Same Problem, Different Era: Can Quick Services Finally Crack It? The 2030 Consumer ft.Naman & Varun

0:00 Commerce was all about delivering convenience, but quick services is not just about convenience. It is also about organizing the entire industry. >> But is there even a need to organize these services? For all my services, I have a local go-to guy. >> If you have to rate them on a scale of 1 to 10, how would you rate your experiences? >> Some of them are two on 10, some of them are 10 on 10 kind of services. I know that I can't get the best kind of service every day.

0:21 >> People will prefer more reliable, more standardized service, and the chalta hai attitude will not work anymore. >> Organizing the service industry comes at a cost. They're not only operating at a negative contribution margin, they're also sometimes operating at a negative gross margin. >> Will these economics ever make sense? >> We are talking about a category creation play here. I think it will be unfair to look at economics today at day zero. >> Back in the day, 2014 to 2016, there were a bunch of startups that came up with this on-demand kind of value proposition. Do you see this as a same gin in a different bottle?

0:52 >> Fundamentally, there are three things which have changed. One on the consumer side, second on the supply side, and third on the infrastructure side. >> Will there be one horizontal platform that will offer you all services, or do you think there is an opportunity for a vertical play? >> I think the better frame to look at it is >> So, Naman, in the last 3 to 6 months, we are seeing a lot of these quick services companies that are coming up. What's all the hype about? Do you think they are just following the quick commerce trend, or do you think there's a real business to be built here?

1:17 >> For any real business to be built, you need to really solve a consumer pain point in the right way. And if I look around my network, including me, I think I see everybody is fairly dissatisfied with with the current services which they take. everybody is super unhappy with the service providers in terms of reliability, in terms of quality of service. So, overall, this entire industry is fairly unorganized and fragmented. And there is a need to you know, organize this industry.

1:50 >> If you think of it, for all these services, I have a go-to local person, right? For my cooking, I have a cook who comes at home. There is a domestic help that comes to my home and helps me out. might not look like it, but I also go to a I have a salon barber who helps me with with cutting my hair. So, what is my unserved need here? >> Let's take these examples. Like So, when you take all of these services, the examples that you gave, salon services, you know, your maid, cooks, typically what parameters do you think shape your customer experience?

2:22 >> The primary parameter is quality, right? How good my food is, how clean my house is, are my clothes properly washed and ironed? Right? Then there are these softer aspects. One is punctuality and timeliness. Can they come at the time that they have stated? And also, can they tailor make their schedule according to my schedule? The second part of it is their behavior. Because they are in my house, this is a little more in my private space.

2:48 Are they behaving well? Can I talk talk to them? Am I not feeling uncomfortable around them? So, these are the parameters that at least I look for in this kind of service. >> Agreed. Fair point. And now, let's do one more exercise. Let's say in last 7-8 years since you graduated, I'm sure you must have, >> >> you know, used 20-30 plus service providers across different categories. if you have to rate them on a scale of 1 to 10 in terms of all these three parameters, how would you rate your experiences? Like was it a consistent experience throughout or do you think it varied significantly?

3:21 >> The ratings are quite varied, right? Some of them are two on 10s kind of services, some of them are 10 on 10 kind of services. And I hear your point on that when there is unorganized supply, the consistency of quality of output and reliability on them is varied, right? For each service, I have experienced different kind of quality of service, right? With different different service professionals. Even with the same service professional, I've had different kind of experiences.

3:54 And then over time I have lowered my expectations. My expectation today I don't put in a lot of effort because I maybe I know that I can't get the best kind of service every time. >> If you don't get the right alternative option, people tend to lower their expectation because nothing better is available. But as Indian consumer is evolving, you know, in urban cities all of us are quite busy day by day and the expectation is also going up in terms of the quality of services that you want. People will prefer more reliable, more standardized service and the chalta hai attitude will not work anymore.

4:32 So there is a there is an inherent need to organize these services to drive better outcome, better experience, more reliability, more standardization. >> Got it. But Naman, if you are using the existing supply to organize these services, then how do you really improve the consumer NPS? Sure, you can maybe improve timeliness, you can maybe also improve behavior, but how do you improve quality? >> In any consumer business, you really can't win consumer love unless you're offering a superior quality of service.

