According to UBS, consolidation is the “endgame” in the fast trade industry to achieve efficient use of dark stores and delivery fleets.
“A business will only be able to benefit from efficiency when it has near total control over a catchment area and its dark stores are 80-100% utilized,” the investment bank said in an April 13 report. citing his conversation with an industry expert, who was part of the founding team of one of India’s leading delivery platforms.
If, however, there are multiple players competing in the same geographic area, the market splits, usage goes down and fixed costs go up, he said. In addition, other costs such as customer acquisition have advantages of scale, which they will not be able to take advantage of. “Therefore, consolidation is inevitable, with one or two players expected to survive.”
With current offerings, companies are unlikely to generate positive contribution margins per order. But a combination of factors, according to the report, may help the unit’s economy improve faster. They are:
Higher density and consolidation of orders, which can reduce delivery costs.
More automation and quality control can reduce waste and refunds.
Advertising revenue can increase through innovative brand partnerships.
Delivery times are kept at a reasonable level.
Customers are willing to pay higher shipping costs for convenience.