Let’s make no bones about this. On INR 420 cr. of revenues in FY 21, Licious lost INR 370 cr.
https://twitter.com/TheKenWeb/status/1463045120098398211
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.
https://twitter.com/LT3000Lyall/status/1463325337899581444
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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