5:04 So even if the supply is same, you need to offer better quality of service. The way to do it is is through training. So all of these platforms needs to invest in training and primarily two buckets of training I would say. One of it is is low hanging fruit, soft training mostly, which is training people on how to talk, how to behave, you know, how to groom properly, maintaining basic hygiene standards. And the second slightly harder part to do is is training on training them on hard skills. Which is hard, but still it is if you're able to do it well, this also becomes your defensibility in the long run.

5:43 So all these platforms, quick service platforms, will also need to run structured training programs to be able to upskill average guy to be able to deliver a superior outcome. >> What you are arguing is then that the same service professional who is today offering me, let's say, a four on 10 kind of a service, can give me an eight on eight on 10 or a nine on 10 kind of service? If they are put through a formal skilling structure.

6:09 >> Exactly. And then there is an incentive structure as well which leads to a better quality outcome. So, like today with the unorganized setup any service provider that comes to you, you know, they're not really incentivized to really go an extra mile and and delight you on customer experience. So, they get the same amount of money whether they do a good job or a bad job. But in an organized setup, because of this entire system of, you know, customer giving them the ratings, the feedback, and then their incentives are linked to what kind of ratings do you receive over time. So, So, there is a financial incentive for the service providers to go extra mile to be able to deliver better customer outcome compared to, you know, in an organized setup.

6:54 >> And another point I have in my mind is this feedback loop, right? Over time every rating that a consumer gives to a service professional, every compliment they're given, every five star rating they're given, all of them acts as a self-fulfilling loop because then they help build out the profile of each of the service professional and over time the marketplace essentially weeds out the bad apples or weeds out the professionals who are not giving a good service.

7:18 >> Yeah, exactly. And then, you know, this trio of training plus feedback loop plus, you know, incentive is kind of an holy grail to be able to convert a hit or a miss unorganized labor pool labor pool into a more organized reliable service providers. >> I think there are multiple factors at play here, right? First is at least in my mind there is a definite consumer shift towards last minute planning. If I take my own example, as the lifestyle is getting much more busier, I'm losing control over my own schedule.

7:50 I don't know whether I'll reach home at 6:00 p.m. I don't know whether I'll reach home at 8:00 p.m. Right? So, I want somebody who can tailor make their schedule according to my my schedule. A downstream effect of this also is that I can't really plan for long. I need something which is on demand. The other point that I have in my mind is sometimes these use cases arise at last minute. For example, I wake up in the morning I and I see a message from my cook saying that they're not coming today for lunch. So, I'm in a fix. Who do I call?

8:21 And as you were saying that these unorganized services are much more unreliable today. I'm already always anxious that whether I can get this kind of a service or whether I can not get this this kind of a service. If somebody is able to put together these two things for me, on demand and reliability, I will never go to anybody else. >> Fair point. I think you need a 10x solution to be able to shift customer behavior. And without quick that you're not really offering a 10x solution for you. You're probably offering only a better solution.

8:51 And and maybe also like having advanced scheduling is not necessarily you know freeing up a lot of anxiety. You're still not sure whether you'll reach home on time or maybe you're also not sure whether you change your plans for the weekend, but will the service provider turn up or will they get late? So, fair point. >> One thing I often wonder Raman is that is this only a top 10 city or top 15 city game or can these kind of services expand to the next 50 cities? Right?

9:18 Sure, we discussed about busy schedules, we discussed about lifestyle not having control on our lifestyle. Those are something that I only see in top top cities because your commutes are getting longer, your working hours are getting longer, dual income households are the norms. But if you go to the next set of cities or tier two cities in India like let's say like in Aligarh or a Coimbatore, the lifestyle there are very very different, right? The commutes are shorter.

9:43 Joint families are still the norm. Most people typically run a small business where they have a man Friday or a help at home that help them that are just a phone call away. So, does Where does the need for quick come there? >> You know, I've been thinking about on this a lot. yes, the busier lifestyle and the paying propensity is more a metro kind of a phenomena. not really a tier-two thing, but but I think the shift in consumer behavior and even the the need for better quality and reliable services, that is very much real in tier-two. So, the the young generation in in tier-two cities, someone who is, you know, 25 to 35 years year old, you know, they are very much aspirational in terms of their needs and demands. And hence, I think there is a like all of them would prefer to have a better quality service. And there are proxies for this also. Like for example, you will see a the cafe culture has significantly shot up in all tier-two cities. I come from a tier-two city and I've been to a lot of other tier-two cities.

