Rohit Kaul
Background
Ratnesh Verma is the founder and CEO of Pidge. We talked to Ratnesh about the intra-city logistics market in India, the growth of first-party logistics and building a supply chain for on-demand logistics.
Questions
- How did you come across the idea of building a radius-free, on-demand delivery/logistics service in India, and what is the insight you saw?
- If you look at on-demand logistics right now in India, it is very competitive. There are established players like Zepto, Blinkit, Dunzo, and Shadowfax. Where do you see Pidge fit into this landscape?
- Typically, the micro-mobility market becomes a Winner Takes All Market. You have Uber and Ola in India, Uber and Lyft in the US, Zomato and Swiggy in food delivery in India. How do you see the city logistics market scaling up from this perspective?
- I wanted to understand what’s driving the growth of 1PL? Why aren't people taking the existing options in the market such as Zomatao or Dunzo?
- In your view, what is stopping, direct to consumer brands from using Zomato/Swiggy? Is it the commission they charge? Or is it an elasticity/scalability issue?
- Can you help us understand more about the radius-free deliveries. How do you achieve that in a city? What sort of logistics model works?
- Can you double click on the micro fulfillment centers that you're setting up, and what part they play in your logistics chain?
- For city logistics, every city is a new market. You have to start from scratch, onboard customers, onboard demand, and build a network. Is that something applicable to you? How do you plan to solve it?
- When you say asset-light entry model for radius free, on-demand delivery, are you talking from a human resource point of view or from a fulfillment center point of view?
- What customer segments do you serve and where is the concentration right now? How do you see it changing as Pidge evolves?
- Your revenue is not usage-based or commission-based. It is based on the size of the package and the kilometers traveled. How do you scale revenue per customer or per segment in your model?
- Is GMV relevant for you in the same way as Zomato or Swiggy? Can you give us a breakup of your unit economics in terms of what are the drivers of your costs? Are there salaries or fuel expenses, interest costs? If you can give us some drivers of unit economics, that would be interesting to know.
- It'll be interesting to know more about the delivery side of tech. How much is the tech that you've built in-house, or how much you've taken from, say, a vendor, and how much of that is driving the radius delivery for you?
- Is there a part of your revenue which you would classify as a recurring revenue? Is your revenue growth coming more from net new logos or existing customers? How does that change as you scale?
Interview
How did you come across the idea of building a radius-free, on-demand delivery/logistics service in India, and what is the insight you saw?
There were a couple of personal pain points, and I'll just give you one incident. I was traveling to India and being a rainy day four Ubers canceled on me and I ended up missing my flight. I kept asking myself, ‘Why does convenience come at the cost of reliability?” Would my own driver have ever canceled on me?
As a global business leader, I saw how rapid digital adoption was enabling the businesses to reach their consumers directly and focusing on leveraging experience as the differentiator in a world that was increasingly becoming commoditized. Concurrently, increasingly new businesses were being set up as digital first often with no offline presence. I would ask myself how do these new age businesses provide experience to differentiate themselves if there was no physical interaction with the customer?
The food delivery companies were fast but unable to bring me my food from any restaurant that was not in their small radiuses. The courier companies could bring me stuff from anywhere but often taking days to bring things from even within the same city. Why were speed and reach at odds with each other?
As I dived deeper into the problem, and appointed a market research firm based in Mumbai to help us better understand the extent and size of the problem, we realized how the version 2.0 of commerce was leading to democratization of the individual elements of the value chain. But all online needed to end in a delivery—and not a compromised one.
Around the same time, I came across an independent research report at the same time that mentioned that 3 out of 4 businesses were choosing to do their own deliveries and how over time that proportion had increased. I asked myself, that why with all the new delivery options, with billions of dollars in investment, was actually failing to convert people who were doing their own deliveries?
I have always been inspired by Steve Jobs' launch of the iPhone—he described it as “a product bringing together a phone, music player, camera and web browser in one device”. And I asked myself why can’t a delivery be reliable and convenient; fast with reach; and provide an exceptional experience at the customer’s door? Why do things have to be binary, why should the customer have to make a choice and thus a compromise. Why can’t they have it all?
So all these questions led to the creation of Pidge.
If you look at on-demand logistics right now in India, it is very competitive. There are established players like Zepto, Blinkit, Dunzo, and Shadowfax. Where do you see Pidge fit into this landscape?
What's happening is you've got the hyperlocal players which are fast, and they work in smaller radiuses. And then you've got the enterprise logistics, which has the reach and can go anywhere but is more supply chain-driven than speed-driven. What's been happening is, as you and I both know, people grow on doubling down on their competencies. So hyperlocal was always about fast, shorter radiuses. It's getting faster with even shorter radiuses. The jury is still out on the 10-minute delivery, folks in the West have been trying to figure this out (unsuccessfully) for the last 8-odd years. It takes me more than 10 minutes to just exit my apartment complex. We are all aware of the market capture, and financial challenges that services mentioned by you are having.
