Last month it was online grocery start-up Grofers that stopped last-mile delivery operations in 9 cities. Exactly a month later, its biggest competitor Peppertap has announced its plan to shut operations in 6 cities.
Operations in the following cities to be closed:
It is rumoured that approximately 400 employees are going to be laid off too.
Speaking about this development, Navneet Singh, Co-Founder and Chief Executive of PepperTap said, “Even though PepperTap has been able to establish itself as a leading hyperlocal grocery delivery service, given the short to mid-term investment climate outlook, we have decided to focus on depth rather than breadth. We are digging our heels in for the long term. We will focus on building a stellar customer experience by providing additional categories and services that differentiate us from our competition in cities where we continue to operate in.”
Pressure to reserve capital
The first few years of the Indian ecommerce industry was filled with news about national and international financiers investing billions of dollars in ecommerce start-ups. But in 2015, investors became extremely careful about pouring funds and insisted it’s about time companies started making profit instead of burning their cash.
“Investors are calming down a bit, letting things settle. The crazy euphoria has slowed. Investors are looking for differentiated models, real traction before they invest,” shared Sandeep Murthy from Lightbox, a venture capital firm.
The same rule applies to hyperlocal start-ups such as Peppertap and Grofers.
Peppertap that raised $40 million ($36 million in October 2015 and $4 million in December 2015) in series B round of funding wants to focus on capital reservation. The company wants to explore commercially successful cities like Delhi, Gurgaon, Hyderabad, Pune and Bangalore instead of utilizing money to expand mindlessly in currently non-performing markets.
Hyper-local – a complex business structure
One would think that it won’t be difficult for an online grocery firm to grow in big cities like Mumbai, Chennai, Kolkata and Ahmedabad. But the news about Peppertap discontinuing its service in these cities highlights how difficult it is to crack the hyper-local model.
Groceries are not only perishable, but are also low-margin products. Not to forget that the logistics woes, quality & type of produce, demand and price varies from town to town.
An investor rightly said, “The dynamics of grocery delivery business are completely different from any other online business as it is extremely local in nature. One model may click in a particular city but it may not see desired results in another city. Therefore, it’s better to have operations in less number of cities than burn cash by expanding aggressively without having the bandwidth of backing it with enough capital.”
Looking at the hyperlocal business model, it does seem wise that start-ups like Peppertap and Grofers have chosen to focus on a handful of cities instead of struggling in multiple cities.