Let’s make no bones about this. On INR 420 cr. of revenues in FY 21, Licious lost INR 370 cr.
Trying to disrupt a model (local butcher shop) which has been around hundreds of years (think Lindy effect) requires u too not only sell at a price not too different from local butcher price but also to spend a bomb on logistics, packaging, and customer acquisition (advertising)
The idea that e-com players don’t have to pay rent (key cost for bricks and mortar players) looks attractive but only if you ignore that e-com players must also pay “rent” to book “ad space” on TV, print, and social media for acquiring customers.
See, for example, this thread from @LT3000Lyall in which he shows why the demise of bricks and mortar retail is not inevitable.
Things could change of course over the next few years but it’s going to be long haul for such businesses to become profitable and cash generative.
One issue with such business models is that idea of customer acquisition costs. It’s costs a lot to acquire customers but if you assume that you have successfully weaned them away forever from local butchers, then you can claim that those costs are not expenses but assets.
And there is an element of truth to that. But another underlying assumption here is that you will not only wean customers away from bricks and mortar butcher shops, you will also be able to retain them from other e-com competitors and there are many of those that are emerging.
Regardless of how you account for customer acquisition costs, one thing is clear: these businesses consume cash and not generate it and are therefore constantly dependent on capital markets to support them.
If that life support is pulled, things can become really bad. It’s a key risk factor which may not manifest for a long time in a world awash with liquidity and capital markets ready to value such models based on metrics that have little to do with current and near-term cash flow.
To be sure, the value proposition of Licious and similar businesses is strong- convenience, and hygiene- and one day they may offset the attraction for bricks and mortar competitors for customers large enough in numbers to make a difference in what matters: operating cash flow.
Nevertheless, these are high-risk businesses. And may not turn out to be a major threat to traditional competition for a long time.

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More from @Sanjay__Bakshi

4 Oct
Read a few media stories on what's happening in spot markets in nat gas that do not mention anything about what's happening in the futures market. For example, see price in April 2022. Image
Whenever shortages appear, the typical manager simply can’t wait to expand capacity and thereby plug the hole through which money is showering upon him." - Buffett
When shortages finally occur in a commodity industry, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates over-capacity and a new profitless environment. In other words, nothing fails like success. — Buffett
Read 5 tweets
12 Sep
If you think about it, we successfully multitask a lot of the time. Walking and talking on the phone for example. When we drive we can’t just focus on the steering wheel or the rear view mirror.
Our moms and grandmoms multi tasked seemingly effortlessly. Just think of a typical day in their lives when they were married, had kids, and had a home to run.
I don’t think they would say sorry no tiffin box for you today because I have to run the laundry.
Read 4 tweets
27 Jun
This I agree with. While 100 Baggers by @chriswmayer is a fabulous book, there is a need for literature on building the conviction to hold.
And it’s not easy to develop a conviction to hold on to things that should be held. There are these “demons” that will enter the mind of the investor, which will prevent them from holding on to what will turn out to be an outstanding stock.
Demon # 1: The market is too expensive, so I should sell this business. This demon shifts the investor’s focus from the economics of the underlying business to the markets.
Read 18 tweets
16 Jun
Don’t take credit risk. Stick to quality companies. Hmmmm
Are HDFC Bank and Kotak Mahindra Bank quality companies? If so, then did they become so without taking credit risk? Answer: No.
There is risk in everything. If, for example, you refuse to take credit risk while investing in bonds, you will only buy treasuries. But treasury bonds are highly risky in the sense that they almost guarantee a long term mediocre (or even negative) real return after inflation.
Read 13 tweets
5 Jun
Technically speaking it’s possible. In a tobacco litigation scenario, if courts decide against the company and award huge damages, then litigants can go after all its assets.
But the taint of tobacco is removed from non tobacco assets if they are separated from the tobacco operations with ITC tobacco having no stake in them.
In the US something analogous happened when tobacco companies massively increased dividend payout ratios thereby protecting payouts to shareholders from litigation awards.
Read 10 tweets
23 May
Well, there is lots of disconfirming evidence here - and not just for platform companies but also from other businesses.
Take the examples of Uber and Airbnb for example. When they started out, they not only took on entrenched players (taxi operators and hotels), they also took on regulations.
Indeed, if you read the history of these companies, you will find that they pretty much broke the laws that existed in their early days.
Read 18 tweets

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