Why Milk Delivery Start Up Doodhwala Failed in India

Doodhwala, the Indian start up which once promised to spread over the whole of India has failed.

Many vendors, its own employees and marketing company, some customers have registered FIR against the founders for fraud and cheating.

Ibrahim Ansari and Akash Agarwal started Doodhwala in 2015.

The start up story goes that – once they were working in a project at night when they had a urge to have milk. But there were none to supply them milk at that moment.

So they thought, why not supply milk themselves and the idea of Doodhwala was born.

The two founders started a beta testing among a few people. The experiment was a success and hence a start up was initiated.

They started a fresh milk delivery app. It was India’s largest fresh milk delivery app at that time. They started delivering fresh milk through their app.

First they gauged user interest in India. People had convenience in mind when it came to taking milk. They usually wanted milk to be delivered to their homes.

The company began operating in Bangalore and delivered milk to most areas in the city.

Initially they delivered near about 30,000 litre of milk and the demand was continually on the rise.

Apart from cow milk, which was most common, they used to deliver a variety of milk including goat milk and camel milk.

Later they expanded operations to Hyderabad and Pune.

They also added other items to the deliverables like grocery, vegetables and dairy products.

They used to deliver milk before 7am, every moring and this punctuality was a great selling point for them.

The startup grew rapidly from 2015 to 2018, when it received $2.4million funding from two sources.

It looked like the startup would cover most of India and become a huge success.

But just 10 months after it raised fund in February 2018, the company declared that it is closing operations in January 2019!

Business Model

Doodhwala sourced milk from the traditional milk delivery man and supplied it to people.

It used to package the milk with its brand and deliver to customers.

The app used to be the link. The company took orders through the app.

Due to increasing mobile penetration in India, the app became a convenient tool to order milk.

The money they generated through the app was used to pay the vendors supplying the milk. The rest was their profit ( if any ! ).

It is not known if Doodhwala was a profit making company at that time.

In short that was the business model of Doodhwala.

Marketing Strategy

Doodhwala marketing strategy was very simple. They wanted to catch on to preference of the Indian housewives.

It was noticed that people mostly want convenience. Milk is a day to day use commodity, so convenience was a prime factor.

Secondly, people wanted unadultered milk. We all know the story of the milk man who wanted a pond of water besides a pond of milk!

Doodhwala mainly focused on providing the comfort of home delivery with unadultered milk.

Going Downhill

Some delivery vendors allege that Doodhwala has not paid their dues which amounts to around Rs. 30cr – 35cr.

Not only the vendors, but Doodhwala faced allegations from their own employees too.

The marketing vendor who promoted Doodhwala also accused the company of non-payment.

Some users of the app also complained in social media that their orders never materialized, and the money in their wallets was never refunded!

It is easy to say that Doodhwala was a fraud after so many allegations but the company may have been really broke at that time, without any ability to pay.

Resons of the downfall

Funding:

The mismanagement of funding was a major factor in their downfall. Doodhwala received funding of around $2.4million in 2018.

But instead of spending the money wisely, sudden influx of money probably turned their heads and they handled the finances very badly.

Their was excessive cash outflow. Expenses were made where not required at all.

Startups usually try to save money. Not the case with Doodhwala. Their expenses shot up with the funding.

Low margins:

They were working on very low margins. Anyone working in this industry knows that this business has one of the lowest profit margins.

Doodhwala promised prices below the market rate! It was understandable that they were trying to capture the market, but such low prices contributed to their undoing!

High customer acquitions cost:

Doodhwala was burning huge money to acquire customers. Milk is a commoditized product, it does not matter from whom you buy milk.

To differentiate, Doodhwala offered huge discounts to customers. As part of their customer acquisition effort, they would offer free trails to customers. Sometimes for a full month!

Some of the probable customers then would switch to another provider after the trail period. Yet some others would create new accounts in the app and avail the trial offer again!

Doodhwala was bleeding Rs. 600 – 700 per customer!

This high customer acqusition cost was a huge contributor to their insane cash burn.

Huge discount offers:

Doodhwala was offering massive discounts to their customers. As mentioned earlier, this was all part of their customer acquisition exercise.

But they never thought of recuperating the losses. There was no proper planning or strategy to recover the losses at a later date.

Multiple competition:

Doodhwala was starting to deliver other items besides milk. But doing that, they also increased competition on several fronts.

Amazon, Flipkart, Bigbasket, Grofer were also delivering groceries and all of them had very deep pockets.

There was nothing to distinguish Doodhwala from these competitors and in addition they were doing a better job than Doodhwala in delivering items!

Key Takeaways

Doodhwala was doing a good job till 2018, when they received a major funding. This is when they needed proper financial planning and a roadmap.

Instead they blew it all with excessive cash burning.

Financial planning and execution is vital to a business’s success. The money that investor give to a business must be used in stuff needed by the company, and not spent in frivolous things.

That is where a proper financial planning is needed. Take help of professionals if needed.

Keeping margins low in a commoditized industry is not going to work, unless you have means to recover the losses later.

Giving discounts is fine, but again, do you have any plans to benefit from the discounts in the long run?

Check and balances are needed in place, so that people do not take advantge of your discount.

Conclusions

The Doodhwala story reminds us that the fundamental principles of business and finance must be observed throughout to build a strong foundation for a solid business.