Indian startup ecosystem is fuelling with investments that borrows belief from sectors that worked in the USA and now China, especially in the case of food delivery. China and USA are multi-trillion dollar economy while India is still $2-trillion economy; purchasing power of Indians is not comparable yet.
In the past year and a half, a lot of venture capitalists and investors were attracted to this type of business. After missing out on the e-commerce boom, big names such as Sequoia Capital and Nexus Venture Partners (that invested handsomely in quick successions in Tiny Owl) and other angels have quickly pumped a lot of money in a relatively short duration of time possibly because they are hoping to find another unicorn in every sector that targets digital customers.
The earliest signs of trouble in this sector became apparent when companies such as Spoonjoy, Dazo, Tiny Owl and Zomato started taking aggressive corrective measures. Layoffs and cost cuts are hard on employees and this has led to early consolidation that is worrying the masses because the worries are coming true. The sector that particularly promised tremendous growth potential in the future with a pledge to offer a unique solution to the varied needs and wants of the customer is going through a phase of early consolidation.
We attended a panel discussion involving founders of Jugnoo, Sattviko, BiteClub and Quickli. Along with them, we also had Arpit Agarwal from Blume Ventures and Goutam Das, Senior Editor, Business Today in the panel. The panel discussion focussed on the following points:
- Demystifying Hyperlocal and food delivery
- Discover the road ahead for Hyperlocal startups
Goutam Das, Senior Editor of Business Today believes that “Disruption happens at different levels.” In the modern times, a hyperlocal marketplace has quickly disrupted the traditional brick-and-mortar retail store by replacing it with a Smartphone app.
The business model of hyperlocal retail is aggressively trying to disrupt the logistics & last mile delivery model, which is the current model adopted by the players in the e-commerce industry.
It was understood that hyperlocal startups are creating abundant employment opportunities across sectors viz, technology, sales to delivery and logistics. Though there is a lot of restructuring happening in the hyperlocal startups, no one talks about jobs being created. We live in an overly connected world and the speed of news and information flowing is faster than ever before. There is more news about funding and mishaps.
Moreover, with the efficient service and delivery market penetration these firms are striving for better execution each day. Rohan Dewan, co-founder of Quickli added, “There is a demand and supply. We have to connect both. Some will, some won’t.”
Chinmay Agarwal, co-founder of Jugnoo, believes that for efficient logistics we must bet on ourselves rather than betting on others.
What surprises the masses are the large fleets for delivery that neither the business nor the customer is paying for. e.g. Chaayos gets its tea & snacks delivered by Roadrunnr at 40% discount at your desk. Such discount coupons are encouraging ever-decreasing order values and a large number of ever-growing restaurants to choose from.
The cost of customer acquisition cost is not a big challenge; the cost of retention is a factor most start-up entrepreneurs need to think about. Customers are more loyal to the price than the food — Prasoon Gupta, Cofounder, Sattviko
On the other hand, Prateek, Cofounder of BiteClub believes that one must follow an on-demand model that must be tailored to the customer needs.
On the anticipation of fulfilment in demand, Prateek Agarwal replied, “we anticipate demand with the help of data analytics of the past deliveries; the data is analyzed three to four days in advance to achieve a progressive data.”
An interesting question was raised by the audience for Rohan Dewan, “Whatever is happening in the hyperlocal, do you make it with you or through you?” In a B2B model, we do not attract consumers, we deliver brand experience; we impart soft skills to riders, and win more customers because the customer is king. Logistics needs to develop into an ecosystem to cope up with the challenges of different owners.
On a question of the run per km cost, Prasoon Gupta explained that for clients selling high-end products the cost of delivery is same. For example, if a company delivers a product whose cost price is Rs. 100, they will incur a specific cost of delivery. Sattviko’s objective is to lower the cost of delivery in order to optimize the services.
If the rider is multi-talented, you will incur low cost of delivery. Our crew members handle the inventory and delivery part as well. Hence, no extra cost is incurred on the delivery boy separately — Prasoon Gupta, Cofounder, Sattviko
Prasoon adds that any good business requires the support of a good team of skilled professionals. In order to hire people for the top-level management you have to connect with them on an emotional level. For the low-level management, hire people who are willing to experiment with your idea.
There are startups in the space that have taken care of unit economics. Arpit Agarwal, Principal at Blume Ventures mentioned that one of its portfolio company is successful in earning an operational profit.
Scope of Logistics
Chinmay Agarwal claims if an entrepreneur is operating a transportation system, then hyperlocal gives your company a strong base to achieve growth. The cost per km is higher on the supply side but it will reap results in the long-term. Hence, being a part-timer is not recommended as it will be a tough challenge in India. He also believes that Ola Cabs is a monopoly in which customers have to pay money.
According to current public sentiments, the moderator Shekhar Chandra questioned the panel, “Are hyperlocal the means of burning or blowing money?” Arpit believes, “you cannot blow money.” Even when there is an economic crisis, people continue investing money due to market sentiments. But, when a company tanks, the entrepreneur has to answer tough questions.
Arpit further added that it is a misnomer that a failed business creates negative sentiments in the market. It is not easy to define the maturity stage of a business. Investors and founders must engage in a healthy dialogue to achieve growth.
Good investors are the friends of the entrepreneur — Arpit Agarwal, Principal, Blume Ventures
All the panellists emphasized on the importance of pivoting for a start-up. Pivoting does not imply desperation but the growth which may have been ignored otherwise. Businesses may explore beyond their initial goals by re-imagining their assets and talents, thinking more broadly about the customer problems, and accessing growth capital to seize the new high ground.
At the end, Arpit Agarwal had an interesting take on people curious about the viability of hyperlocal startups, “Consider working for a hyperlocal startup!”
It’s easy to comment from outside when things aren’t going the way it is meant to be and often only people who are directly involved in it know the answers to these questions. Instead of heeding to the noise, the founders are working hard to let the success answer all these questions than trying to get heard.
To conclude, it is tough to predict the right model for the sector at this stage. Neither founders nor venture capitalists have the answers than focusing on unit economics. However, such consolidations are critical in order to stay in the race with fundamentals in place. While a number of such startups have recently run into trouble, the sector is far from imploding. Zomato is still taking corrective measures to stay in the race. When we get to that phase, we’ll happily host panel discussions on those too! Hopefully, our panel will continue to be there.