The Bangalore-based last mile delivery startup Shadowfax that recently raised USD 22 million from NGP Capital, Qualcomm Ventures, Mirae Asset and Eight Roads Ventures, is gearing up for the upcoming festive season. Between October-December, Indian online marketplaces offer deep discounts on their platform triggering multi-fold increase in online shopping.
Shadowfax works with online as well as physical stores to manage their deliveries. It claims to be the biggest logistic partner in the grocery segment. The company claims to have about 8,000 delivery executives who deliver food, e-commerce products, groceries and also dabble in reverse logistics. Avanish Tiwary talks to Vaibhav Khandelwal, co-founder, Shadowfax, about the nature of on-demand delivery in India, how it’s going to change, and the experiments the company is doing in different markets.
Q: How do you manage different verticals?
A: It is mostly about optimisation. The reason why we started doing e-commerce is that, during lunch and dinner, delivery guys are busy with food delivery companies. But after that, they are mostly free. We started utilising that fleet when we saw demand from a nearby area, and that is what we are doing.
We always had this strategy that the delivery person and the underlying resource have to be the same. We have just one delivery app to manage all of them—grocery, food and e-commerce.
One of the fundamental things that happened when we started as a hyperlocal business and then entered into different domains, it eventually helped us become a better product. The entire idea of the business is to diversify the portfolio. Because, if you are only doing food delivery you won’t make money. You need to cross-utilise your delivery fleet across different segments.
Q: Who do you consider as your competitors?
A: There are a few in the logistics and food space, but none in grocery (business). However, we consider the in-house delivery fleet as our biggest competitors, such as Ekart, McDonald’s, Pizzahut, etc.
With McDonald’s, we just do a small number of deliveries, but the maximum chunk is done in-house. That is what I want to target. I wouldn’t gain much by getting, say, Grab’s share in food delivery. But it will be a massive gain for me if I can capture the market of in-house deliveries.
Now Paytm doesn’t have an in-house logistics partner, so we are able to get the larger chunk there. My knowledge is that 60% of delivery is done in-house by Ekart and the rest is outsourced to different companies, one of which is us.
Q: How big is grocery segment going to be?
A: The demand for online shopping and on-demand delivery of food, as well as grocery, is going upward.
As these sectors blossoms, we also blossom with them. Grocery is seeing a lot of push these days. To be honest, there is no other logistics company in India that works with grocery companies that cater to the nuances of grocery delivery. We are the sole partners of Grofers, BigBasket and Amazon Now.
Grocery is the next thing that people are banking on. It has a good repeat rate and it is also a big enough problem to solve. The current grocery market in India is actually very fragmented and unorganised. Whereas, if you see in the developed nations such as the US, it is quite organised. Grocery is also driven by the subjectivity matter and that gives you an added advantage of creating a brand of maintaining loyalty. If you have to buy a laptop, you would look for the cheapest seller as it is commoditised, but if you have to trust someone with fruits and vegetables you won’t just look for the cheap option, but you’d first find a brand that can be trusted with food.
Due to this subjectivity, you get the advantage which allows you to play with the margin, build your brand and play a longer game.
Q: What will be the differentiator in the grocery business?
A: Of course, the price will be a sensitive factor to lure customers in the beginning. But once these discounts and cash-backs reduce, quality of grocery and customer’s experience while shopping will determine who will have more repeat orders. If you give a good service, the category is such that customers are going to come to your platform repeatedly.
But grocery per se is more about those subjective elements like the quality of fruits vegetables, staples, etc. This is where a brand’s quality assurance will come into picture. Customers won’t accept sub-standard quality when it comes to grocery.
Now, when I say experience, one integral part of shopper’s buying experience online is related to delivery. In the current scenario, people largely purchase their monthly ration altogether.
With time, people are going to demand quicker delivery. Buyers who order 5-10 products want quicker delivery from a from a nearby grocery shop. Being able to deliver grocery within 30-90 minutes will be the breaking point. For example, right now, Grofers doesn’t have any express delivery sort of mechanism, but Big Basket has. If you see the parallel in the US, Amazon Fresh is able to deliver within 30 minutes. As the market matures here, things will start moving in that direction.
Q: What is your tie-up with physical stores?
A: Apart from online companies we also work with physical stores such as More, Big Bazaar, Star Bazaar, etc. After payment, customers leave their details at the checkout and we deliver their goods. It helps if you are shopping for your monthly groceries as it is difficult to carry the entire bag back home.
The major problem (with Star Bazaar, More, etc.) is the long check-out queue. At times the amount of time you spent while shopping and the time you spend for payment is the same. If you see in China, everything has moved online, which has not happened in India. Here physical stores still exist and it’s doing good as people still shop from these stores in huge numbers.
There are some inefficiencies in the offline market, but it’s not like given the opportunity (to shop online) people will never shop offline. It’s important to have an O2O sort of strategy wherein you capture the market on both the ends.
Q: What is unique about reverse logistics?
A: When we acquired the logistics company Pickingo, almost every company had a separate reverse logistics fleet, and these are the guys who are trained in doing reverse logistics. When we came in, we created the entire product on the app that allowed anybody, even a new person to come on the platform and start picking products from customers.
What we do is we sell quality checks (QCs) as a product. We charge e-commerce companies separately for QC. By doing that we also take a liability that if we have done a proper QC and if we are unable to ensure that the pickup is correct, we will bear the cost of the product.
Q: How are you working for the festive season?
A: We have been called by all our clients already asking us to ramp up our services. They have started sending projections based on which we have started our planning. During the festive period, our clients are comfortable in giving us a surge price of 2x.
We are aggressively hiring, of course. We expect by Diwali, we would have 15,000 delivery people. We do charge surge pricing when the festive period comes as we have to take a lot of extra efforts from our end.