While the word “hyperlocal grocery” seems to have excited the investors thus, making them pump in millions of dollars in this space, the real challenge has just begun. Global venture capital Tiger Global-led Grofers has announced that it will temporarily shut operations in nine cities.

According to reports, the Gurgaon-based company will no longer deliver in the following cities: Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik, Rajkot and Visakhapatnam. The decision comes a few weeks after the company had issues delivering products in the Delhi-NCR region.

While market experts are questioning the viability and sustainability of these hyperlocal businesses, the company stated that it has just shut operations in the smaller cities as the market is not yet matured enough to order daily essentials and groceries on an app. The consumers in these cities still have a habit of buying grocery products from trusted local stores and big brands.

Gurgaon-based Grofers, started in 2013 by Albinder Dhindsa and Saurabh Kumar, is an on-demand delivery start-up that delivers items from nearby stores of the cities to the customer. It has a mixed model and is partly inventory-led. The company has raised over $35 million, highest in the segment, from DST Global, SoftBank and Tiger Global, and is valued at $115 million.

The founder of a Pune-based grocery start-up, requesting anonymity, said that the company’s major issue was scaling up too fast in a short span of time. Another investor, who also requested anonymity, said that the “hyperlocal” business model just runs like a courier service, thus, needs a lot of investment on the distribution part.

Industry experts are of the view that there are too many start-ups competing with each other in this segment, and hence, a consolidation is quite inevitable sooner or later. According to industry reports, there are over 20 such start-ups that came up in Bengaluru last year. Many of them such as Townrush and Townessentials have already downed their shutters.

Meanwhile, a few like PepperTap, ZopNow and Zopper have got funding and have acquired a few smaller ones. For example, PepperTap acquired Jiffstore recently.

Even Paytm tried to run a grocery app but shut within a month of launch. Ola, which has a grocery app called Olastore, is also struggling with this business model. Major problem with online grocery start-ups is maintaining inventory and distribution of perishable goods.

Another major issue is the rising competition from biggies such as Flipkart, Amazon, Tata Group’s My247market, who are also trying to grab a pie of the hyperlocal grocery business.

Industry research agencies such as Technopak and IGD expect the online grocery business to grow at 25-30 per cent year-on-year in major Indian cities. India’s online grocery market, which is estimated to be less than $100 million at present, is expected to cross $25 billion by 2020.

Related Topics
comment COMMENT NOW