Saturday, December 24, 2011

The delivery challenge for essentials in e-commerce

Quick! You need some diapers.

What will you do?

A) Log on to your favourite e-commerce store
B) Walk/Drive over to the nearest market or
C) Call the neighbourhood guy and he home delivers in 40 minutes flat.

We pick option C quite often.

While the ecommerce guys focus on non-essentials like books, toys and other things that you don't need right now!

A huge opportunity is waiting in daily essentials. Purchase is a must and when you need it, you just need it right now!

Hyper-local!

Don't under-estimate the advantage of Walmart (or Domino's) style hyper-local store coverage.

What prevents folks like Big Bazaar or Reliance from creating sub-three hour delivery promises. Use their base of operations at existing stores and push contents of their cavernous warehouses into Indian homes?

Modern inventory systems allow you to have information about your inventory down to the last unit (minus the float in the customers hands). Plug that into your web front end, tie down packaging in your stores and hire a few delivery boys and you could be moving more product in a day than most guys do in a month.

What about the cost ?

Retail space is expensive. More so in Malls in Indian cities. A hybrid model like this will allow modern retail to effectively compete with the Kirana-wala. Probably not with 40 minute delivery, but definitely within reason.

Leverage cheaper prices from consolidated sourcing with local presence.

Initial launch may ride off the local outlet, but once scale is achieved, it may just be cost efficient to run warehouses in the near vicinity. Using the ABC model to stock fast moving items at the warehouse with slower moving items coming straight from the retail outlets themselves.

Small is not beautiful

While there are a lot of local grocery delivery outfits starting up, they simply will not have the scale to deliver in large enough segments. Scaling would mean setting up infrastructure as large as the offline retail guys.

Delivery promise?

3 hours or Rs 100 off. May not sound much, but when that comes off your grocery order, that's a lot of money.

So big is the need, that I would not be surprised if the likes of Walmart in the US implement same day delivery within a couple of years. If implemented well, Amazon will have its first real challenge.

The empire will strike back so to speak.

Edit: See this link. Happened sooner than I expected.