Ola bets on 10-minute delivery promise, but experts sceptical

Finger in too many pies? Market doesn't reward confusing narrative, they say

Ola Dash, the quick commerce service that Ola started last year, has taken on a new challenge. Within a month of Zomato announcing food deliveries in 10 minutes, the ride-hailing major has jumped on the bandwagon. According to media reports, the food delivery pilot has started in Bengaluru.

However, industry experts are sceptical about Ola’s bet on 10-minute food delivery.

In 2015, it launched an online grocery store and food delivery application for the first time. The idea was to use its taxis and drivers to also deliver groceries. But it closed its food and grocery ordering services in less than a year after launch.  Ola Café and Ola Store were its first non-transportation services, but they were not nationwide.

Then came the acquisition of food delivery aggregator Foodpanda India in 2017. While the platform grew fast on the back of marketing and discounts through 2018 to hit 200,000 orders per day in 2018, it was reportedly burning too much cash, too fast. In 2019, amid rumours of the company being shut down, Ola said it was repurposing the business for another fresh bet on the sector through Cloud kitchens.

 “Ola is just trying to create some noise with promises of 10-minute grocery delivery to attract investor attention since cash has suddenly become constrained for large technology (tech) companies,” said an investment banker, adding, “But this is not the kind of noise pre-initial public offering (IPO) or IPO investors would want to hear about new business lines like electric vehicles or quick commerce. They would want to know about what is happening in its core ride-hailing business — scale, growth, and unit economics.”

An email query to Ola about its strategy for building infrastructure and tech to deliver items in 10 minutes through its quick commerce grocery delivery arm remained unanswered.

The move has put Bhavish Aggarwal-led Ola in direct competition with Relia­nce-backed Dunzo, Amazon Pantry, Walmart-owned Flipkart, Swiggy, Zomato, Tata-backed BigBasket, and quick grocery delivery platform Zepto.  

“Zomato going after 10-minute food delivery is different. It just might crack it, given it is already delivering a million-plus orders a day,” said a food delivery unicorn executive, adding, “Ola has minuscule food delivery operations. It won’t be able to generate even dish-level demand predictions to get the service up and running. Also, it has taken us years to coordinate with restaurants and establish trust. Making money on a per order basis comes much later.”

Ola Dash currently services nine cities (Bengaluru, Mumbai, Delhi-National Capital Region (NCR), Pune, Hyderabad, Chennai, Kolkata, Jaipur, and Lucknow) through its store-to-door service in 10 minutes, spread across 200 dark stores, offering an assortment of over 2,500 stock-keeping units. Ola aims to grow the business, taking the order size to more than 500,000 per day by the year-end.

Sreedhar Prasad, a veteran management consultant who works with tech start-ups, said if Ola is planning an IPO anytime soon, it has to clearly communicate its core competence and business model. Prasad said the market has shown that it doesn’t reward a confusing narrative when a tech company has its finger in too many pies.  

“It’s always understandable when there is a pivot to an adjacent business,” said Prasad, adding, “But ride-hailing and food deliveries have different business models. One needs to understand who will be establishing Cloud kitchen brands and setting up a dense network of localised logistics — Ola itself or a logistics partner.”

Anshul Khandelwal, chief marketing officer, Ola, recently said that the company has been a leader in on-demand mobility business for more than a decade. He said the company’s advanced geolocation tech, coupled with low-cost customer acquisition, gives it the unique advantage to bring the benefits of mobility to all.

The range of products available on Ola Dash includes fresh produce, snacks and beverages, instant food, homecare products, fruit and vegetables, and cooking essentials.

According to an industry report by RedSeer, the addressable market for quick commerce is projected to be over $75 billion by 2025, creating a multi-billion-dollar opportunity for players tapping this market. It is not the first time Ola has come up with a service in this space.

Ola has many rivals in this space that are also offering express delivery servic­es. Many of them have raised huge fu­nding rounds to scale up such services.

Dunzo, the Google-backed quick commerce player, recently raised $240 million in its latest round of funding. The investment was led by Reliance Retail Ventures, with participation from existing investors.

Kabeer Biswas, CEO and co-founder, Dunzo, said the company’s supply chains for fresh fruit and seasonal vegetables ensure that produce reaches its mini-warehouses in less than 20 hours after harvest from the farms, every day. He said the state-of-the-art infrastructure at each mini-warehouse maintains this freshness. This leads to consumers receiving the freshest fruit and vegetables each time, within 19 minutes of placing an order.

In less than a year, Dunzo Daily is growing at a rate of more than 100 per cent month-on-month and is expected to fulfil more than 200,000 orders per day by June. With launches planned in Delhi, Gurugram, Noida, and Hyderabad, Dunzo Daily will become a national player with over a 200 mini-warehouse strong network (adding to the network at a rate of one mini-warehouse a day since January) and a delivery partner fleet of over 30,000 across the country.

Quick commerce platform Zepto also recently raised $100 million in its Series C round at a valuation of $570 million.

Another rival, Swiggy has raised $700 million in an Invesco-led new funding, which, according to sources, has made the outfit a decacorn, almost doubling its valuation to $10.7 billion. This fund-raise will also enable Swiggy to accelerate growth on the core platform and make meaningful investment to grow Instamart, its quick commerce grocery service which remains well-positioned to continue to lead the emerging space and set to reach an annualised gross merchandise value run rate of $1 billion in the next three quarters.