For those who do not know it, Honestbee is the Instacart of Asia. The company started out a concierge grocery delivery service for all your household and grocery needs in Singapore. They further expanded into new verticals: Laundry, Food Delivery and Medication delivery, and has also expanded to multiple cities since its inception.
This article (July 2017) will cover Honestbee’s business model, all thoughts are ours with reference to outside articles where applicable. We personally use Honestbee, and if you have not, try it here.
What does Honestbee do?
Fuelled by the on-demand sector (Think Uber and Grab for transportation, or Deliveroo and Foodpanda for food delivery), Honestbee has carved its own niche into the grocery delivery business.
Honestbee provides a platform for retailers like Fairprice, Mmmm!, Le Petit Depot, Cold Storage, Pet Lovers Centre among others to put their products online, and in some cases, outsource part of their (own) delivery service to Honestbee. These retailers should therefore able to increase their online sales revenue while reducing cost incurred by owning a delivery fleet or by paying premium delivery fee to a courier service.
Honestbee provides a broad inventory of items for the end customer, i.e. people like you and me who wishes to complete their grocery online without the hassle of going to the nearest supermarket on a hot / rainy day. The convenience is further amplified through the 1-hr delivery slot available (usually from 9 am to 10 pm from Monday to Sunday).
Quick Notes on Honestbee’s Operations
- Honestbee’s concierge shoppers would usually shop within the 1-hour time slot before a scheduled delivery.
- There are anticipated peak delivery hours: The customer is charged an extra fee for scheduling delivery during peak hour.
- Concierge shoppers will then pass the purchased items to the delivery bee who will then go for door to door delivery.
- One of the fundamental challenge here is to bring down the cost of fulfilling orders. As a company, Honestbee is probably aiming to increase the speed, efficiency and quality to its processes.
How could they achieve lower cost through fulfillment?
There are not many options here, two of them would be,
- Reduce the # of delivery slot / intentionally redirect customers towards certain delivery windows. As a result, the concierge team can fulfill more orders for a particular time slot
- Create a demand for products from a particular retailer. The concierge team will over time be familiar with the aisle of a retailer, and be capable of picking items at a faster pace.
On the other hand, the company has to be wary of not overloading the concierge shoppers with orders. Hence the aforementioned two options have to be carefully weighed against demand for order fulfillment and supply of concierge shoppers.
We have not yet seen (as of July 2017) pricing as a determinant factor to manage demand and supply at Honestbee. With the exception of peak hour time slot being charged a couple of dollars more.
Is Honestbee more than just a...
Honestbee is not just an online concierge grocery company anymore. It has evolved by adding new verticals. It could be therefore be seen as,
- A logistics company
- A data company
- A technology company
- A bit of all the above?
We are highly tempted to choose “a bit of all the above” but for now, we are inclined to view Honestbee as a data company. The purchasing patterns from each customer could be packaged and sold to retailers who could then [hopefully] anticipate the needs of the customer, or develop better product and/or marketing campaigns.
Alternatively, Honestbee as a technology company has done a good job integrating new verticals to its one singular mobile app. They were also smart by rolling out each new vertical by focusing their verticalized operations within specific regions. By doing so, they enabled their marketing and operation team to target customers more effectively.
For instance, Honestbee's food delivery is, as of July 2017, limited to a couple of zones in Singapore.
How do they make money?
While we do not know for sure, here are some potential revenue models utilized by Honestbee,
Honestbee works with multiple retailers. The assumption is that they negotiate a discount based on volume orders. So for example, on every $1,000 of purchase, the company receives 10-20% in discount.
Alternatively, they could be receiving a commission ranging from 10-30% on every $500 spent.
Such arrangement would benefit both companies: On one side, retailer can improve its services to accommodate Honestbee who, buys both more volume & at a higher frequency than a normal customer. Honestbee is also shielded from occasional price changes.
Honestbee charges a well-justified concierge fee, however, it can amount to 7.98% of the minimum spend.
There is also a delivery fee of $10 which is waived upon meeting the minimum spend. Else, the delivery fee would amount to approximately 20% of the minimum spend. Note that minimum spend for waived delivery fee will vary.
There is a ‘peak hour’ fee charged during checkout which, we could assume, indicate a higher demand during that period.
Product markup fee is potentially a way to make money although this is unlikely to happen.
At present, there is no advertisement on the platform. It is probably up to the retailer to offer specific promotion every now and then, and have them published exclusively on Honestbee in exchange of a fee (either a lump sum or lead basis).
Honestbee has not yet rolled out a membership fee. We expect them to do so within the next 12 months in Singapore (and possibly to other markets in the long run).
Some Thoughts on Honestbee’s Strategy
Being a 3-sided marketplace, Honestbee has to cater for 3 type of customers:
Shoppers & Drivers (S&D)
We could assume that it is not difficult to get retailers on board, so the main challenge would be customers and S&D.
There is only one main approach for S&D which is to provide a sufficiently attractive financial incentive for them to take it. Of course, there are many other side benefits, especially for those seeking a part-time employment to either supplement their income or to have more time for their own self/education among others.
As for customers, Honestbee needs to rely on building a reliable brand (i.e. Deliver on time, provide responsive customer service…) given that the company is ‘technically’ helping the customers to have more time for themselves, taking away some tasks that they were used to do, and by completing those tasks with the same quality or better, had the customers completed the tasks themselves.
Assuming the company is adding new verticals as part of a long-term strategy to
- Optimize delivery bees' idle time,
- Generate additional revenue,
- Serve more (new) customers who would in turn use the other services...and in turn, generate more revenue per customer...
Then they would be better off,
- Launching new cities,
- Getting in the B2B delivery
But still, it is a tough business to get into...
If based on S&D alone, we can assume the company is facing high costs in Singapore (it is well know that employment costs are high, unemployment rate is relatively low). And that therefore, the profit margin is rather slim.
Considering the cost to acquire new customers and to service them virtually, Honestbee has been burning tons of money (e.g. Food delivery is at the moment free. No delivery fee and no concierge fee. There are also subsidy for every $xxx spent on the food delivery service.)
The competition is also harsh in Singapore. One one hand, there is Redmart (paired with Lazada) and on the other hand, each vertical has its own set of specialised competitors (Foodpanda, Grain, Dishdash and many more).
High costs and tough competition, what else could hinder Honestbee from being a profitable company?
At grocery level, the concierge fee is well justified and it does make sense for anyone to use the service (as long as they can afford the concierge fee). As of July 2017, concierge fee is $4, thus can be a negligible portion of the shopping basket and the amount of time saved is really worth it.
On the other hand, laundry service and food delivery will incur new unit economics challenges that are hardly able to match the same customer segment shopping for grocery online. One of the many reasons being is that laundry can be done at home while cooking food using grocery shopped online.
Would the price be justified?