Milk delivery start-ups get millions in VC dollars: But can they scale up?

A busy urban household looks for convenience, especially any help with the daily operations of the house, like food
The Ahujas were clueless when their teenage grandchildren visited them in the summer — one wanted toned milk, two of them sought the probiotic kind and the youngest preferred a third variety they can’t remember. “Our milkman used to deliver us two pouches of pasteurised Amul milk every morning,” says the wife. Finally, milkbasket, which delivers more than 30 varieties of milk in Gurguram, came to their help.

milkbasket, Doodhwala, DailyNinja, RainCan (acquired by bigbasket) are a handful of the apps that deliver milk and other daily needs in metros such as Delhi-NCR, Bengaluru, Pune and Hyderabad. They have one common aim — bringing online the dairy delivery market that is run by unorganised milkmen.

Investments worth millions of dollars are slowly trickling into this space. Last year, Doodhwala raised $12 million. DailyNinja has attracted $8.5 million and milkbasket $14 million.

The hyperlocal delivery space is heating up. Swiggy entered the sector with the launch of Swiggy Stores and Alibaba-backed bigbasket made a splash in 2018 by acquiring RainCan and Morning Cart. 

Opportunity

Is the market crowded? milkbasket co-founder Anant Goel doesn’t agree and says: “In Gurugram alone, there are 600,000 households being served by 6,000 milkmen. As of today, we cater to only a per cent of that demand.” According to him, the daily essentials market has enough demand to accommodate 20 unicorns.  

Milk delivery has an addressable market of $1.2 billion of which 8 per cent is online, says a RedSeer report.

Business model

While milk constitutes over 70 per cent in value terms of an average basket of goods for DailyNinja and Doodhwala, it has gradually come down from 99 per cent to 25 per cent for milkbasket. 

Reihim Roy, principle at Omnivore, which is the biggest investor in Doodhwala, says: “Our strength is perishable items... Anyone can deliver Surf Excel.”

However, milkbasket’s Goel contends that one can't make money on milk alone because of high spillage and slim margins.

Doodhwala claims to move a million packets of milk a month. Co-founder Ebrahim Akbari says a milk-led strategy helps the company remain nimble-footed while scaling up. “Groceries need inventory and investment in infrastructure burns a lot of capital.” 

While Doodhwala and milkbasket created their own delivery fleets, DailyNinja has opted to move ahead with traditional milkmen. 

DailyNinja co-founder Sagar Yarnalkar says it is easier for them to acquire customers through milkmen as they usually know each other. Also, milkmen hardly falter at the delivery-end as they have done this job for years, he says. 

Devil in milk e-tail

Despite slim margins of around 12 per cent, one can make profits if the order volume is 8,000 to 12,000 a day, claims Sagar. 

Moreover, a lot depends on the density of orders from a particular place. If an apartment block has 100 customers, the delivery cost can be brought down substantially, pushing up profits.

Scalability is another challenge as consumer habits are different based on geographies. While Amul is the preferred brand in Delhi-NCR, it is Nandini or Heritage in Mumbai. 

Road ahead

RainCan founder Abhijeet Kumar says selling only milk could be a viable business as the start-up was profitable even before bigbasket acquired it. 

Sagar feels that the winner will be determined by who gets to the consumer first as retention is high across companies.  Omnivore’s Reihim, on the contrary, says the victor will be determined by consumer experience. “We are not trying to be the next Amazon. One shouldn’t lose customers to a higher discount.”

EXPERT TAKE

Srikumar Misra, Founder and CEO, Milk Mantra
An opportunity for dairy companies

A busy urban household looks for convenience, especially any help with the daily operations of the house, like food. That is what grocery delivery companies and milk delivery start-ups are trying to address. The challenge of balancing supply chain enhancements versus costs is daunting, but if deep capital backs start-ups to pursue exponential growth, then this vertical can be truly disruptive.

However, for a daily consumption staple like dairy, convenience only doesn’t trump everything. The product and its value for the consumer are important. It’s great to promise product integrity and purity, but at 2-3x the usual price, chances are the play will remain niche. In India, scalable premiumisation is mass premium. Else, the addressable market falls off the cliff.

Further, well-differentiated dairy food companies with rounded product bouquets, who understand managing complex supply chains within limited margins, could look at online subscription as a strategic extension to both their channel and brand strategy. But it is easier said than done.


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