Financial Strategy Blueprint for Daily Needs Delivery LLP (DND)

Assignment Taken

1) Budget for the next financial year 2) Financial plan for the next financial year 3) Fundraising short proposal 4) Organization tagline 5) Recommendations for the challenges being faced

Case Understanding

Daily Needs Delivery LLP (DND), established in 2020 by entrepreneurs Sam Malhotra and Rajish Gupta, specializes in delivering three primary dairy products – Milk, Paneer (Cottage Cheese), and Curd. Operating through an intuitive app-based ordering system, DND offers customers the flexibility to subscribe for monthly deliveries and choose specific delivery dates as per their convenience. Presently, DND operates in three key cities – Bengaluru, Delhi, and Hyderabad. The delivery process kicks off at 5 AM, concluding at 8 AM, managed by a dedicated hyper-local delivery team comprising 80 individuals. The corporate office, based in Bengaluru, supports these operations with a dedicated team of 10 professionals. Despite the upward trajectory in milk and dairy product consumption nationwide, the dairy sector faces persistent challenges. DND encounters issues such as losses due to the perishable nature of items, customer complaints about unpleasant smells and taste, a lack of an effective feedback mechanism, and occasional missing deliveries. To ensure the long-term sustainability of the business and preparing the groundwork for future scalability, it becomes imperative to address these challenges effectively. In light of these considerations, the Business Case Solution not only proposes targeted recommendations to overcome these challenges but also outlines a comprehensive financial plan and budget for the upcoming fiscal year. Additionally, the solution includes a concise Fundraising Proposal, laying out strategic pathways for securing the necessary capital to implement these recommendations effectively. The integrated approach presented in the solution aims to fortify DND's operational efficiency, customer satisfaction, and overall business viability in the dynamic landscape of the dairy industry.

BCS Solution Summary

The business case outlines the significant growth and potential in the Indian dairy sector, providing context for Daily Needs Delivery (DND) to capitalize on the expanding market. With India being the largest producer of milk globally, DND's strategic position is highlighted, leveraging its innovative app-based model for daily delivery services. DND's business model focuses on providing seamless daily needs services with a core offering of milk, paneer, and curd. Founded in 2020 with an initial seed capital of INR 15 Lakhs, DND operates in three cities and has encountered challenges in its current business model, prompting the need for strategic solutions. The outlined challenges include missing deliveries, a lack of effective feedback mechanisms, issues with wrong products, foul smells, and taste complaints, losses due to perishable products, inactive users, and net losses. Proposed solutions involve implementing QR code or OTP-based delivery verification, enhancing the feedback system, addressing product quality issues, diversifying the product range, and servicing non-dense areas strategically. To implement these solutions, a comprehensive budget allocation of INR 6.52 Crores for the next fiscal year (2023-24) is proposed. The allocation covers Marketing, IT & Business Analysis, Human Resources, Operations, and Research & Development. The marketing budget is divided into customer education, social media engagement, promotional campaigns, local influencer collaborations, and feedback system enhancement. The IT & Business Analysis budget focuses on merchant partnership expansion, app maintenance, route optimization technology, machine learning, association algorithms, and QR code/OTP-based delivery verification integration. The Human Resources budget is allocated for delivery personnel and corporate office salaries, training, employee engagement, recruitment & onboarding, and miscellaneous expenses. The Operations budget covers purchases, quality control, inventory management, utilities, and contingency. The Research & Development budget is earmarked for innovation, market research, and market expansion. The financial plan outlines revenue projections, cost of goods sold, and operating expenses, projecting a net loss in FY 2023-24 due to strategic expenditures. Fundraising efforts of INR 7 Crores are anticipated, with a potential dilution of equity stake. Return on investment is expected in FY 2024-25, emphasizing reinvestment for scaling the business and increasing market share. In summary, the financial plan delineates a strategic path for DND to navigate challenges, achieve profitability, and sustain growth in the competitive dairy products sector.

Solution

Dairy Products Sector:

The dairy sector assumes a great deal of significance for India on various accounts. India has witnessed remarkable growth in the production and consumption of milk and dairy products in the last nine years. Today, India is the largest producer of milk in the world, contributing 24% of global milk production. The milk production of India has registered over 43 percent increase from 146.31 million tonnes in 2014-15 to 209.96 million tonnes in 2020-21. Moreover, the per-capita availability of milk has increased from 303 grams/day in 2013-14 to 444 grams/day in 2021-22, nearly 1.5 times increase.

