Is Blinkit’s plan to pay peanuts for delivery in pursuit of profit driving delivery personnel bananas?

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Customers all over the world desire to have access to a wide range of products and services, but they may not necessarily be willing to pay for all of them. Everyone appreciates free delivery and steep discounts without having to put in any effort, but when it comes to making a purchase, customers are more likely to pay when they feel they are getting a disproportionate value of the resource that is most scarce to them, such as their time, status, physical or mental effort.

To better understand which target group benefits most from saving time on their grocery runs, we can refer to India’s Income pyramid. Assuming that one purchases groceries daily, the typical trip would take 35 minutes, resulting in a loss of 365 x 35 minutes per year. Blinkit provides an opportunity to earn back 35 minutes per day by spending Rs. 3650 (at Rs. 10 per order). Since the value of time varies for each level of the Income pyramid, the return on investment will also vary.

The formula for calculating ROI is as follows:

ROI = [(Income/35 mins) x 365] / (Cost per 35 mins x 365)

Let’s consider the different income groups in India and their respective ROI for using Blinkit’s service:

• India Deprived Class: With a maximum annual income of Rs. 1.5 lakh per annum, the cost per 35 minutes for Blinkit is Rs. 9. Therefore, the ROI is -0.15.
• India Aspirer Class: With a maximum annual income of Rs. 3.4 lakh per annum, the cost per 35 minutes for Blinkit is Rs. 19. Therefore, the ROI is 1.94x.
• India Middle Class: With a maximum annual income of Rs. 17 lakh per annum, the cost per 35 minutes for Blinkit is Rs. 97. Therefore, the ROI is 9.7x.
• India Rich Class: For those with an income above Rs. 17 lakh per annum, let’s calculate the ROI for incomes of Rs. 50 lakh and Rs. 1 crore. At Rs. 50 lakh, the ROI is 28.5x, and at Rs. 1 crore, the ROI is 57x.

If we consider the benchmark that a disruptive service should create 10 times more value, we can see that only the India Rich demographic benefits significantly from the convenience offered by Blinkit. This is not to suggest that the India Middle Class demographic is unwilling to spend Rs. 10, but rather that they do not necessarily value it as highly.

For example, many people may remember that Caller Tunes was once a billion-dollar business, with customers willing to pay Rs. 45 per month because it provided social status.

If Blinkit is struggling to charge a delivery fee of Rs. 10 and is therefore forced to reduce its delivery payout, two critical questions arise:

1. Have they acquired the right customers? Zomato, for instance, has only 2.7 million power users and 58 million annual customers, whereas India Rich has 16 million households.
2. Have they implemented adequate retention strategies for the India Rich demographic?

If both of the above factors are accurate, it implies that the subset of the India Rich demographic that values convenience is significantly smaller. This raises the question of whether a 10-minute grocery delivery service is the appropriate value proposition to expand into adjacent demographics.

Now, let’s examine this issue from the perspective of delivery agents. These individuals have an abundance of time and physical effort but are constrained by financial resources.

At a rate of Rs. 25 per order, two orders per hour, 10 hours per day, and an 85% annual utilization rate, their yearly income after accounting for fuel and vehicle expenses is Rs. 1.31 lakh, placing them in the India Deprived category. At a rate of Rs. 15 per order, they would earn 69k, making them even more deprived. However, at a rate of Rs. 50 per order, they would be able to enter the India Aspiring category.

Marketplaces must create value for all stakeholders. I recently wrote a post on how DoorDash surpassed Uber by creating value for its customers, delivery agents, and store partners.

It’s about time that these 10-minute grocery startups start cracking open the books and get to know their customers and business from the ground up. Let’s get those thinking caps on!