Back in the early 2000s, I had read an article about a man who would not take a step outside his home for an entire year. This was part of an experiment on whether it would be possible to do every transaction for goods and services through the internet. I don’t know about the results of that experiment, but I remember being awed by the potential of the internet then.
The amount of time and effort that could be saved which impressed me. From Restaurant food, Grocery, Medicines, Clothing, Electronics to even delivery of Liquor. We could opt to see a doctor by booking an appointment or have an electrician come to our home for repairs. There would be no more waiting in queues. You could just order online and wait for the retailer to deliver it. Or you could opt for a pickup and pick up the goods while coming back from the office. You could use the extra time you save to do the things that you actually want to do. Like visiting your friends, pursuing a hobby, reading a book or even going out and catching a Pokemon.
Now a decade later, Hyperlocal very much defines the experiment that happened back then. Hyperlocal marketing platforms are now assisting local businesses and services to sell their products/services online by first listing these businesses and cataloguing their products and then delivering them through their logistics network. The biggest achievement of Hyperlocal though is the fact that it can match your immediate need to the nearest source of supply and then deliver it in the shortest time possible.
Let us just take a look at the grocery market which constitutes a significant proportion of the hyperlocal market. India’s grocery market which is the world’s third largest market is valued at about $503 billion and its value is expected to rise to $900 billion by 2020. The current hyperlocal grocery market doesn’t cover even 1% of the total grocery market. This along with other factors like the rise of internet users, an increased trust of the online media as a channel for transaction, the rapid growth of mobile internet users as well as the presence of technology that helps hyperlocal businesses track location has resulted into multiple start-ups coming up in this space. And it is not just start-ups; investors are also pouring massive quantities of cash into this sector. Over 200 million dollars have already been invested into this sector already.
One of the key growth challenges that Hyperlocal business is facing currently relates to the unit economy and per order profitability. In the grocery market where the profit margins are slim, the varying shelf life of its products, as well as the higher delivery costs, will continue to pose a challenge. In fact according to Haresh Chawla of the India Value Fund Advisors, even at a basket size of INR 1000 and 500 deliveries/day, a hyperlocal grocer is still losing INR 112/delivery. The reasons for this are the high operating costs with respect to warehousing, delivery,returns etc. According to him, it would take 2000 deliveries/day at INR 1500+/delivery for the firm to make money.
The quality of its local partner’s matters as well. The poor quality of data and inventory management systems in the retail stores poses a severe problem. In order to ensure fast deliveries within two hours, the products should be present with the resident grocer in a locality. An efficient forecasting system that can do predictions based on prior buying behaviour in a locality could help solve this issue. Therefore continued investment in analytics and processes is another necessity.
The expansion is another dilemma. While the Tier 1 cities have welcomed hyperlocal services with open arms, the concept has faced a lot of resistance in Tier 2 and other smaller cities. Unlike in the Tier 1 cities where young, tech-savvy individual forms a significant chunk of the demographic, the smaller cities have a significant smaller tech-savvy audience which makes it harder to achieve sustainable volumes. People in these smaller cities still prefer buying from their neighbourhood Kirana store. This has resulted in hyperlocal start-ups to face huge losses in these cities. Grofers had decided recently to shut down operations in nine of the cities it had started operations in due to this reason. These cities which include the likes of Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Nashik, Rajkot, Visakhapatnam etc. shows that hyperlocal model is yet to be perfected for cities outside the five major metros. It will take some time to shift this mentality.
Logistics is a key issue as well. One of the biggest problem faced by most hyperlocal services is finding a reliable delivery workforce who can fulfil the demand. Since the businesses involved essentially aggregate stores and pick up the order to deliver, having a delivery fleet remains essential to the business. This control over end to end delivery helps them enhance customer experience. But in recent times, Hyperlocal firms in order to increase efficiency and cut losses, have begun experimenting with third party logistics and have started outsourcing part of its deliveries to these logistic firms. Depending on the outcome, Outsourcing logistics to third-party logistics might be the way to go in future.
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