Pardon the interruption in the much-celebrated eCommerce space, the hyperlocal segment - that gets customers to buy locally - is witnessing a slowdown as many players see exiting and closing operations as viable options.
While inventory and modern-retail-partnership models are trying to keep a level head and negotiate hard, all the action is witnessed in hyperlocal delivery start-up space, which is further divided into horizontal and food (tech start-ups) and grocery delivery segments.
Roadrunner, Shadowfax, Gray Routes, LocalBanya (‘Just in Time’ concept), Pickingo, Grofers, Tinyowl, Delyver (acquired by BigBasket), Justeat, Swiggy are examples of delivery apps in the hyperlocal space. And BigBasket would be a marketplace – which stocks up food and beverages (among other things) and deliver them. Other examples of asset-light sans-warehouse models that thrive on modern-retail partnerships would be ZopNow and PepperTap.
From ‘Shredding’ to ‘Gone’
With over 100-odd delivery start-ups founded since 2014, and a staggering Rs 1,500 Crores (plus) of VC money involved, the delivery of food and grocery (and other home and professional services) could just be losing charm.
As for online groceries, only 1 per cent of total sales of the $600 billion-a-year F&B industry happen online in the US, according to a Business Insider Intelligence report. The bad news of that report is that it might take India heady amount of years to take their online customer conversion to 1 per cent. Tracxn, a start-up tracking firm offers a comprehensive understanding of the numbers: “From 2014, only 60 of the 270 start-ups in the F&B delivery space have been able to raise funds.”
Last month LocalBanya announced temporary shutting of services mentioning that it was working on a new business model. The statement that appeared on their website: “We are under renovation. We will be back shortly.” And over a period of time food tech (and delivery) start-ups such as Dazo, Townrush, Spoonjoy, FastDelivery, OrderSnack, Langhar, and many more have had similar shut-downs, Tiny Owl being the recent example, whose owners are leading to struggle with some of the basics.
Cutting the Cords
With investors staying away from making any new investments in these areas, a large number of similar companies are expected to shut shop in the next few months. In fact, all these start-ups had been funded by people who believed in their businesses. Dazo had raised seed funding from investors including CommonFloor Co-founder Sumit Jain and Google India MD Rajan Anandan. TinyOwl had raised Rs 100 crore in its Series B round in February, and secured Rs 50 crore recently.
Prasoon Gupta, Co-founder and Director of modern Indian restaurant, Sattviko underlined the reason behind the sudden spurt of exits: “The traditional focus in India for business is unit economics. And somehow when one gets huge amount of funding, they move to multiple cities without even setting knowing fully how to scale.”
Delivering-Led Models Viable?
None of the hyper-local start-ups are profitable, that is why experts believe the business could break even as average order size increases and if the companies are directly sourcing from large companies and wholesalers than delivering through the local Kirana shops.
Further, the high cash burn rates and paper thin margins have led companies like BigBasket to control everything, right from processing, to procurement and delivery. “The economic viability, the gross margins will only come when you deal directly with the companies. Even the quality has to be controlled by us. We cannot be in the model where we have to be dependent on somebody else for delivery or anything else,” said Hari Menon, CEO and Founder, BigBasket.
Commenting upon the spurt of activity in the hyper-local start-up space, he said: “To what the other hyper-local delivery models are facing right now all I can say is I don’t know why the investors are investing money in them. I can clearly see the pitfalls. I’m sure they’re seeing the benefits which I can’t. And in groceries, it is very critical to control the last mile, or partner with modern retail stores. But we do everything ourselves.”
The trends in this space are reversing and companies are fast catching up. ZopNow, which is run by Bengaluru-based ZN Retail Pvt Ltd, is one such player. After having pivoted from an inventory-based model to partnering with hypermarket modern retail bazaars for product procurement, the four-year-old online grocery store is going the Omni-channel way, getting the online and offline together, while saving rentals of warehouses and other capital costs.
“ZopNow works on a hybrid model, leveraging the best of offline and online commerce. We have integrated with the HyperCity chain of stores. Recently, ZopNow has also tied up with Aditya Birla Group Hypermarket MORE, for our operations in Gurgaon and NCR Regions,” said the CEO and Founder Mukesh Singh.
PepperTap, too, ties up with local retailers and supermarkets, rather than creating and maintaining their own warehouse. The orders received are then fulfilled through these partner stores. “As on today, we are tied up with about 57 unique retailers across 10 cities, the total number of stores being close to 150. We are asset light and do not own/lease any warehouses. The major cost that we have is logistics, and that is variable, depending on the volumes we have. Therefore, it'll be far easier for us to turn profitable than the traditional eCommerce companies,” pointed out their CEO and Co-founder, Navneet Singh.
So, while the delivery start-up revolution is facing a high tide in the market in the form of lesser investment, stiff competition and paper-thin margins, selling grocery and F&B online is more than meets the eye. Acquisitions and the consequent consolidation of the industry will separate the boys from the men, and tweaking of business models to champion customer acquisition and strengthening logistics will save businesses from extinction. Experts also suggest that eGrocers partnering with wholesalers and modern retail shops are better off than others who are focused on delivery, or are sourcing from Kirana stores.
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