Hyperlocal delivery model stares at another close down

The grocery delivery app, PepperTap has been in the news recently for taking a hyper decision of shutting down its operations in ten locations. Even metros like Mumbai, Chennai, and Kolkata are a part of this rather unforeseen decision. However, on the positive side, the Snapdeal backed grocery e-retailer will continue its operations in eight cities and suburbs.

The hyperlocal grocery market was suddenly hyped up last year, with many players vying for a sudden craze of customers wanting the groceries/food delivered at their doorstep. As a result, the segment is flooded with many players, and a crunch in raising adequate finances was bound to happen.

This move by PepperTap is likely in the same direction of cutting costs. Of course one way of looking at this cutting-cost strategy, besides the investment climate outlook is to consolidate operations in the now operating location for PepperTap. The company can introduce new categories, and vouch to deliver a better customer experience, with this new development.

However, a media report suggests that PepperTap had plans to expand into 75 cities when it announced its $36-million raise last year led by Snapdeal. Now it continues its operations only in Delhi, Gurgaon, Noida, Hyderabad, Pune, Ghaziabad, Faridabad and Bangalore.

The hyperlocal delivery model has been slowly facing a low investor confidence in the sector. There are just too many ventures in the sector, and many more emerging big players like Amazon launching its own hyperlocal grocery delivery channel. As a result, the market seems to be too cluttered at the moment with cut throat competition and, volumes yet to be proven.

As reported by TOI, earlier, SoftBank-backed Grofers withdrew from nine cities saying non-metros and smaller markets did not contribute significantly to revenues. Having raised $120 million led by SoftBank, Grofers is now operational in 17 cities while BigBasket, the other big player in the market, covers 16 cities according to its website.

In October 2015, PepperTap said it was in talks to raise an additional $20 million from a US investor besides the $36 million it had announced then. However, the on-demand delivery firm only managed $4 million in venture debt from Innoven Capital. In total, it scooped up $51 million from investors like Sequoia Capital and SAIF Partners, among others.

Considering the current dynamics of grocery delivery business, it is extremely different in nature from a typical online seller set up. The inventory led model is completely based on local demands of the product/service. There is always an attached risk that this kind of model might become successful in one city/area, and in the other it may not. Therefore, consolidating operations can be a good long term view to sustain the business.