The Indian dairy market, valued at Rs 13 trillion in 2021, is poised for remarkable growth, with projections indicating a substantial increase to Rs 30 trillion by 2027. This anticipated surge is attributed to amplified production of milk and diverse dairy products, complemented by market appreciation trends. Against this backdrop of positive industry dynamics, DND finds itself strategically positioned to leverage burgeoning opportunities.

The optimism surrounding market growth is further accentuated by prevailing underdeveloped retail channels and a challenging-to-reach rural consumer base. These factors create a favorable landscape for DND to capitalize on, especially through its innovative app-based ordering system and streamlined delivery mechanism. DND stands at the forefront to secure a substantial market share in the retail domain, given its model's capacity for frequent deliveries, particularly advantageous for products with limited shelf life. This approach not only addresses logistical challenges but also affords enhanced control over retail-sales dynamics.

The proactive role of the government adds another layer of support to the growth trajectory. Various initiatives, including schemes like the Dairy Entrepreneurship Development Scheme (DEDS) and the National Programme for Dairy Development (NPDD), have been introduced to foster industry development. DND stands poised to benefit significantly from these governmental endeavors, aligning with the broader industry vision and fortifying its position as a key player in the evolving dairy market landscape.

 

Business Model of Daily Needs Delivery LLP (DND):

(For more details refer the attached Fund Raising proposal)

Daily Needs Delivery, an Indian startup committed to providing seamless and convenient daily needs services with the tagline (optional assignment):

“Delivering Daily Comfort at Your Doorstep - DND: Your Daily Needs, Our Priority!”

The tagline communicates the customer-centric approach and the company's dedication to delivering daily comfort by prioritizing and fulfilling the essential needs of its customers with a focus on convenience and reliability. It reflects the commitment of DND to be a reliable and customer-friendly daily need delivery service.

Core offering:

• Daily need delivery service through an app-based platform

Founding and Capital:

• Founded in 2020
• Raised seed capital of INR 15 Lakhs from family and friends

Customer Interaction and Features:

• App-based ordering system for daily needs.
• Subscription model for monthly deliveries.
• Customizable delivery schedules, allowing customers to mark non-delivery dates.
• Features include wallet payments, referral incentives, and a delivery calendar.
• BHIM UPI integration for wallet recharge in the consumer app.

Product Range:

• Three main products: Milk, Paneer (Cottage Cheese), and Curd.
• Daily supply of 6000 liters of milk (4000 liters Buffalo and 2000 liters Cow).
• Daily sales of 250 kg of curd.
• Monthly supply of 750 kg of paneer.

Geographic Presence:

• Operational in three cities - Bengaluru, Delhi, and Hyderabad.

Delivery Operations:

• Delivery window from 5 AM to 8 AM.
• Hyper-local delivery partner team of 80 people.
• Corporate office team of 10 in Bengaluru, including 3 salespeople (1 for each city).

 

Challenges under the Current Business Model:

1. Missing Deliveries: Several complaints were received from consumers regarding missing deliveries, whereas the delivery partners claimed that they had delivered scheduled products to the doors of consumers.

Solution: QR code or OTP-based delivery can be initiated where the product would be considered as delivered only after the QR code is generated on the customer’s app and is scanned by the delivery partner to consider it as successful delivery or only after the customer provides OTP number to the delivery partner. To provide a more stringent solution to the challenge, the Live location of the delivery partner at the time of delivery could be captured along with a QR code scan/OTP.

2. Lack of effective Feedback mechanism: One of the co-founders believes that complaints are only getting a fraction of consumer feedback, as there might be many cases where consumers don't find the email ID of the corporate office or do not find time to raise complaints.

Solution: To address this challenge, reviews can be collected weekly through push-notification or short surveys before the customer places next order on the mobile app.

3. Wrong Products: Some customers have also shared the feedback that the deliveries were of the wrong or missing products.

Solution: Customer support team should be equipped with enough measures that they could take or suggest customer in case of wrong product delivery, also, penalty mechanism should be introduced for the delivery partners, if not in place already, to address this issue.