10:53 so, you can This is very evident. The second thing that is very evident is the increase in leisure and entertainment activities. even the adoption of young generation in tier-two for quick commerce is also very very real. Like most of the younger folks in tier-two are power users of quick commerce. You will also see a lot of EBOs of new-age brands expanding into tier-two cities and and doing well. So, yes, I think maybe the tier-one cities will will adopt it, but in next 5 to 7 years, I see that tier-two cities will be the primary growth driver for for quick services companies as well.

11:30 >> Why now? I remember back in the day, 2014 to 2016, there were a bunch of startups that came up with this on-demand kind of value proposition. You yourself ran a laundry business, right? Do you see this as a same thing in a different bottle? >> Yeah, I think so as someone who has lived and tried building in that era, you know, I think about this a lot that what has changed in last 10 years. All of those companies, you know, didn't really succeed at that time. In fact, at that time these these services used to be called on-demand services.

12:01 And of course, quick is the new terminology today, but I think about it a lot like what has changed in 10 years. And fundamentally, there are three things which have which have changed. One on the consumer side, second on the supply side, and third on the infrastructure side. So, and let me go deeper into each of these three things. On the consumer side, you know, 10 years back, the paying propensity was not as much. People were getting used to, you know, ordering these services or products digitally. Like, for example, charging for delivery fee was a crime. Nobody used to charge for delivery. It was by design free.

12:37 Forget about like handling charges, packaging charges, you know, convenience fees. All of them that were nonexistent. So, overall like consumer expectation has evolved and consumers paying propensity has evolved, which is what is making this lot more feasible today as compared to 10 years back. Now coming to the supply side, if you see, like 10 years back, the supply was not already digitally native. Like a lot of people don't have internet connection. They probably don't know how to use app really well. So, in a sense, these startups have to invest a lot in making a digitally ready supply. Whereas today, if you see all of like everybody have a smartphone, everybody has internet connection, everybody has a bank account in itself, which was also a major concern 10 years back. And everybody know how to probably use an navigate an app or Google Maps. So, in 2015 cycle, you know, startups had to fund to create a digitally native supply.

13:37 Whereas, this digitally native supply is already ready. And hence, that is making it a lot more easier to ride on top of it and ultimately making this model a lot more scalable. The third thing on the infrastructure side, I think couple of things I think at that time, background check and onboarding itself was a very big concern. Like you have to really when you get a service provider, you have to give it to an agency to run a background check. And so, it it it it still used to take a lot of time.

14:05 Now, with, you know, Aadhaar and eKYC, that process is becoming super smoother. You can really do verification much faster. the second thing is on the is on the UPI side. I think So, in 10 years back, there used to be weekly settlements which used to have a lot more dissatisfaction in in supply. There used to be a lot of cash handling because consumers used to pay in cash. And the suppliers then used to submit cash. And so, again, that was a very big hassle. Today, everybody has a bank account. There is instant settlement, instant payment.

14:36 So, the supporting infrastructure, even the delivery infrastructure has really improved. The supporting infrastructure has significantly evolved, which is what is again making it a lot more viable today. >> Then, Naman, let me come to the most hottest question in this industry, right? Organizing the service industry comes at a cost. If you look at the bunch of companies that we are seeing in this space today, they're not only operating at a negative contribution margin, they're also sometimes operating at a negative gross margin.

15:06 Will these economics ever make sense? Or is this the cost that you have to pay for habit formation? >> You know, we're talking about a category creation play here. So, I think it would be unfair to look at economics today at day zero. by design, like if you look at economics today, it will not look really pretty, but we need to look at how will the economics look like at a steady state. So, you know, especially because these are very highly sticky services. So, today like you know, if a company were to start these services, you know, you have to probably spend in over capacity on the supply side because customer will need that reliability and satisfaction from day one. So, you have to invest in training, you have to invest in over capacity to be able to deliver your on your promise.

