Flipkart Does An Amazon, Offers One-day Delivery; Will It Trigger A Logistics War?

What Amazon does today, the rest must follow, it seems. Or at least Flipkart.com, the poster boy of Indian e-commerce, thinks so. Only a week ago, Amazon.in launched its guaranteed one-day delivery service in India for an additional charge of Rs 99 per order. But currently, the new service is available only in select cities. The e-commerce giant also offers an assured two-day delivery for Rs 79 per order but for a limited period, this option is available at Rs 49 per order.

Keeping the holiday season in mind (and therefore, the need for express delivery as most people buy late and want it delivered fast), that’s definitely a huge initiative to enhance customer engagement. So it was not surprising when Flipkart came up with the same kind of offering a couple of days ago, which it calls In-a-day Guarantee. But will that kick off a huge logistics war in the long run? Before we get into that part, let us have a look at what Flipkart is offering.

Things look quite simple when you are shopping at Flipkart and want to avail the guaranteed delivery service. Just place your order by 6 pm and pay Rs 90 more per order to get an assured next-day delivery. As of now, the service is available in 7 cities – Delhi, Noida, Mumbai, Pune, Bangalore, Hyderabad and Chennai.

However, Flipkart’s In-a-day Guarantee is only available for products sold by WS Retail. If a product is not delivered within the stipulated time, the amount charged for shipping is refunded to the buyer’s Flipkart Wallet. One can see the expected delivery date at the time of placing the order.

For a delayed cash-on-delivery (COD) order, the delivery charge will be collected as part of the order, but will be automatically refunded to one’s Wallet within 24 hours.

“Our money-back guarantee has got you covered in case our courier partner is unable to initiate the In-a-day Guarantee delivery within the promised date. We will refund your delivery charge within 24 hours. We will also remit twice that amount to your Wallet for future purchases on Flipkart. This amount is non-refundable,” the website says.

In a release, Flipkart’s senior vice-president (marketing) Ravi Vora said that the company already has a lot of customers requesting urgent deliveries. “But given the large volumes that we handle, it wasn’t feasible to address them on a case-to-case basis. We have now built the capability into our supply chain and can now offer it as a guaranteed feature.”

What it means in the long run: More cash burn?
For one, it means tougher competition for all e-commerce businesses in terms of delivery and customer engagement – a veritable logistics war. And that poses an extremely crucial question – will e-commerce firms across India find it necessary to build in-house logistics or pan-India supply chains, and burn a lot more cash in the process? Or will they tie up with last-mile delivery-warehousing solutions providers like Delhivery.com (or big logistics firms) in a bid to contain costs? Both options will play a crucial role in an e-com venture’s lifecycle.

Building a large and efficient logistics infrastructure equal to Amazon will certainly result into a lot of cash-burning – an option most of the firms would want to avoid, at least till the time they break even and have a sustainable business model in place. Things are different for Flipkart, though, as it is the most heavily funded e-commerce business in India and has raised around $360 million in the recently concluded fifth round – the single largest amount to be raised by any Indian internet firm. The last round took the total funding to over $540 million for the company and its valuation reportedly stands at $1.6 billion, post money. But even then, the company has not been able to come up with any clear-cut USP that makes it stand apart from close competitors like Myntra, Jabong or Snapdeal.

On the other hand, Myntra, arguably India’s largest standalone fashion e-tailer, could be quietly building up a cash pile as Tech czar Azim Premji’s family office, PremjiInvest, is reportedly in talks to lead a $50 million round. Premji’s entry clearly marks the growing interest of bulge bracket Indian investors into the domestic e-commerce market and the subsequent competition in terms of customer acquisition and engagement.

Interestingly, Jabong holds a double edge in this field. Its global promoter, Germany-based Rocket Internet GmbH (run by the Samwer brothers), is deep-pocketed and burning cash has not been an issue till date. But more importantly, it has been providing third-party logistics services for some time now and already knows about the secret sauce.

Snapdeal is not lagging behind either. It has already launched value-added tools such as SafeShip and TrustPay to ensure rapid order fulfilment and speedy delivery. So we won’t be surprised if it turns out to be the next company to jump onto the ‘one-day delivery’ bandwagon. Just like Flipkart, funding should not be a problem here as the Japanese Internet major SoftBank, eBay and a clutch of private equity investors are looking to pump in $150-200 million of fresh funds into the domestic online marketplace, according to a Times of India report.

“Burning cash for scaling up is essential for e-commerce firms to survive and Indian companies are only on the threshold,” said Rahul Khanna, managing director of Canaan Partners India in an earlier interaction. “But thankfully, most companies have realised by now that it’s a cash-intensive business and are doing what is required,” he observed. Going by that, e-com firms will require the kind of money they are raising now – to remain operational and profitable.

Will logistics tie-ups work out?
Most e-commerce companies in India heavily depend on logistics partners and outsource the delivery operations instead of investing in a huge supply chain spread over the country. According to industry experts, it is difficult for e-tailers to handle logistics as an add-on since it requires a certain kind of bandwidth. That’s why even big e-tailers like Myntra or Snapdeal are not focusing on in-house logistics infrastructure right now.

Consequently, logistics companies have got a huge fillip. Although the new e-tailing segment had very little contribution to their top lines two years ago, it accounts for a huge chunk of money flowing in. As a result, key players like Gati, Blue Dart Express and DTDC are now going deeper into the country, focusing on tier II and tier III cities and the rural landscape.

“One of the weakest links in the e-tailing industry is the last mile of delivery chain. So investments by the logistics industry are expected to grow 3-4 times in the next five years,” Ashvin Vellody, partner at KPMG told The Economic Times.

The organised logistics sector is likely to invest at least Rs 500 crore in the next five years and revenues for logistics companies from e-tailing alone are estimated to grow 70 times to $2.6 billion by 2020, according to KPMG.

That is, indeed, a win-win situation for both the segments and especially benefits the e-commerce firms yet to enter the big league. However, the majority of the e-com businesses in India will have to look sharp and find their niche in the coming months if they want to take on the local and the global behemoths in real earnest.

Image: Times of India