Last-Mile Logistics Boom: Companies Are Racing to Deliver Despite Losses

Before 2016, if you forgot something at home while going to work, needed to get something picked up from a store or send home-cooked food to a sick friend, you’d have to step out to do it on your own or send someone you knew. Now you can “dunzo” it.

Dunzo — started by Kabeer Biswas on a WhatsApp group in 2015 and then on the app since 2016 — is a last-mile logistics app specialised in hyperlocal deliveries that has become a verb and ubiquitous to our busy lives. While Dunzo was among the first and became quickly popular, not all is well for the app. Deloitte, the company’s auditor, in its latest report, has indicated potential bankruptcy.

This is despite a hyperlocal e-commerce boom during the pandemic which in turn increased demand for such last-mile delivery services. Data from a joint research by consulting firm Bain & Company and Flipkart showed that in the fiscal year 2020-21, India’s e-commerce industry grew by 25%. To cater to this demand, food delivery apps Zomato and Swiggy both started grocery delivery services. Swiggy Genie, a service like Dunzo was launched in April 2020 and so was Uber’s delivery service.

Three years later, India has several last-mile logistics players in the market, Bhavish Aggarwal-led ride-hailing platform Ola’s ‘Ola Parcel’ being one of the most recent.

Where’s The Money?

Be it hyperlocal delivery services, last-mile courier deliveries or food and grocery delivery platforms, more players are entering the last-mile logistics market buoyed by demand. They’re seeing revenue growth but going into losses resulting in jobs losses and pay cuts.

Dunzo, one of the major players in the market, is cash strapped. Its losses for FY23 Rs 1,801.8 crore. In September, The Financial Express reported that the company was planning to downsize by 30-40%.

Swiggy announced layoffs in January 2023, with co-founder and CEO Sriharsha Majety taking the blame for “overhiring”.

Zaiba Sarang, co-founder of iThink Logistics told The Core, “According to data, many logistics players in India generate money but do not earn a profit. The majority of their revenue is spent on logistical operations and management. They are losing money and are unable to turn a profit.”

Eugene Panfilov, general manager-India and Brazil at Borzo (earlier known as WeFast) told The Core, “​​small and midsize business (SMB) in India is break-even effective at all costs for us, meaning we neither make profits nor losses.”

The average order distance for Delhi is ten kilometres while for Mumbai and Bangalore is nine kilometres. But when it comes to making a profit, the company is in a similar league to the other players.

Present in 22 cities in India, Borzo’s monthly delivery in India goes up to 2.5 million in which South India comprises 25 % of enterprise deliveries of the business which are major cities Hyderabad, Bangalore and Chennai.

Why Are New Companies Foraying Into The Sector?

One of the major factors that’s prompting more companies to launch last-mile delivery services is a growing demand. According to a report by software platform Shipsy, Indian last-mile delivery business will be worth $6-7 billion by 2024 in India. The market is predicted to rise at a CAGR of 15.62% from 2022 to 2027, resulting in a $165.6 billion increase.

Sarang said, “The majority of logistic firms sense a demand and are thus joining the sector. These players come from diverse industries and seek to be leaders in their respective niche markets.”

An example of the niche markets they’re seeking to crack is 10-minute deliveries like Zepto and Blinkit.

Companies like Ola and Uber, already have an existing customer base, and only have to provide the extra service. Sarang said, “However, many people do not understand how to produce money and ensure that it is beneficial for all parties. The players' mindset is to be in the market, attract customers, and enhance the economic value of the business.”

Sarang is also concerned about the way last-mile delivery players are conducting their operations and predicts that they will likely not be sustainable in the long run. “It is the idea of many players to just be in the market and either get acquired or merge with other large players," she said.

Niche Markets The Way To Go?

Nayan Ratandhayara, co-founder and CEO of Shipyaari believes that to survive in the last-mile logistics market, either you need to give the best of the services in the same segment or start something niche.

“Swiggy and Zomato are also the last-mile logistics players but they only cater to the food delivery sector. The market also has players for grocery, specialising in fruit, vegetables, meat products delivery and we see many players interested in the same market - Amazon also began delivering groceries, again a niche segment,” Ratandhayara said.

Ola Parcel entered the market with the most competitive and lowest prices found. As per the official release, the platform will charge Rs 25 for 5 kilometres, Rs 50 for 10 kilometres, Rs 75 for 15 kilometres, and Rs 100 for 20 kilometres.

Last-mile logistic companies want to make sure that the services they provide are either niche or a larger segment of the market for profit margins.

Panfilov said, “We always wanted to serve business clients for their last miles, direct B2B products and business players. We are all in this industry because of our focus on niche markets.”

Businesses in the sector want to have their own core strength and want to master in their own domain like delivering perishables, heavy vehicles, pharmaceuticals and so on.

“The market demands players that fulfil the niche markets in terms of delivering particular products or tapping into a specific region and the players have understood this demand. Thus we see many new players entering the market, targeting the niche audience,” Sarang said.

Gig Worker Economy

Many of these companies are dependent on gig-workers for the services they offer. Their increasing losses have also prompted them to rework pay structures, reduce pay or lay people off.

In April this year, Blinkit delivery partners over week long protests over the change in pay structure. The work conditions of the delivery agents was also brought to light earlier this year with several accidents and attacks on them. This prompted Karnataka to roll out a Rs 4-lakh insurance scheme for gig workers, and Rajasthan to introduce a bill for their social security.

However, these hazards still haven't affected manpower. According to Ratandhayara,“If you pay the right price, manpower is available.”

He added, “Today delivery boys have multiple options from food to grocery to e-commerce to choose to work. From a workforce perspective, he will look at which niche sector will pay him more, plus which is more stable and keeps giving him work on a daily basis. So there is a market and workforce available, you just need to offer the right price,” added Ratandhayara.

Borzo said that the industry average earnings for the gig delivery partners at a lower scale would be Rs 450 to Rs 500 up to Rs 800 per day depending on the number of orders they deliver.

“Adding incentives and deliveries where the gig delivery workers travel longer distances would average around Rs 1000 - Rs 1200 per day. The monthly average earnings of the industry is around Rs 15,000 to Rs 18000 per month at a lower scale and Rs 24,000 to Rs 30,000 per month at a higher scale. During peak months, the monthly earnings can go up to Rs 35,000 per month on average,” Panfilov said.

According to a report published by Locus, a dispatch management software as a service (SaaS) provider, titled Decoding Asia's Last-Mile Maturity, India ranks first in labour empowerment in last-mile logistics, with a score of 3.42 out of 5.