4. Foul Smell and Taste: Consumers also have complaints regarding foul smells and bad taste.

Solution: Frequency of such complaints needs to be checked and if they are repetitive and persistent, random inspection and quality check at different suppliers must be made and logistics must be reviewed to identify any gap that might be leading to such issue.

5. Perishable Products: Another problem area for DND is losses due to the perishable nature of products. On average, DND is losing 0.2% of sourced inventory quantity due to this reason.

Solution: To address this issue and overcome the challenge, DND can use cross-selling products, either DND can diversify to add non-perishable products or DND can diversify its product range by adding the products that have same perishability like Bread, etc. and can complement the dairy products, so that the business can benefit from cross-selling and can increase the ticket size and clearing off the inventory. Alternatively, integrate technologies like machine learning, etc. to predict the demand of products.

6. Inactive Users: Salespeople informed the corporate office that services to subscribers that they have sold in non-dense areas have not been started yet. Subscribers are on the verge of uninstalling the app and claiming refunds for wallet recharges. In reality, the organization is hesitant to start service in non-dense areas as it will not even recover the cost.

Solution: Rather than losing the market to traditional competitors and new entrants, DND should try to service the non-dense areas customers through the products with higher gross-margin like curd, etc or through a diversified products portfolio or else can set a minimum ticket size of the order.

7. Net Losses: As per the data available, under current business model, DND is incurring annual net loss of INR 68.55 lakhs which needs to be addressed and enter the profitable phase.

Solution: It is advisable that the Business can make use of cross-selling which would significantly shoot up the revenue. On the contrary, to reduce the costs for the business, it is advisable to incorporate technologies like Machine Learning, predictive models, etc. to predict the demand for the products based on the buying behavior/purchase pattern of the customers to reduce inventory losses in case of perishable products and making use of Association algorithm to recommend or bundle the products that are usually bought together, this would increase the ticket size of the order and lead to increased profits.

 

Budget Allocation:

To overcome the above-mentioned challenges and implement the solutions suggested, the total budget amount for the next FY 2023-24 is INR 6.52 Crores, department-wise allocation is as follows:

Note: As the details about revenue and expenses for FY 2021-22 have already been provided, it has been assumed that the current FY is 2022-23 and the next FY for which budget allocation has been made is FY 2023-24.

Marketing Department – INR 2.65Cr

IT & Business Analysis Department – INR 1Cr

Human Resources Department – INR 1.47Cr

Operations Department – INR 1Cr

R&D, Market Research – INR 0.4Cr

 

Detailed Budget Allocation (Department-wise):

 

Marketing Department – The marketing budget of INR 2.65 crore has been strategically allocated across the following categories:

1. Customer Education and Product Quality: (INR 40 Lakhs)

• Educational Campaign (App, Social Media, Newsletters): Launching informative campaigns across the DND app, social media platforms, and newsletters to educate customers on the benefits of DND's daily delivery services and the assurance of high-quality products.
• Content Creation: Developing engaging and informative content to communicate the value of DND's offerings, emphasizing product quality, freshness, and the convenience of daily deliveries.
• Newsletter Production and Distribution: Creating visually appealing newsletters with valuable content and distributing them regularly to subscribers, keeping them informed about new products, quality assurance measures, and exclusive offers.

2. Social Media Engagement: (INR 70 Lakhs)

• Social Media Content Creation and Management: Crafting compelling content for DND's social media channels to engage and retain followers, showcasing daily product highlights, customer testimonials, and behind-the-scenes glimpses.
• Influencer Collaborations: Partnering with social media influencers to amplify DND's reach, leveraging their influence to endorse the brand and share positive experiences.
• Sponsored Posts and Ads: Allocating budget for paid promotions on social media platforms to reach a wider audience, increase brand visibility, and drive user engagement.

3. Promotional Campaigns in Low-Density Areas: (INR 65 Lakhs)

• Customized Offers and Discounts: Designing tailor-made promotions, offers, and discounts specifically for customers in low-density areas to encourage app usage and loyalty.
• Regional-Specific Incentives: Offering incentives and promotions that resonate with the preferences and needs of customers in specific regions, enhancing the relevance of DND's services.
• Demographic Analysis and Campaign Tailoring: Investing in demographic analysis tools to tailor promotional campaigns based on the unique characteristics and preferences of customers in different areas.

