I had written a twitter thread on on-demand sector a couple of months back. Turning it into a blogpost


So Instacart turned profitable recently. Just as people had given up on the on-demand sector Coronavirus came, and suddenly Grocery sector is hot again.


Blended CAC must be super low.

New organic users up with people discovering online grocery ordering for the first time.

Advertising on various platforms (Google Search, FB)  has become cheaper as companies have cut down on marketing costs. I am pretty sure we are seeing record low CPC.

So companies like Instacart must be doubling down on ad spend and acquiring those customers on the edge.

So not only organic users must be super high (there is no other option than online delivery) + due to the low cost of acquisition, companies who are hot must be doubling down on paid acquisition. Full market grab mode on.

But there is generally a difference between acquiring users (getting them to install the app) and then activating them.

Activation must not be hard too.

Take India for example. If you are someone who was dying to get a slot on BigBasket, but failed and installed Dunzo, would you not order whatever you are finding there?

So users are not just being acquired cheaply, but the cost per activation (activation for Dunzo or Instagram being ordering for the first time) must be low too. Super-high conversion of the user funnel as they have never seen before.

Earlier companies would give out first-time user coupons for activation. Or some other form of cashback to get the user to try out the app, and discover the value of the product.

But in Corona times you can not only cut down on these costs but also charge the true delivery fee.  Because you are monetization these users from day one, even if you spent money on acquisition, the payback period will be far shorter, and you will start making money from these users super early.

Payback period = Time taken for a company to earn back the cost of acquisition.

A lot of companies were earlier subsidizing both demand (through offers, cashback etc) and supply (through incentives).

At least for the next few months, demand-side spending will be super low. You don’t need to generate demand when people don’t have many alternatives.

Supply-side you might need to incentivize because people are willing to risk their lives to delivery essential items to customers’ houses.

But by charging extra (various surcharges) you can offset that too.

For most VCs, the 2 metrics they care a lot are.

LTV/ CAC being >3X.

and the payback period. Ideally, it should be as short as possible. Example In saas, 15 months period is considered quite decent. Not sure about On-demand sector.

Both must be looking amazing good, at least for the cohort of users acquired over the last couple of months.

Will people continue to spend on online delivery without any discount once the coronavirus lockdown is over?

No one knows.

TBH it is hard to understand user behavior post Corona when we are not even sure how long it will take for the world to get back where it was before.

But but but, Coronavirus has thrown a lifeline to the on-demand grocery sector and I am happy to see them do so well!

Go Instacart go.

Go Dunzo go.

Bigbasket wapas chalu ho gaya kya?