On the other side, you've got the enterprise logistics, Delhivery, Blue Dart, etc. who are focused on the entire supply chain solutions, building infrastructure and making asset heavy vertical integrations. Cross-state logistics is yielding to cross-border connectivity.
Don’t get me wrong, there is clearly a huge opportunity for both the hyperlocal and traditional logistics segments. But as ‘fast’ gets faster and shorter; and ‘far’ gets farther; the entire landscape is getting polarized. And that polarization creates a white space. And that's why convenience and reliability, speed and reach become at odds with each other. That’s why more businesses are doing their own deliveries. That combined with the needs of the new-age businesses has amplified the need for City Logistics.
Pidge is a focused city logistics solution. We have access to a hybrid fleet, established micro-fulfillment centers, and successfully built an interoperable network.
Typically, the micro-mobility market becomes a Winner Takes All Market. You have Uber and Ola in India, Uber and Lyft in the US, Zomato and Swiggy in food delivery in India. How do you see the city logistics market scaling up from this perspective?
It's a $100 billion market; let's just start there. A $100 billion market and getting bigger. And it's very rare that you come across dynamics like this, where the market is growing faster than the cumulative incumbent growth.
Secondly, the market needs are changing. The incumbents (and indeed most of the new entrants) are doing more of the same. Pidge challenged the status quo and is built to solve the problems created by the incumbents. We disrupted the space by occupying the white space.
Our technology is completely developed in-house. Innovative features like Multiple Output Route Recommendation Engine, Dynamic Batching and Real Time Order Clubbing allow us to win the City Logistics space.
We have on-boarded over 1000 business accounts with over 250 active on a weekly basis. 92% brand stickiness is a testimony that our business partners value our proposition. We win from incumbents, but when we convert a captive fulfillment account to Pidge, that is very satisfying too.
Pidge launched in India’s largest e-commerce market. We launched and have established our proposition in not only the largest but also the most diverse market. When you play and win in the big league, you build the confidence to successfully compete anywhere.
Most importantly, we exist to solve a big problem—we understand it better than anyone else, we have demonstrated how to address it and are ready to take it everywhere else now.
I wanted to understand what’s driving the growth of 1PL? Why aren't people taking the existing options in the market such as Zomatao or Dunzo?
Marketplaces are great for small businesses without much aspiration. As the business grows, there is brand awareness - the marketplaces do not support the brand aspiration, and the need for control. We all know that apart from the prohibitive commissions, the biggest challenge businesses have is the lack of access to data about their own customers. Of course, there is the added stress of not being in charge of their own demand and supply.
While digital adoption, access to digital marketing tools helps business generate their demand—the lack of reliable delivery options forces them to do their own deliveries. But they all recognize that captive fulfillment is not elastic and scalable. In many ways, a reliable, and elastic delivery solution is key to continuing growth of the direct to consumer brands, including cloud kitchens and social commerce.
In your view, what is stopping, direct to consumer brands from using Zomato/Swiggy? Is it the commission they charge? Or is it an elasticity/scalability issue?
While commissions and captive marketing charges of the market places are indeed prohibitive, there are other factors that lead to brands opting for direct access to their target customers.
As previously mentioned, aspirational brands value their representation at the customers door. They thrive on brand loyalty which is impossible to build in the absence of access to customer data. Temperature of the product, the look and feel of the package, delivery executives communication are some of the factors that contribute to the experience. Pidge is the only service that is able to do on-demand cold chain logistics.
Supply rigidity is another challenge. When the marketplaces state that the ‘restaurant is temporarily unavailable’, the reality is that the marketplaces are unable to fulfill the demand, the restaurant is absolutely available. I have had self deliveries from restaurants that were apparently ‘not delivering’ per the marketplaces.
At Pidge, we built a transparent pricing system. Our pricing is related to volume, distance and special handling requirements. Our intent is to give the control back to the businesses. A lot of other services say, "Let's empower the businesses." And then their business models are everything but that.
Can you help us understand more about the radius-free deliveries. How do you achieve that in a city? What sort of logistics model works?
Our technology allows us to do same-day, radius free fulfillment. Imagine picking something in the morning and delivering it as far as 120 kms on a same day basis. We have made ecommerce faster. Sustainably faster!
Superloop distribution system combined with dynamic batching and layered with MORRE, powers us to combine reach with speed. We are the only ones who are able to do ‘multi pickups-multi drops’ on a real time basis.
We have tested this model in both circular and linear geographies. Our hybrid fleet allows us to execute mobile hub-and-spoke models, while building 2x efficiency that comes with a unidimensional fleet.
Can you double click on the micro fulfillment centers that you're setting up, and what part they play in your logistics chain?
Pidge Houses (micro fulfillment centers) are a hybrid between a mini warehouse and a dark store. It's not a pure dark store because it's not just stocking inventory.
They primarily support our e-commerce segments, facilitating reduced first mile for faster attempt time; cross brand consolidation to build density and productivity; and reduced dead mile for reduced cost.
