Bigbasket shuts down 90-minute delivery: Why online grocers struggle to deliver fast

Update: The copy has been updated with bigbasket's response.

The gruelling rigour of on-demand services in the online grocery space has claimed another casualty. This time, the victim is bigbasket.

Alibaba-backed bigbasket has merged its express delivery with its slotted delivery, the company confirmed to Moneycontrol after Entrackr reported that the company was shutting down its express service.

"We have brought our two business models - express and slotted delivery together," Hari Menon, co-founder of bigbasket, said.

Earlier, customers could choose from 2000 items and order with Bigbasket's 90-minute express model. These orders were delivered on bikes. Alternatively, customers could choose from 30,000 items and pick from four delivery slots. These orders were delivered by van.

"Now customers can choose from 30,000 items and get almost 90 percent of them delivered in 2-3 hours of placing the order. These orders are delivered as a combination of van and bike based on the size of the order, which is determined using advanced technology," Menon said. "This new service is fully live in Delhi NCR and will be live across all Tier I cities by September."

Express delivery was started by bigbasket in 2016. The move was seen as unconventional by a company that had grown slowly but steadily, rather than by taking bold steps.

In the past, rival Gofers also shut down its on-demand delivery services due to unfavourable unit economics.

Essentially, the core of on-demand service is the availability of the product at the local level.

Unlike restaurant delivery where food is manufactured locally, in the grocery segment, companies need products to be available at local level in enough quantity to sell them to customers.

India has lots of small stores and it gets very difficult for companies to know what they have and they usually do not have everything that customers want in a single order. This increases the cost of procurement. So a grocery delivery company has to hop on from one store to another to pick up individual items.

This increases the cost of procurement since the delivery boy has to pick up the products from multiple small stores to complete the order.

On the other hand, if the company opts for the inventory model -- stocking all units by itself -- the cost of operation increases.

A senior executive of a leading online grocery firm said on the condition of anonymity that an order needs to be at least worth Rs 1,500 for a grocery delivery company to cover the warehousing and last-mile cost. Otherwise, the customer will have to bear a convenience fee in order for the company to not take a loss.

However, in a price-sensitive market like India, consumers are unlikely to pay a fee worth Rs 60-70 for an average ticket size of Rs 100-250.