Direct-to-consumer (D2C) startups are increasingly turning to artificial intelligence (AI)-led interventions to strengthen last-mile delivery in Tier-II and smaller cities.
These companies, which leverage tools like AI voice calls, automated order and address verification and cash on delivery (COD)-to-prepaid conversion, have seen an 11 percent improvement in delivery completion rates, according to Velocity Shipping data.
Abhiroop Medhekar, co-founder and chief executive officer of Velocity, said, “For digital-first brands, logistics inefficiencies are where profitability is increasingly lost. While demand from Tier-II and Tier-III markets has grown significantly, fulfilment reliability remains inconsistent due to higher last-mile costs, limited network density, and operational complexity. What our data consistently shows is that proactive, early AI-driven intervention across order and address verification, risk scoring, and delivery workflows significantly improves delivery outcomes.”
Even though non-metro markets are emerging as key growth markets for the country’s e-commerce ecosystem, persistent last-mile delivery challenges lead to reverse logistics, adding to company costs. For context, failed deliveries and RTOs (return-to-origin) account for around 25-30 per cent of revenue losses during peak festive periods.
According to a Bain & Co. report, three in five new online shoppers since 2020 are from smaller cities, while nearly 60 percent of new sellers since 2021 are based outside Tier-I markets. These markets account for more than 67 per cent of total shipments, but only about 60 per cent are successfully delivered. The number is far lower than the metro fulfilment rate of 73 per cent.
“This gap is largely due to structural challenges such as inconsistent address formats, limited courier coverage, larger delivery areas, and a high share of COD orders, which increases the risk of cancellations and failed deliveries,” the company’s data found.
India’s e-commerce market is projected to grow from $70-80 billion in 2024 to $180-200 billion by 2030, and D2C channels are expected to grow nearly three times faster than traditional marketplaces.
