Since last few months, the focus of big names in Indian Startup domain is getting shifted from width of business verticals to depth in existing services to ensure the sustainability, profitability and customer acquisition. This time its Ola who is joining the list of changing scenario. Recently, cab aggregator Ola announced the shutdown of its food ordering service – Ola Café and hyper local delivery – Ola Store which were started as pilots in March and July 2015 respectively.
Ola stated “As we strengthen our focus on building mobility for a billion people, we are drawing these two experiments to a close and taking learnings from these to serve you better in the time to come.” Since the profit margins on food and hyper local delivery is limited to 15-20% and the market competition is stiff (restaurants aggregators like TinyOwl, Swiggy, FoodPanda etc and hyper local delivery startups like Grofers, PepperTap etc), these business verticals were not meeting the expectations.
The revenue generation of food and hyper local delivery is based on the commission per sale. If the average order size is considered as 300 Rs and 15% commission rate, profit per order is 45 Rs. Considering the fixed cost of setup and running cost per order, it’s difficult to become profitable unless the number of orders are huge and process is fully optimized for operational performance.
Other players, joining the list of operational shut down are – Flipkart by shutting down its experimental localized grocery delivery app – Nearby, Peppertap by shutting down operations in major cities, Zomato and Grofers by shutting down operations in Tier II and III cities.
[Image Source – Ola Blog]
Learning for entrepreneurs is that the business first shall be made sustainable in terms of its profitability by optimizing all the resources involved for execution and then shall be expanded to other locations and business verticals. Cash burn tactics are good for short term traction but for getting loyal consumer base the major focus should be on providing the best service among all the players and setting trends and recommendations for consumers.