COVID-19 – Would it redefine the BAU for ride share and last mile logistics companies?
This article was co-authored by Anand Ganapathy Chennira, Chief Operating Officer, Micelio. It was originally published on ETEnergyWorld.
- The sector would need to respond, evolve and redefine itself to ensure the Millennials and Gen Z that were starting to accept shared mobility and eschew driving do not get behind the wheels!
COVID-19 has brought the world to a halt and is unarguably THE event that will redefine the way the world lives, consumes and travels. In the mobility world, the shock of COVID-19 has come at a time when we had just started the transition towards new mobility modes and models. Ride hailing cabs, scooters on rent, last mile vehicles to public transit and deliveries at doorstep are all part of this new emerging mobility ecosystem that has been rapidly accepted by commuters and commercial operators.
The new mobility modes for both passenger and goods movement have made a seemingly quiet but disruptive entry and changed the BAU of how mobility is Perceived,Provided and Performed. Driven by a large community of start-ups, the new mobility ecosystem has attracted game changing investments that have allowed the product developers and service providers to manage the risk of introducing new services and products; create entirely new user base; and use pricing and behavioural economics as a tool to create and retain the demand. Innovation in products and service provision has led to good business models and the VC money that has followed has led to targeting growth than profitability in many cases.
The new players in the mobility ecosystem have assumed a certain BAU demand, consumer behaviour, funds and principles of mobility provision and placed big bets on a mobility future that would perhaps look very different now in a post-COVID world.
The two main factors driving that would be a change in the consumer behaviour and unit economics. These can be expected to transform in a manner that was never foreseen and predicted in the original BAU assumptions, hence requiring a rethinking of business models, product design and service delivery for the same, but yet new consumers.
Consumer behaviour in the post COVID era will be marked by a change in the perception and acceptance of risk. This could translate into a lower acceptance of shared vehicles like shared cabs, bike taxis and ride-hailing given higher social and physical contact with vehicle, driver and co-passengers. This could lead to a decline in demand at least in the near-term. Services like rental/self-drive bikes (with zero contact with driver) and auto rickshaws (with open vehicle form) are likely to be perceived less risky and may not lose their market share; they may even see an increase in demand.
Services like food and cargo delivery which involve least contact with final consumer would be the biggest gainers due to lowest risk perception. Both in the short and medium term, the B2C last mile delivery segment should see increased demands that will sustain and grow over time.
Consumers who were largely using convenience, cost and predictability to make decisions would now consider an additional parameter of ‘safety’ and give it a significant weightage while making choices. An abrupt change in consumer behaviour, hence, can be expected to affect demand of different segments, products and services differently and affect the unit economics.
Unit economics in this ecosystem will also get affected by changes in product costs on account of supply chain shocks and disruptions that come along with COVID. With a supply chain that is significantly dependent on China for many emerging products, change in product prices along with expected escalations in finance cost will affect unit economics.
Mobility service providers will also need to adopt new standard operating procedures to account for consumers’ expectations for safety and safety of drivers/riders, all requiring a rethinking of revenue-cost models. A start-up which was into pure play services may need to get into a solution play involving a redesign of the product also. As an example, a shared taxi may need to have automated in-vehicle sanitization or automated opening of doors without touching of handles.
The emerging mobility modes and models have also placed big bets on electric vehicles on account of better operating economics as compared to ICE vehicles. With expected decline in fuel costs and potentially attractive pricing and financing strategies by auto industry to bump up sales of ICE vehicles, the cost competitiveness between EVs and ICE may narrow. Government’s recovery packages for auto sector, including for EVs, hence will be critical in determining the trend of uptake of EVs in these segments. In fact, the nimbleness of EVs will make them more amenable to changes in financial and human capital investments that are likely to occur in the near future.
The post COVID world for the new mobility ecosystem will clearly be very different. One may witness several new companies perish and many others merge to keep themselves alive. At the same time, several companies will redefine their products and services while others may see demand rise like never before.
The big bets placed in terms of VC funds in this sector a few months earlier may look very different and may prioritize profitability and resilience than growth. Many VCs can be expected to suggest merging of their portfolio companies, but the question will be how the other start-ups will find suitable matches to merge. All this is likely to impact the moonshot thinking in this sector that was promising a highly efficient, optimized and tech-savvy mobility future. As the business priorities change to controlling cash runways, cost and time tradeoffs will determine product development timelines, diversification and expansion plans and weightage to innovation.
This churning will give rise to new and evolved business models and service offerings and perhaps a spirit of cooperation in this ecosystem that so far had been breaking the pie into too many small pieces. Government’s recovery stimulus as it unfolds in the coming months will play a critical role in determining the restructuring of this sector. The nascency of the sector perhaps will play to its advantage with a higher ability to respond and adapt.
The biggest challenge for this sector, however, would be an over cautious response from consumers with regard to very high safety expectations. Such an extreme change in consumer behaviour may make personal cars and motorcycles the most preferred modal choices as they will be perceived to have least safety risk. Such a reverse trend may derail the transition to the shared mobility future that had just started picking momentum. The sector would hence need to respond, evolve and redefine itself to ensure that the Millennials and Gen Z that was starting to accept shared mobility and eschew driving doesn’t get behind the wheels!