15:53 So, so that's one area why economics will look poor. The second thing is for any customer to, you know, induce trials, for you to induce trials with any new customers, you will have to probably, you know, incentivize them with some discounts to, you know, so that they try you for initial few times. Once and once the habit formation happens, then you can probably you know, charge them your actual meaningful rate. On the supply side, you're bleeding money because supply is not fully utilized and you have to also, you know, probably incentivize customers to try your services and hence these businesses will tend to, you know, bleed a lot in the beginning.

16:33 Over time, I think as the customer habit shifts and you know, they will drive a lot more frequency and which will essentially lead to a higher utilization of your supply force. Once you have achieve a meaningful utilization level, at that time the economics should make sense. This is true for any kind of a consumer tech play like even 10 years back if you see, you know, food delivery companies, ride sharing companies, like all of these companies and they initially used to bleed a lot because of exactly these two reasons and over time, you know, you start making money once you have good enough utilization levels and once you have shift the consumer behavior.

17:08 >> All these businesses will have fairly poor economics on day one. Then how do you make sense of these businesses, right? Can these business exist? How do you take a call that these businesses can exist over a period of time? The economics can improve at steady state. Second thing to look at in this business is what kind of contribution margin you can make at a steady state. Not today, of course. If you look at a business that what is your what's the contribution margin at a business level in a business that is 6 months old, that will of course not yield you any meaningful conclusion. But the way to look at it is let's say for a specific micro mature market or a mature micro market because this business typically you build micro market by micro market. This is hyper local in nature. So, for that particular micro market which probably you've been running for more than a year or so where you have a good enough utilization rates for your suppliers, what does the contribution margin look like for that micro market? If that number is healthy, then you are sorted. If you have a customers who are using you frequently enough for whom you've been able to transform habit and they're yielding you good enough contribution margin on a regular basis, then I think that's a very healthy sign.

18:16 If even at a steady state with good utilization numbers your contribution margin is not making sense, then that is a red flag. And when you're looking at a new business where you know there is no mature micro market yet, then probably we'll have to look at do a theoretical exercise to be able to figure out if there is a contribution margin or not. >> So, by theoretical theoretical exercise you mean look at steady state frequency of usage, look at the AOV, look at the cost of supply, and then work backwards from there to come on utilization, and see at what utilization math does the contribution margin starts to make sense. And if even on paper math does not work out, probably the business can't be built.

18:58 >> Exactly. Exactly, that's my point. And the third point, you know, to be able to evaluate, you know, quick services business is how large can a micro market become. So, essentially need to have you are serving a 2 to 3 km radius by design because you're offering a quick service. The real question is, you know, within that radius for that for a price point where the economics work, how large can a micro market be? And eventually the business, you know, can be.

19:27 >> Completely with you on this, Naman. At least the way I think about it is on three factors. One is the density of your ICP in that micro market. Second is how much penetration can you achieve or how much market share can you achieve in that market? And third, how many of such micro markets exist across the country. The first two help you answer how big a micro market can get. And I think the third will help us answer how big the business can be.

19:57 >> One interesting metric to look at in the early days could be the the organic growth that you're seeing in a micro market when you're starting it because essentially it's a function of what kind of penetration are you able to achieve? are you able to drive some kind of a habit formation so that you don't have to acquire new customers through marketing all the time. and over time like if you have good enough density, you have good enough penetration, this will lead to higher organic share of the revenue. And of course this has to be at a certain price point because if you significantly change the price point, that will also significantly like change your market size. If you double your price point or triple your price point, that will that means the lesser number of people will eventually use you and change your market size.

20:41 >> If all of this put together in some sense on a two by two matrix where X axis depicts the skill required by the supplier to offer that service, which in my mind is also a proxy for AOV because higher the skill, higher the AOV that you have to pay. And Y axis depicts your frequency of usage. And any business that scores high on both these fronts is actually one to look for. >> Yeah, one looks like boss consultant and and you just woke up. But yeah, that's exactly what I meant.

21:13 >> Yeah, I should have seen that one coming. But the other question I mean I had is on CAC. A lot of commerce businesses that we discussed, especially marketplaces that we discussed, right? CAC and CAC payback time periods are fundamental questions there. Do you see those questions arise here as well? >> Honestly, I don't I think the first two points that we discussed, which is the the frequency and the contribution margin, I think if we're able to do a good job on both of those things, then CAC really doesn't even matter. Like think about it. Like if you have recurring users who are using your service month on month on a repeated basis, and if you're making some money out of it, a reasonable money out of every service which you deliver, then the LTV is so high that CAC will eventually become insignificant. In fact, I would even go to a go further to a point saying that people who are obsessing about CAC in quick services business, would most likely their retention would be weak. That's why they're thinking about CAC so much.

