1. In Perspective: Potboiler drama

In Perspective: Potboiler drama

Hyperlocal businesses can be broadly classified into four categories: ready-to-eat food ordering, grocery ordering, home services marketplaces and logistics providers.

Published: February 23, 2016 12:52 AM

Hyperlocal businesses can be broadly classified into four categories: ready-to-eat food ordering, grocery ordering, home services marketplaces and logistics providers. While the market size for hyperlocal is small at the moment and it is still early days, there is huge potential for these four sectors to grow, driven primarily by consumer demand for convenience, value and speed.

The online grocery segment, for example, was estimated to be less than $100 million in 2015, but it is projected to reach $20 billion by 2020. Compare that to China, which is expected to reach $180 billion in the same period. Research estimates online grocery to be growing by around 30% per year in metros and tier 1 cities.

The asset light model (as most hyperlocal marketplaces act as aggregators connecting local buyers with suppliers) is less capital-intensive, and hence is faster to scale up as compared to the traditional e-commerce model. The market for hyperlocal delivery expanded significantly in India in 2015, growing not only in terms of transactional volume, but also in terms of consumer adoption. In the first eight months of 2015, hyperlocal start-ups had secured funding of approximately $270 million.

However, like all business models, hyperlocals also face major challenges. The first is around delivering consistent quality of the product. This can be difficult, especially in fresh grocery, ready-to-eat food, and even in services like plumbing, cooking, etc where the final product can vary. The second challenge is around differentiation — being less capital intensive than other e-commerce models, the entry barriers are low, making it difficult to stand out in a market with increasing competition. The third challenge is around vendor/supplier verification and ensuring stickiness of quality vendors to your model. Finally, and probably the biggest challenge is around finding the right business model that is profitable in the short-term and does not require large cash burn.

The trajectory of the hyperlocal delivery market in India is not very different from global trends. However, while markets such as the US and Western Europe have a more mature e-commerce retail market, the Indian market for hyperlocal delivery is evolving along with the e-tailing market.

This makes for an interesting scenario, as many non-hyperlocal e-commerce players will also look at entering this segment to leverage their large product portfolios and customer databases, creating further competition. In addition, as local kiranas become more tech savvy and start using technology and apps (like WhatsApp) to connect with their local customers, they will also become hyperlocal players.

By Rajat Wahi

The author is partner and head, consumer markets, KPMG India. The views expressed are personal

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