Repeated shutdowns and layoffs gave a clear picture that the future of hyperlocal is not vibrant at all. Now, with PepperTap shutting down its operations, the validity of the statement seems a lot more irrefutable. Earlier this year, Grofers, India’s one of the most funded startups closed down its operations in nine tier-II cities saying that the small cities are still not ready to welcome the hyperlocal space. TinyOwl also met a devastating fate as it could not keep itself going and fired 100 employees at a shot. Even LocalBanya, the Mumbai-based startup which follows the same business model as Grofers, stopped taking orders in October 2015 and asked 40% of its employees to leave.
After the commencement of the idea of digitalizing the hyperlocal space and giving it a whole new dimension through the power of technology, PepperTap had come a long way in 2015. Just a year ago, it was racking up orders in 17 cities across the country. It became the first startup in the space to operate as a 100% inventory-less model.
With the help of PepperTap, local retailers also saw an increase of sale by 30-40%. Heavy discounts were on the rise and customers seemed to get fanatical about it. Funds were never a problem for PepperTap. Customers were happy, retailers and suppliers were happy, PepperTap was happy. Then what went wrong?
They started concentrating more on breadth instead of depth. Groceries are that domain of the shopping cart which comes as a package. Customers generally follow a particular list of items and have definite taste. This varies from one customer to the other. So, it was hugely essential to house all the possible products for giving the customers the real happiness of their favorite shopping list. Well, this didn’t happen. There were several products missing in the catalog which forced the customers to go to the local kirannas as usual. Hence, the dropping out became massive.
PepperTap raised a funding of $50 million and hence money never posed a problem. But was the money utilized in the right direction? To gain customer loyalty and to increase its base, it started concentrating more on advertisements, discounts and marketing. While marketing and sales go hand in hand, this scenario didn’t survive here as their focus shifted completely.
With sales soaring to as high as 400%, things started to seem alluring for PepperTap. There was no clear picture of future plans and so the future also did not come with a blessing. It should still be considered lucky as it understood the problem before draining out all the money that the VCs offered. They are now trying their best to shift to a logistics business with their sister company NuvoEx which brings some hope for them and also the VCs.
Till 2015, PepperTap, Grofers and BigBasket were the major players. Other hyperlocal startups like TownRush and LocalBanya already started facing problems to raise second round of funding. Does that mean investors were already conscious of these types of consequences? Now that PepperTap has seized its operations, the sustenance of Grofers and BigBasket is also in question.
Even Kishore Biyani, CEO of Future Retail Ltd, which operates retail chains like Big Bazaar, Food Bazaar and FBB is pessimistic about the hyperlocal model altogether. According to him, online grocers business model is neither viable nor sustainable and “their business model doesn’t make economic sense at all”.
These startups must understand that they can’t just live on VC’s money for long and should start focusing on a more solid business model. It’s high time that they start considering profits as more important than discounts. Then only we can see the rightmost startup flourishing in this space without repeated shutdowns and layoffs.
