The buzz about E-commerce wasn’t just over when Hyperlocal started trending in the startup space. Going by the recent spate of development, hyperlocal startups are redefining the way retail industry works.
Hyperlocal is hugely responsible for reorganizing the retail sector through technology to ease the lives of people. Starting from delivering groceries at customer’s doorsteps to repairing anything within an hour’s call, hyperlocal covers it all. It is especially a boon to those who are changing cities and are in a hurry to settle as soon as possible. Just a few clicks and they can get access to food, repairing, flats, and what not! Technology is playing a pivotal role in changing consumer behavior.
Indian retail industry accounts for $500-600 billion of which grocery wins by a lion’s share of more than 67%. This sector also has a massive backing from the venture capitalists who are pouring money like water. Take example of any startup, and the funding figures are never less than millions! Hyperlocal stratups like Grofers, PepperTap and ZopNow among many others are competing neck to neck and have raised a funding of 150 million USD in aggregate. Swiggy-the food delivery startup raised more than 18.5 million USD in the past months. LocalOye, which provides services of every kind, starting from health check ups to TV repair to car spa and servicing, raised 5 million USD in funding.
The food and grocery industry of India accounts to $383 billion and is all set to touch $1 trillion by 2020, according to a study by Technopark. This statistic very explicitly explains the reason why more and more startups are soaring in this segment.
This model, which was unthinkable in tier-II cities some years ago, is now penetrating deeply to attract customers. Since this sector is more unorganized in the tier-II cities as compared to the metros, they surely hope to run the show in these cities some day.
Startups in this segment are trying hard to differentiate themselves from the other players in one way or the other. While BigBasket has its own warehouse operating in several cities, PepperTap has well achieved its mission to supply different products according to the region.
Although hyperlocal is in a great way responsible for making people’s life comfortable, there is a huge turmoil that it’s witnessing since last year. Even the majority percentage is not ready to accept this model especially if the audience belongs to tier-II and tier-III cities. It’s a big challenge to transform the habits of the masses because retail sector in India dates back to centuries ago. Waking up in the morning and going to the “haat” for buying daily groceries is a deeply inculcated thing in the blood of Indians. And changing a habit is a lot tougher than changing people’s mind. Moreover, last-mile delivery and procurement are two of the toughest challenges in this field.
“Conquering a single location is easy but expanding the footprint without proper homework could be risky for startups in this space”, as correctly pointed out by Aditya Rao, founder of Local Oye. There are several startups which are closing down their operations in major cities. The reason can be absence of fresh funds, throwing away huge discounts or the hairbreadth competition in this overcrowded space which is not giving opportunity to the startups to keep them afloat.
Grofers, India’s most funded startup even decided to scale down and close its operations in 9 cities saying that smaller cities are still not ready to accept hyperlocal model. The cities which had to bid goodbye to Grofers include Bhubaneswar, Ludhiana, Bhopal, Kochi, Nashik, Rajkot, Coimbatore and Visakapatnam. Last year, 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.
Notice that all of them are well funded. So is it the strategy that’s falling out of place? Or is it simple cash burns that are resulting in such a scenario? With more than dozens of players in the similar hyperlocal segment, it is absolutely the theory of survival of the fittest that’s going to decide the future.
According to Rajeev Banduni, CEO of GrowthEnabler, the problem with hyperlocal startups is “Most of them guess work in identifying the problem and they think that they have the solution to the problem. They build their business for 18 months and find out that monetizing is a big problem.”
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”. The most certain thing is 10-15 companies in this field will merge and come down to about 2-3. The companies which don’t have a unique business proposition or fail to make its presence felt across the country as a whole will soon fall apart.
There have been rapid highs and rapid lows in this sector and the future of hyperlocal startups still remain uncertain. Undoubtedly, startups in this sector have been successful enough to change the habits of how shopping is done and how services are availed. Hyperlocal is surely the “next big thing” of the coming era but if they fail to strategize properly, the result will be a simple consolidation.