4. Local Influencer Collaborations: (INR 55 Lakhs)

• Identification and Collaboration: Identifying local influencers in each operational city and collaborating with them to enhance brand credibility within the local community.
• Content Creation and Partnership: Co-creating content with local influencers that resonates with the target audience, emphasizing the local appeal of DND's services.
• Sponsored Events and Campaigns: Allocating budget for sponsoring local events and campaigns in collaboration with influencers to further integrate DND into the fabric of the community.

5. Feedback System Enhancement: (INR 35 Lakhs)

• Technology Enhancement for Feedback System: Investing in technology tools to enhance the feedback system, making it more user-friendly and efficient for customers to provide feedback.
• Data Analysis Tools and Software: Implementing advanced data analysis tools and software to derive actionable insights from customer feedback, enabling continuous improvement initiatives.
• Continuous Improvement Initiatives: Allocating resources for ongoing initiatives aimed at improving DND's services based on customer feedback, ensuring a responsive and customer-centric approach.

 

IT & Business Analysis Department – Allocated Budget of INR 1 Crore across key categories for the next financial year:

1. Merchant Partnership Expansion (20%):

Budget Allocation: INR 20 Lakhs

• Initiating and expanding partnerships with local merchants to enhance product offerings.
• Developing and maintaining APIs for seamless integration with merchant systems.
• Implementing technology solutions for efficient order processing and inventory management.

2. App Maintenance (15%):

Budget Allocation: INR 15 Lakhs

• Regular updates, bug fixes, and feature enhancements for an optimal user experience.
• Security upgrades and compliance with the latest mobile operating systems.
• User interface improvements based on feedback and analytics.

3. Route Optimization Technology (18%):

Budget Allocation: INR 18 Lakhs

• Investing in advanced routing algorithms for delivery efficiency and reduced transit times.
• Integrating real-time traffic data and geospatial analytics for route adjustments.
• Enhancing GPS tracking capabilities for accurate and timely deliveries.

4. Machine Learning for Predicting Demand (20%):

Budget Allocation: INR 20 Lakhs

• Developing predictive models to forecast demand based on historical data and customer behavior.
• Implementing machine learning algorithms for dynamic pricing strategies.
• Analyzing external factors like weather and events to refine demand predictions.

5. Association Algorithm for Recommendations and Bundling (15%):

Budget Allocation: INR 15 Lakhs

• Implementing algorithms for product recommendations based on customer preferences and purchasing patterns.
• Developing bundling strategies to increase the average order value.
• Continuous optimization based on real-time data and user feedback.

6. Integrating QR Code/OTP-Based Delivery Verification (12%):

Budget Allocation: INR 12 Lakhs

• Implementing a secure and efficient QR code or OTP-based delivery verification system.
• Enhancing app features for generating and scanning QR codes.
• Ensuring real-time verification and order completion.

These allocations aim to optimize the utilization of the IT & BA department budget for enhancing technology infrastructure, improving app functionality, and implementing innovative solutions to drive efficiency and customer satisfaction.

 

HR Department – The HR Department budget of INR 1.47 Crore has been allocated under the following categories:

1. Delivery Personnel Salaries:

Budget Allocation: INR 76.80 Lakhs

• Allocation made for salaries of the hyper-local delivery partner team consisting of 80 people.
• Ensuring competitive and timely remuneration to maintain a motivated and efficient delivery workforce.

2. Corporate Office Salaries:

Budget Allocation: INR 60 Lakhs

• Budget for salaries of corporate office employees, including 3 salespeople and other administrative roles.
• Attracting and retaining skilled professionals to support business operations and expansion.

3. Training Costs:

Budget Allocation: INR 3.27 Lakhs

• Investment in training programs for both delivery personnel and corporate office staff.
• Enhancing employee skills, ensuring adherence to quality standards, and promoting continuous improvement.

4. Employee Engagement:

Budget Allocation: INR 1.64 Lakhs

• Allocated funds for initiatives aimed at boosting employee morale, satisfaction, and team cohesion.
• Fostering a positive work environment, improving retention, and increasing overall productivity.