For city logistics, every city is a new market. You have to start from scratch, onboard customers, onboard demand, and build a network. Is that something applicable to you? How do you plan to solve it?
We are in a unique situation where we completely own the same-day delivery market. We are also the category creators for High GMV O2O businesses. Lastly as the only company to be able to on-demand cold chain logistics, we have built over 92% brand stickiness. Our business partners supported us when we launched Chandigarh and we also have commitments from them that they will work with us when we expand to other markets.
We're a tech company, when we launch new markets we will mostly operate new markets remotely. Our operating model is asset-light, lean, and scalable.
While in Delhi, we took the top-down value capture approach. We started at the top of the value chain with the premium segment, and penetrated other segments sequentially. Our inspiration really for the top-down value capture approach came from Uber. When Uber launched, they launched with Uber Black. And today, they have Uber Auto and Uber Pool. There is enough evidence that top-down is the only approach to capture 360 value.
Why can't the other guys do it? Because they started at the bottom of the value chain. When you start at the bottom of the value chain, for example a grocery delivery service, will find it very challenging to deliver for any aspirational brand or High GMV business.
When you say asset-light entry model for radius free, on-demand delivery, are you talking from a human resource point of view or from a fulfillment center point of view?
Delivery executive model is either full employment (control but not scalabe) on the one hand and gig workforce (elastic but not reliable) on the other hand. We believe that the future is hybrid and disrupted the market by building a supply base that is elastic, scalable, reliable and capable of doing omni-category fulfillment.
We were able to go radius-free because we are able to motivate the rider through our payout structure that is designed to be fair, addressing the pain points of the rider and is transparent.
Asset-light for us is building an inter-operable network that allows for decentralized supply chain solutions, including manpower, fleet, stores, etc.
What customer segments do you serve and where is the concentration right now? How do you see it changing as Pidge evolves?
We deliver for high value GMV segment, white-labeled dining segment, ecommerce segment largely focused on the long tail and the direct-to-consumer segments.
We recognise that 100X will largely be delivered through the e-commerce segment (both horizontal head and long tail). We expect this to contribute over 85% volume. The High GMV segments at that scale will be less 5% in volume but will contribute over 15% in Revenue. Our unique omni-category fulfillment allows us to build yield at the top of the pyramid and productivity at the bottom of the pyramid.
Your revenue is not usage-based or commission-based. It is based on the size of the package and the kilometers traveled. How do you scale revenue per customer or per segment in your model?
Our unique capability to combine multiple segments in fact puts us in pole position to create and capture 360 value. We have the complete City Logistics solution, comprising of exceptional fulfillment capability, hybrid fleet, Pidge Houses, modular SaaS solution and most importantly an interoperable network. Each piece of the solution is modular and can be monetized individually or as part of a complete solution.
We are already positive at unit contribution level. As we speak some of the elements mentioned above are in beta-testing stage and we are excited with the multi-faceted opportunities that we have created for ourselves.
Is GMV relevant for you in the same way as Zomato or Swiggy? Can you give us a breakup of your unit economics in terms of what are the drivers of your costs? Are there salaries or fuel expenses, interest costs? If you can give us some drivers of unit economics, that would be interesting to know.
Let's talk about the whole conversation on GMV first. We do not charge commissions. As we talked earlier, our delivery charges vary based on volumetric, distance and special handling needs.
One of the problems we solved was supply side latency. We developed a solution to monitor real time volume in a riders bag. The rider’s bag for us is real estate and thus has a yield expectation mapped to it. Depending on the nature, distance and size of the product, the yield per delivery is determined. Mathematically put, if a rider was to only do 1 delivery in the entire day because it was a big package traveling for 125 kms, the total yield would be the same if another rider did 20 deliveries in shorter radiuses. The per package cost in the second instance will be 1/20th of the first one.
In terms of unit economics, I'm really proud to say that we are the only company that has broken even on unit economics in less than two years of operations. At a stable scale we expect to have 17% gross margin levels.
It'll be interesting to know more about the delivery side of tech. How much is the tech that you've built in-house, or how much you've taken from, say, a vendor, and how much of that is driving the radius delivery for you?
100% of our tech is built in-house, it's proprietary to us. And 100% of everything that we do today is tech-enabled.
At Pidge we took a completely design thinking approach to product development. We started with the problem, broke the problem into multiple smaller problems, ideated and tried multiple low-tech options to understand impact. And on the basis of real insights built a product that would make the solution extremely efficient and scalable.
Is there a part of your revenue which you would classify as a recurring revenue? Is your revenue growth coming more from net new logos or existing customers? How does that change as you scale?
It's a combination. Businesses are growing with us, but the real growth is coming when we acquire new customers. Now, the interesting fact here is, we have over 92% brand stickiness.
We have experienced with all our business partners that within 90 days of working with Pidge, they are either exclusive with Pidge or give the largest share to Pidge. This is the power of building a reliable ecosystem.
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