In this article, we talk about the nitty-gritties of the on-demand laundry domain that are rarely addressed.
The image below depicts the on-demand laundry cycle.
What are the benefits of on-demand laundry?
For customers, washed and dry-cleaned clothes are delivered to their doorstep. For vendors, the significant real estate component (the front-end, an added cost) is eliminated.
The laundry business has prevailed for a long time. With on-demand, there are value-added services that enhance an existing market. An on-demand laundry service hires delivery professionals and partners with the local dhobis to manage them (aggregators). Alternatively, they hire skilled labour and use technical leverage to wash and dry-clean the clothes.
According to a Euromonitor International report, the unorganised laundry sector in India is worth 200,000 crore annually. Only 5% of the market is organised, while the rest remains unexplored. The pool of 12 million online consumers is expected to grow by 20% CAGR.
Having such huge potential, why are there only a few major players?
The current players in the market serve Tier I and II cities, typically charge on a per kg basis, and deliver washed and dry-cleaned clothes between 24 and 48 hours from the time of collection.
Business books mention laundry among the top 10 business ideas to be explored. Nominal capital required, no-entry barriers, huge neighbourhood market and good returns generally make it a hot business idea. Yet none of them mention the difficulties in scaling, owing to a large number of uncertainties. It’s the easiest difficult business to be in.
The ten challenges commonly faced by the on-demand laundry sector are as follows.
#1. Low margin business – A customer is far more likely to go out of his way to find a good doctor than a good housekeeper or dry cleaner. While customers generally prefer to have their laundry delivered at home, willingness to pay extra for it is unlikely. The challenge is to find a sustainable customer pool ready to pay an incremental price for this convenience or have individual service providers give bulk discounts.
#2. Shortage of skilled labour – Dependence on skilled labour leads to a greater cost of human capital. Even after introducing software and machinery, dependence on manual work is not eliminated. The industry is trying to solve the challenge of empowering and rewarding labourers with a fair wage. After all, they do the weight lifting and hard work. Until they’re not paid more than what they can earn on their own, there’ll be a shortage of skilled labour. Most players underestimate the cost of retaining and hiring a trained workforce.
#3. Optimising real estate – With on-demand, the infrastructure is optimised by removing the customer facing properties and moving the operations to economic industrial warehouses. For example, on-demand grocery startups deliver groceries straight from a warehouse. This removes the need of urban storage infrastructure, which is pushed out to cost-effective warehouses. For long-term success, the cost of logistics should be lower than the real estate cost.
#4. Variables and customer experience – Laundry has many processes attached to it that require human interference. The customer expectation is high and chances of errors are equally high since the process cannot be completely automated. Customising the customer experience is a huge task in itself.
#5. High risk-reward ratio – The risk associated with this business does not convert into a proper reward. For example, suppose that an on-demand service processes 100 sarees a day and charges Rs 100 each. Total revenue is thus Rs 10,000 and the margin is 30%, so the profit is Rs. 3,000. Given that the operation is manual, there is (at least) a 1% chance of something going wrong. That is, at least one in 100 sarees will get damaged. If the damaged saree costs Rs 3,000 and has to be paid to the unhappy customer, the entire profit on 100 sarees gets wiped out. In other words, 100 sarees have to be processed, just to earn Rs 3,000 – but with even 1% error, the cost of settling a claim is equal to the profit. Thus the risk-reward ratio is too high.
#6. Consolidating and capturing the market is difficult – This market is dominated by local dhobis, dry cleaners and maids. Finding ways to attract this skilled labour and add their existing customers to the on-demand laundry platform (for convenience and value) is the biggest challenge for consolidating and capturing this market. Discounts help in attracting new customers. Business models where the profits can be shared with the people doing the actual work still have to be worked out.
#7. Challenges in the backend – Out of every 100 customers, there will be at least one unsatisfied one. While they can be easily attracted by offering discounts and through online and offline marketing, retaining them is the challenge.
The actual operations are conducted in the back-end, which is operated by skilled labour that’s hard to attract and retain, as explained above. The backend operations have to be scaled at a speed proportional to month-on-month customer growth. The shortage of skilled labour and the variables attached to dry cleaning prevent the expansion of the backend keeping pace with frontend growth.
#8. Outsourcing (aggregator) backend – Many on-demand players act as aggregators. They outsource their business to the local dry cleaners in their respective areas. Outsourced services lack the edge in terms of quality that an in-house team delivers, especially in an on-demand vertical.
#9. Low customer retention – A large number of variables, plenty of options (both online and offline) and low customer loyalty sum up to low customer retention.
#10. Logistics – The most common problems with the logistics are:
Although the on-demand laundry is growing, the many variables (discussed above) pose a lot of challenges but, on the brighter side, there are winners are emerging in this space. Kudos to all the entrepreneurs who’ve entered this ‘not-so-sexy’ industry and are doing exceptionally well.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)