5. Recruitment & Onboarding:

Budget Allocation: INR 1.64 Lakhs

• Budget for recruitment processes, including advertising, interviews, and background checks.
• Attracting and hiring qualified candidates to fill vacant positions during the next financial year and smooth onboarding procedures.

6. Miscellaneous:

Budget Allocation: INR 3.27 Lakhs

• Flexible budget allocation for unforeseen HR-related expenses or special projects.
• Providing agility to address unexpected needs and support various HR-related initiatives.

These budget allocations are designed to strategically manage human resources, from recruitment and training to engagement and retention, contributing to the overall success and sustainability of Daily Needs Delivery (DND).

 

Operations Department – The budget of the Operations Department amounting to INR 1 Crore has been allocated across the categories:

1. Purchases or COGS (Cost of Goods Sold):

Budget Allocation: INR 50 Lakhs

• Allocation made for procurement of the products such as milk, paneer, and curd. Although it is expected that the Accounts payables are due after one month, but having Cash available for making payments to suppliers is important.

(Note- It is assumed that customers either pay at the time of placing order or delivery, and under subscription model its prepaid for the entire duration, hence, no accounts receivables. As if accounts receivables exist for DND, working capital requirement would be completely different.)

• This would ensure an adequate and high-quality supply of products for delivery.

2. Quality Control:

Budget Allocation: INR 10 Lakhs

• Implementation of quality assurance measures, including inspections and testing.
• Maintaining the highest standards for product quality and customer satisfaction.

3. Inventory Management:

Budget Allocation: INR 20 Lakhs

• Investment in technology tools and personnel for efficient inventory tracking.
• Optimizing stock levels, reducing waste, and ensuring timely product deliveries.

4. Utilities and Miscellaneous:

Budget Allocation: INR 10 Lakhs

• Covering costs related to utilities such as electricity, water, and other miscellaneous operational expenses.
• Supporting day-to-day operational needs and maintaining a smooth workflow.

5. Contingency:

Budget Allocation: INR 10 Lakhs

• Setting aside funds for unforeseen operational challenges or emergencies.
• Providing financial flexibility to address unexpected issues without disrupting operations.

These budget allocations aim to optimize the utilization of the Operations Department budget to ensure efficient procurement, stringent quality control, streamlined inventory management, and a robust operational infrastructure.

 

Research & Development, Market Research – Budget allocation for this department amounts to INR 40 lakhs.

1. Innovation: Allocated budget for exploring and implementing innovative solutions, such as new delivery technologies or product diversification.

2. Market Research: Budget for research to identify potential new markets, assess competition, and understand customer needs.
3. Market Expansion: Allocated funds for launching operations in new cities or regions.

 

Financial Plan for Next Year (Financial year 2023-24) –

1. Revenue Projections -

• Sales Revenue witnessed 70% growth from FY 2020-21 to FY 2021-22, considering advertisement & marketing related expenditure on similar lines with some additions to it, FY 2022-23 current year also is expected to witness 70%+ growth in Sales Revenue leading to INR 20 Crore (approx.)
• For the next financial year 2023-24, revenue is expected to grow by 70% along with for Milk & Paneer, whereas for curd, since the sales are to be initiated in non-dense areas where users are inactive, revenue is expected to increase by 85%.
• As a significant amount has been allocated for Marketing & Advt related expenditure, the benefits or impact is expected to be witnessed in the financial year 2024-25 with 2x growth in the revenue amounting to INR 68.43 Crore, which is justifiable as the Marketing budget has been expanded from 33.6 lakhs to 2.65 crore.

2. Cost of Goods Sold (COGS) –

• Cost of goods sold would definitely go up as the number of products – Milk, Curd, Paneer would go up, but this is not expected to raise any concern as the negotiation is assumed to be in place or is expected to be in place with suppliers, where accounts payables would be required to be cleared after 1 month.
• However, for next year's budget 50 Lakhs has been allocated for the same to meet the commitments for any uncertain situation along with another contingency fund of 10 lakhs.
• But the increase in sales would lead to an increase in units which in turn will also lead to a rise in the cost of Inventory management and quality control for which specifically 30 lakhs have been allocated in the next year’s budget.

