valuation Click here and here, I have explained the power of network effect enjoyed by e-commerce
companies and the threats to these. As I have mentioned that from the current
flood of e-commerce startups in india, very few will survive because most of
the times these startups are not adding any value to the service they are
offering. Most of the times they are just an ordering platform; one can use
them to order something. There is not any differentiation, no value addition.
business must add some value to a product or a service if it wants to be
relevant. Only then it can squeeze some profits on its own. Substitution effect
is not always that strong. We are seeing a flood of online startups, better to
say them ordering startups like grocery, food delivery, hotel room, restaurant
reservation etc. But whether just processing orders is enough to attract crores
of venture capital and mostly this free venture capital is burnt on delivering
the order as delivery is free. I mean it is ridiculous, you have a business
plan like to deliver grocery at people homes and common sense says that people
would not mind paying a fee for savings in time, uneasiness and fuel costs, but
you are offering this as free just to be competitive. But people will take it
as a right.
is ok as you are dealing with two parties; suppliers and consumers, but in this
two tier platform model, one can only afford to subsidize only one party. You
need to have a viable business model. It must be something valuable especially
if it is a service. Delivery is too common and very low
entry barrier business; you can’t rest assured that by offering free you can
hammer your competition. The moment you will try to monetize your platform,
others will jump into the race. Kishore Biyani and Reliance is doing the same
by waiting on the sidelines of online retail. When Amazon and likes of
Flipkarts will try to monetize their services, they will jump in with much
better products and logistics.
ordering most of my things over phone only. I normally calls the shop keeper to
pack the chicken etc as it can save my time. Then I go to shop and pick
everything…I can pay him some money if he can deliver the same at my house. In fact we are paying our Gas cylinder wala for a long time
for delivering gas cylinders at our home…so what’s the big deal in it. Local
Kirana wala is doing the same for long that too at free of cost.
the same for free always, because he is not subsidizing the both platforms. He is
earning money from the “Sale” of kirana items
so in order to earn more money from more customers he can afford to offer free.
same since it has multiple revenue streams; so it can switch to subsidize anyone. Its strength is unique
set of huge data and already a large base. Domino’s is getting its 40% business
from online and it is doing it for long; delivery is free because it is “earning” from the sale of pizza itself. So by
offering free delivery, they are just adding the “value”
to its product and they will get their reward in the form of increased sale
because last time when I was in Nagpur, I ordered from Domino’s only because of
free home delivery otherwise I would not have gone to eat/get pizza at their place.
This is Value addition.
last day I saw some news regarding troubles faced by food delivery startups
like Localbanya and these at once reminded me all this. I am just pasting the
small bits from the news. Just for sharing.
09th Oct 2015:
is ‘temporarily’ out of business
upgradation of its back end. “We are temporarily suspending services due
to maintenance and upgrade purposes,” the company said on its website.
“No orders will be processed at this time.”
The
company rejected speculation that it was strapped for cash and maintained that
staff attrition was not unique to it.
Two suppliers of Localbanya said they had been told that there was a shortage
of funds.
“The
company is also trying to change the model of sourcing merchandise from large
retailers or cash-and-carry players to consumer goods companies directly,”
said another supplier.
Founders Mehrotra, Rashi Choudhary and Amit Naik
have been seeking to raise $15-20 million for the past few months and had plans
to raise another $35-40 million by the end of this fiscal.
Industry
executives said several Localbanya employees are looking for jobs with salaries
not having been paid for the past two months. Nayan Choudhury is said to have
quit as vice president, trading, commercial and operations. This could not be
independently verified.
“Localbanya
has been faltering on deliveries in the past few weeks due to paucity of funds.
The company is trying to revive with fresh funds,” said an executive. The
company’s Facebook page had several consumer complaints posted recently about
orders not delivered.
Given the
low margins in food and grocery retailing, online companies need a constant
flow of funds. “Logistics and consumer promotion alone would account for
20 per cent of the total cost for the online grocers. With huge competition in
online grocery retailing space, the companies should now look at how to make
the business sustainable and generate profit,” an industry official said.
Source: Times of India Dtd 09th Oct 2015:
Monday, when customers tried to access food delivery startup Dazo’s app, they
were greeted by a message from the company’s co-founder and CEO, Shashaank
Shekhar Singhal: “We are discontinuing Dazo’s curated food ordering
platform and thus won’t be taking new orders. As a team, we’ve decided to move
over this business and we’ll be working on a new product.”
This came as a surprise to many, particularly
because the company was backed by bigwigs like Google India chief Ranjan
Anandan, TaxiForSure co-founder Aprameya Radhakrishna, and former Freecharge
chief executive Alok Goel.
But Dazo is not the only food delivery startup
that has taken a hit in recent times. The space, which has seen a host of
players enter in the past few years, is now witnessing plenty of casualties.
SpoonJoy, Bengaluru-based online food service venture that raised $1 million in
May, shut down its Delhi operations last week and has started scaling back
their operations in Bengaluru. Delhi-based Langhar, an online platform selling
home-cooked food, shut operations in February, just two years after it started.
Chennai-based OrderSnack closed even before raising their first round of
funding.
say the food-tech space is a tricky business. K Ganesh, a promoter at
Freshmenu, which delivers fresh food, said that the online food sector is
mirroring the offline trend. “While the barriers are low, it is a tough
business as people’s opinions are whimsical. In food, people get bored easily
even if it is good,” he said. He added that the execution challenges are high
in the business, and aggregator models will always struggle to make enough
money.
DSG Consumer Partners, which has invested in
ventures like Oyo Rooms, ZipDial and EazyDiner, says it does not invest in
startups whose core model is delivery of food. “Very few teams we saw had
the full set of skills we think it takes to succeed. Some had a good balance of
tech and food but did not understand the details of food related licensing,
safety, and traceability issues,” said Deepak Shahdadpuri, MD and founder
of DSG.
Startup analytics firm Tracxn finds that 31
food-tech startups have so far raised $161.5 million in investments this year,
as compared to $66.8 million last year.
aggregate funding in both years was hugely influenced by restaurant listing and
food delivery venture Zomato, which raised $60 million in 2014 and $110 million
in 2015.
Gurgaon-based Bueno, an online food delivery
startup offering global cuisines, says it will survive the race because it has
a differentiated positioning in the market. Founder Rohan Arora said most food delivery
startups do not factor in
delivery charges into their business model. “If you’re working on a Rs 100
price point for a meal, you have to also factor in Rs 50-60 delivery charges.
But many startups don’t do it in order to acquire customers,” he said.
Shahdadpuri said only two categories of
businesses will survive in the end. One, where the startups have a viable
business model and understanding of all areas of the value chain. And second,
where startups are lucky enough to be funded by VCs with very large pockets so
that they are able to fine tune their model despite cash losses.
our E-commerce picks Info Edge and Network 18 are still doing good…they are
still around the same levels. So I think we can add more.
(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)
Great job sir..Thanks for the thoughtful articles you keep posting.
sorry for asking more stock related queries..Can you share your thoughts on pioneer embrioderies,godavari drugs and bambino agro. These are in my list of less than 100cr mcap and some risk.
Also would like to know about investing in GATI at current market price after correction in logistics space.
Thanks.
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