Direct-to-consumer (D2C) startups are pivoting towards artificial intelligence (AI) to enhance last-mile delivery in Tier-II and smaller cities, addressing a growing demand for reliable fulfilment. Recent data from Velocity Shipping reveals that these innovations, which include AI-driven voice calls, automated order and address verification, and cash on delivery (COD) to prepaid conversion strategies, have led to an 11 percent increase in successful delivery rates.
Abhiroop Medhekar, co-founder and CEO of Velocity, emphasizes the critical role logistics play in profitability for digital-first brands. “Logistics inefficiencies are where profitability is increasingly lost,” he stated. He pointed out that while there is significant consumer demand from Tier-II and Tier-III markets, the reliability of fulfilment remains variable. The challenges stem from high last-mile costs, an insufficient network, and operational complexities. Velocity’s research indicates that proactive AI utilization, particularly in order and address verification and delivery workflow management, dramatically enhances delivery efficiency.
The last-mile delivery landscape presents persistent challenges, particularly for non-metro markets, which are increasingly pivotal to India’s burgeoning e-commerce sector. High rates of failed deliveries and return-to-origin (RTO) incidents exacerbate costs for these companies. During peak festive seasons, for instance, these failed deliveries can account for 25-30 percent of revenue loss.
A report by Bain & Company underscores the shift in consumer behavior, noting that since 2020, three in five new online shoppers emerge from smaller cities. Furthermore, nearly 60 percent of new sellers since 2021 are based outside tier-I markets. This demographic shift has significant implications, as these smaller markets contribute over 67 percent of total shipments, yet only around 60 percent of those deliveries are successful, compared to a better fulfilment rate of 73 percent in metropolitan areas.
The discrepancies in delivery success largely arise from structural obstacles. Velocity’s data indicates that inconsistent address formats, limited courier reach, expansive delivery zones, and a significant proportion of COD orders contribute to the heightened risk of cancellations and failed deliveries.
As the landscape evolves, India’s e-commerce market is anticipated to surge from a valuation of $70-80 billion in 2024 to between $180-200 billion by 2030. The D2C sector is projected to triple in growth compared to traditional marketplace models, highlighting the potential for innovation-driven solutions in meeting consumer needs.
In summary, as D2C startups capitalize on AI technologies to refine last-mile delivery, the focus on enhancing operational efficiencies provides a path to navigating the challenges of smaller city logistics. The integration of smart solutions not only promises to address customer pain points but also positions these brands favorably within the increasingly competitive e-commerce environment.
Original Source: https://www.business-standard.com/industry/news/d2c-startups-tap-ai-to-improve-delivery-completion-rates-by-11-velocity-126040600938_1.html
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Publish Date: 2026-04-07 06:10:00
