Laundry Startups – The Harsh Reality !

laundry startups reality

Laundry market’s size in India is estimated at a billion dollars in the organized sector and in the unorganized sector at a whopping 30 billion dollars! Seems like a segment with huge potential, right? Furthermore, the numbers are only increasing every year.

Let’s take a reality check. Since the segment looks so lucrative in terms of the market size, it is quite overcrowded. Consumers are available, customer acquisition is easy, the initial setup cost is low, there are very few entry barriers, funding options are available and the job doesn’t require high skilled workforce.  All this makes it very easy to start and hence the competition is huge.

Let us consider the scenario of the 8th largest city in India – Pune. Pune itself has 40+ laundry start-ups trying their luck. The start-ups can be categorized into 3: the ones with in-house operations facility, the ones following aggregator model and the remaining are in market place model. While the distribution in these categories is more or less even, all are trying to get the largest share in the pie. The near perfect competition makes the pricing cut throat.

Questions that need to addressed by these start-ups are: how can I create differentiation? Is discounting or cash burn the only way to capture the market? Is loyalty of customer attainable? Is the unit economics attainable? Will I ever be cash positive?

With very small space for differentiation, players are resorting to discounts and price cuts. To attract customers, some are giving a free credits and some are offering free first wash. Seeing that unit economics look far-fetched to achieve, people are trying to disrupt the market in order to gain market share and hence higher valuation? The factors for differentiation are quite low and loyalty of customer is quite hard to get (and hence no predictable sales). While major players like House joy, Zimmber are revisiting their model, some of them have closed down laundry service offering.

On further analysis, major operational issues seem to be:

  1. The average ticket size is quite low and the pickup-delivery cost makes up to 30-40% of the order size, reducing the margins to almost nil
  2. The challenge is not only with hyperlocal thing but also with the specific needs of individual customer, each customer has a different requirement and quality needs which of course is very difficult to track
  3. The major pain point is managing the quality when scaling up, managing the unit economics and delivering consistent value to the customers. In the long run, delivering consistent results to the customers is the only thing that’s going to matter
  4. It’s quite a difficult task to explain the customer the value that they get from outsourcing their laundry versus washing clothes at home. After all the efforts of providing convenience, affordability and quick turnaround time, the customer still ends up comparing the prices with a local dhobi. The customers still think that these start-ups make huge profits as according to them a local dhobi charges Rs 5 a piece while a start-up charges Rs 7 a piece.
  5. Scope for technology use is limited and human involvement is high

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If we allocate 5% of the total organised market to Pune, it could be worth Rs 250 Crores. That makes it a space to be in! However, with these problems, looks like it is going to be a wait and watch situation.  This space is likely to follow nature’s age-old law – survival of the fittest. Only those businesses that are highly tech-enabled, have robust delivery and ops SOPs implemented and can execute and deliver a beautiful consumer experience at an affordable cost, will survive. Having said that, the Indian market is still big enough for a few players to eventually coexist.

This is the Harsh reality of laundry. No Business is easy though. Believe me, do not get into entrepreneurship just because you know somebody is making money out of nothing. that’s hardly ever the case.

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To conclude, I would like to reveal that I am one of those 40 start-ups in Pune. Do I regret my decision of having started an online laundry? NO. I think there is a problem to be solved and hence it is certain that there is scope for rapid growth stories here. I think persistence and continuous response to the market stimulus is the way forward. Speaking for myself, I am sure that this perseverance is what will keep me going and wanting to grow. In the long run, I see a solved problem, happy customers and growing profits !

(Disclaimer: This is a guest post submitted on Techstory by the mentioned authors.All the contents and images in the article have been provided to Techstory by the authors of the article. Techstory is not responsible or liable for any content in this article.)

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This article was contributed to TechStory by Sameer Jain. Sameer is the co-founder and CEO of The Moustache Laundry.