumping from 1 company to another. Helps in increasing LTV
  2. Delivery guys are not on pay rolls, they are freelancers like Uber drivers. Makes better business sense for Instacart.
  3. 15% more than the store price. Their customers pay for convenience and not the store owner. This is what helps a store and customers know that they are paying higher for convenience.
  4. Surge pricing at the time of busy time slots: like uber, instacart also charges some extra amount whenever there is a shortage of Delivery guys in the area.

To me, possible actions these companies will take
1. go back and control inventory by different models. Which Grofers has already started by getting into dark store concept

2. Charge customers for instant delivery. Charge higher than store.

Anyway, party is on, everyone is looking at astronomical LTVs. Let’s see who wins and how these new models evolve in India.

For more on InstaCart model, check this link: http://nextjuggernaut.com/blog/how-instacart-works-makes-money-revenue-business-model/