22:10 Ideally, you should they should be optimizing at the other end of the funnel instead of in the acquisition end. If you optimize on improving your retention numbers and improving your unit economics, CAC really doesn't matter. >> The other thing that I keep hearing around is this horizontal platform versus vertical platform debate, specifically in the quick services space. What do you think? Is there one will there be one horizontal platform that will offer you all services? Like let's say one platform will offer you cleaning and beauty and cooks and others? Or do you think there is an opportunity for a vertical play?

22:44 >> So I don't I don't look at it as a horizontal versus vertical play. I think the better frame to look at it is what is your uniform service niche. >> Why uniform? >> So because operating model and the skilling required in different services would be very very different. Like think of a skilling. a platform which requires no skilling, like services like, ironing, probably pick up and drop, maybe even, a house help, has to be built very fundamentally very different as compa- differently as compared to, let's say, platform which need, highly skilled services like, you know, cooking, beauty services, maybe fitness services. the entire hiring funnel, your training infra, and your quality control mechanism needs to be very different for these two buckets.

23:33 >> Another vector, Naman, where this apply applies is the back-end hub model, whether you need a hub or whether you don't need a hub. Some services, in my mind, can run as a pure play marketplace where professional can directly come from their home. Other services, let's say, like a beauty service, right, requires a hub because you need a preparation center where you can actually stock the product. And then, what the downstream implication of that is on your unit economics, because if you need a hub, then your capex changes, your opex changes. In my mind, you can't run both these services under one roof and then think that the economics will look very similar.

24:12 >> Yeah, exactly. And the other thing to look at is the the frequency and the, unit economics math would be very different for, you know, for different and different categories. So, the positioning that you occupy in consumer's mind would also be significantly different, and I think they need to be built differently. >> What you are arguing is that different vertical platforms can exist. There can be a separate platform for a domestic help, there can be a separate platform for cooks, there can be a separate platform for beauty and services, or health care, and the likes.

24:49 As long as your business has a distinct supply, as well as a distinct business model, there is a right to exist for different vertical platforms. Force-fitting one operating model across categories where fundamentally you require a different infrastructure and supply might be a mistake. Then Naman, let's do a theoretical exercise across the different services that we are seeing that are coming up now. Let's try and put them into our two-by-two matrix that we defined earlier. So, in your mind, what are some high-frequency, high-skill categories that are available?

25:26 >> Yeah. So, of course, you know, that is the most interesting bucket because you have higher frequency and higher skills as well, leading to higher higher AOV. So, like beauty and wellness is one such category which will fit into that bucket. I think fitness is also one such category which will fit into that bucket. And maybe even like chefs or cooks, you know, your skill those are also skill services and reasonably high frequency. So, all of these three I'll put put probably in the top right corner.

25:54 what are the other services that you are seeing? >> If I look at low skill but high frequency, so in my mind, InstaHelp or maid services, those are those are the ones. The other is ironing and washing, those are those are the others. But, a lot of the services that I am seeing these days, let's say an AC repair quick service platform I met recently. equipment repair service I met recently. Carpentry and plumbing, all of these are in my mind high-skill but very low on frequency.

26:26 What do you think about pet services? That is an interesting one that I encountered. >> Yeah, so while pet services, I think is high frequency as well as high skill, but I think overall market size, the the depth of the micro market that we talked about earlier, I would raise a question mark on that one on pet services. >> So, yeah, Naman, this was quite fun. I'm really excited about this space and although in this discussion we have just covered some angles, Some perspectives that we have, but I'm pretty sure that the pace at which this space is evolving, there are a lot more perspectives that we haven't covered. There are a lot more founders with bright bright new ideas that we haven't even thought of.

27:07 There are the frameworks that need to be refined. >> Yeah, yeah. Of course. I think this was quite fun. I think so. Anybody who is you know, who has different ideas, different frameworks, or you know, a counterpoint that you want to share, we would love to hear them out. Anybody who is building would love to meet and have deeper discussion on this category.