 

3. Operating Expenses –

• Personnel Costs:  Projections for HR related have been increased marginally for FY 2023-24 to incorporate the training and development cost, employee engagement, recruitment and onboarding cost considering factors like employee turnover, motivation, and performance-based perks, etc. but, thereafter for FY2024-25, the expense has been increased by 50% as more employees would be onboarded to support the growth.
• Marketing & Advertisement Related Costs: This forms the major cost as it will be a driving factor in the growth strategy for the business and that is why the budget allocation amounts to INR 2.65 Crore and is expected to continue over next few years to support the growth trajectory of the business.
• Technology Related Expenses: Investment in IT infrastructure and inter=grating technology would help in a significant cost reduction and improve sales predictions, hence, allocation of INR 1 Crore has been made for the same in the budget and once that has been integrated the customer experience would be enhanced significantly and many of the challenges would have been addressed, thereafter, for next year only maintenance expenditure has been considered.

4. Financial Targets –

• Profitability goals: As revenue projections represent due to high strategic expenditure in FY 2023-24, despite the increase in revenue, Net Loss widened to INR 2.75 crore but in the subsequent year as a result of these investments profitability can be achieved amounting to INR 10.5 lakhs.
• Fund-Raising: It is assumed that the seed funding of 15 lakhs has already been utilized and to scale up the business and make suitable investments as suggested in the Budget, DND will have to reach out to the potential investors and raise funds amounting to 7 crores for the budgeted allocation or 10 crores if they also wish for product portfolio diversification, as suggested above, with minimum dilution of Equity stake.
• Return on Investment: Once the profitability is achieved in FY 2024-25, the next best option would be to reinvest the maximum percentage of profit in the business to scale the business and increase market share, and focus on increasing its gross margin by expanding its supplier base and also focus on cost-cutting once brand is established in the market.

The financial plan for the upcoming financial year reflects a strategic roadmap for Daily Needs Delivery (DND). With aggressive revenue projections, increased marketing investments, and a focus on technology integration, the company aims to position itself for substantial growth. While profitability goals are set with a careful balance of strategic expenditures, the projected widening of net loss in the short term is anticipated to pave the way for profitability in the subsequent fiscal year. Fundraising efforts are deemed essential for realizing the outlined budget, and a potential dilution of equity stake may be necessary. As DND progresses towards achieving its financial targets, the plan underscores the importance of reinvesting profits to scale the business, increase market share, and solidify its position in the market. Overall, the financial plan outlines a dynamic approach to navigate challenges, capitalize on opportunities, and drive sustained growth for Daily Needs Delivery.

 

Important** - Brief fundraising proposal has been attached in pdf format in the solution

 

References:

https://pib.gov.in/PressReleasePage.aspx?PRID=1929183

https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/size-of-indian-dairy-market-to-jump-over-2-fold-to-rs-30-lakh-cr-by-2027-nddb/94188322

https://www.investindia.gov.in/team-india-blogs/indian-dairy-landscape

Conclusion

In conclusion, Daily Needs Delivery (DND) stands at the crossroads of a booming dairy market in India, with a robust plan to capitalize on the sector's remarkable growth. The alignment of DND's business model with the current market trends, coupled with innovative strategies, positions the company favorably for substantial market share expansion. Despite encountering operational challenges, the proposed solutions, supported by a comprehensive budget allocation, reflect DND's commitment to continuous improvement and customer satisfaction. The strategic distribution of funds across marketing, technology, human resources, operations, and research showcases a holistic approach to addressing bottlenecks and fostering sustainable growth. The financial plan for the upcoming fiscal year outlines a roadmap for aggressive revenue expansion, acknowledging the short-term net loss as an investment in future profitability. Fundraising initiatives are strategically considered to fuel the budgeted allocations, and a prudent approach to equity dilution is maintained. As DND charts its course toward achieving financial targets, the plan emphasizes not only profitability but also responsible reinvestment to fortify the brand and secure a prominent position in the market. The comprehensive financial strategy, coupled with innovative solutions to operational challenges, positions Daily Needs Delivery for a trajectory of sustained success in the dynamic and evolving dairy market landscape.

Attached File Details

View Attachment file (Fund_raising proposal_ Piyush Mehta.pdf)

Video

Fundraising proposal & images attached