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The Changing Route of Commerce - HyperLocal

By Jacob Tony|9th Apr 2020
A brief narration on the hyperlocal delivery space. Hyperlocal Delivery Startups offer a unique proposition of commerce, add value and convenience, but the space is not yet conquered.
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Image Credits : https://blog.appscrip.com

Speed and Reliability are the two pillars hyperlocal is built upon

“Britannia Industries teams up with Dunzo for home delivery of essentials” – when I read this news two days back, it seemed very amusing to me. That a 130-year-old legacy firm which has built a very robust supply chain to reach millions of consumers across rural India partners with a five-year-old start up for local delivery, signifies how unique a space, hyperlocal focused startups have carved out, especially in metros. Local delivery of essentials is very much critical for as much business-as-usual as possible, in the wake of our current situation. But even in normal times, you don’t buy mobile phones every other week. Households procure groceries, vegetables, fruits and other essentials regularly, and the massive demand is currently served by the local store/supermarket. For all the hype, e-commerce accounts for only 1.5% of the total retail sales in India. So why not combine the virtues of both.

However, one cannot imitate the centralised supply chain from an e-commerce firm, for these goods carry huge inventory risk and the consumer is not going to wait for two days, to have a packet of bread delivered. So why not leverage the existing distribution chains that bring biscuits and milk from across borders to the kirana stores next door almost flawlessly. Why to reinvent the wheel? So, the idea of hyperlocal is to partner with local vendors to deliver products (typically groceries and essentials) at the consumer’s doorstep. Needless to say, all this calls for an agile backend infrastructure powered by technology.


Operational Efficiency is the Key

Time value is being rung as much as convenience value of money when it comes to millennials. So, speed is critical. Here is where technology comes into play, with accurate demand forecasting and planning. The transaction starts with a customer placing an order on the frontend app. The order is passed on to a biker bidding engine, an uber-like platform where the first bidder is assigned the order. He then proceeds to the respective vendor (typically within 2-3km). By this time, the app would notify the vendor or the local store, and the order is readied for delivery. He picks up the order and delivers within the stipulated time. Sometimes the rider may procure the order from more than one shop.

Outside the box, things seem simple, but a lot of work goes around selecting the right stores, managing their inventory, building the bidding engine and enabling live tracking. Sourcing is critical, because the trust that customers build around the vendors, especially for unbranded goods, translates into the goodwill of the firm. To meet the speed expectations, their options further narrow down to the geographic location of the vendor so that sourcing is as local as possible.

Typically, delivery startups follow strict hygiene checks to ensure that the store is whitelisted. Then comes the margin. Here also, technology plays an important role. With access to data backed insights about brands and trends, these firms start at an advantageous position, but the shop owners bring to the table, a unique understanding about the local community and years of experience in running the store. So, an intelligent margin negotiation strategy delivers a win-win situation for both parties. Usually, higher margins are charged for easily perishable items.

        

Firms like Groffers in groceries, Zomato and Swiggy in food tech, Medlife in pharma adopted the above business model. There is also an alternate niche emerging - outsourced delivery. It’s a B2B model where, startups partner with businesses (typically e-commerce firms) for last mile delivery of goods without the burden of building and retaining a customer base. Firms like Shadowfax have shown interesting growth here.     

The Low Hanging Fruit

Given the opportunities, the biggest of them being India’s demographic changes and adaptation of technology, hyperlocal is poised for a tremendous pace of growth and is predicted to be 344-million-dollar market in 2020. But all is not well for these companies. First of all, over-discounting eats into their coffers. At least sometimes, the rationale of avoiding the procurement clutter does not appeal to the consumer unless he sees a hefty discount on the cards. So, the delivery firms have to lure them with offers until they mature, and garner the critical mass for sustainability. Over-capacity is another challenge. The delivery boys stationed around localities are under-utilised most of the time. The erratic demand curve through the day is also tiring the sector.


Although problems abound, we have not yet seen any player taking a lion’s share of the market and the competition is riper. Different strategies emerge in the war rooms to counter these challenges as they stage a march towards profitability. Even so, till we see a noteworthy consolidation, it’s safe to assume that investors are playing a wait and watch approach until someone breaks the secret sauce.    

        

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