How ‘hyperlocal’ is emerging as the new business model

August 9, 2020 4:43 PM

Hyperlocal model is rapidly reorganising the retail sector by offering enhanced convenience and easing lives of millions of consumers

The in-store experience has now transitioned to an in-hand shopping experience through intuitive mobile appsThe in-store experience has now transitioned to an in-hand shopping experience through intuitive mobile apps

By Rijish Raghavan

Every crisis brings with it a window of opportunity and perhaps also the need to do something new. Since the Covid-19 pandemic struck on us, it not only impacted our way of life but also made us reorganise ourselves to ensure continued access to essentials and supplies in the new times of lockdown, social distancing and self-quarantine. The Indian consumer has been quick to change tracks, by moving to hyperlocal delivery platforms to fulfill their requirements. The adaption of the hyperlocal model in our daily lives and becoming a business reality is clearly evidenced in its demand in the grocery space, always considered to be the toughest segment to penetrate within the online commerce bandwagon.

Hyperlocal delivery of groceries, fruits and vegetables has accelerated with the introduction of multiple online grocery stores, e-commerce platforms and other delivery-based start-ups who have forged partnerships with the local kirana or neighbourhood stores and supermarkets. It has also helped in a way that many of the kirana stores are now managed by a newer generation which is willing to embrace technology in their daily lives. The in-store experience has now transitioned to an in-hand shopping experience through intuitive mobile apps.

Moreover, these hyperlocal players have greatly reduced friction by providing payment and last mile delivery expertise to the neighbourhood stores. The local kirana stores have equally reciprocated by keeping its supply chain intact, with minimal disruptions, even during these turbulent times.

Hyperlocal e-commerce has been driven by rising consumer demand fueled by the increasing number of well-funded start-ups, curated products and services and the promise of “on-demand delivery”. Their success has led to interest and participation by some of the large business houses and online giants. Moreover, the “near me” concept catching up with consumers in metros, cities and towns have helped, with many of them embracing the ‘ideal blend of online comfort and physical re-assurance’ – The phygital business model. Google says, bulk of information people need is from within one kilometer or a few more.

The aggregation model has gained the most traction in categories such as food, grocery, pharma, restaurants, logistics and local professional services. It is proving to be a disruptor in the Indian market as households of all sizes have continued to patronize the local neighborhood stores even after malls and e-commerce became a reality. It therefore comes as no surprise that despite the organized retail boom in the last two decades, unorganized retail in India still commands over 90% market share.

Presently, only around 10% of the 700+ million internet users in India use online marketplaces. This is largely owing to a lack of trust and serves as an excellent launchpad for hyperlocal e-commerce which encourages purchases from known stores.

Technologies such as Geolocation or Geo-tagging and contextual targeting tools have effectively driven the e-commerce sector into hyper-localism. Hyperlocal players will continue to use artificial intelligence and machine learning capabilities to focus on solving key issues like route planning, order consolidation, estimating optimum time slots and overall servicing costs. Audience targeting via demographics and psychographics segmentation will gain traction as we see rapid growth in this sector in the future.

With the changing business environment, battle amongst cash rich e-commerce players and other consumer business giants has turned around from just customer acquisition to also customer retention and engagement. This has led to businesses focusing on customer loyalty and thereby brand loyalty.

Large loyalty programs catering to multiple consumer spend categories through vast partner networks (retail brands) after having attained hundreds of millions of member base in metros and large cities, see online hyperlocal businesses as partners for the next wave of growth. By identifying high frequency transaction businesses, loyalty platforms will not only expand the member base but also deepen customer/member engagement, thereby enhancing overall business generation in volume and value.

Despite the growing market, hyperlocal e-commerce like any other business models is faced by varied challenges such as the critical aspect of last mile connectivity infra, getting on-board a massive number of internet users who are still wary of online shopping and digital payments. As the market expands, there will be further consolidation in the segment; while there is certainly depth in the market, unit economics will be difficult to achieve beyond two or three major players.

Undoubtedly, the hyperlocal e-commerce model is the next evolution in the e-tail sector and rural commerce will be the big bet for its success in coming time. With the top eight cities somewhat showing signs of saturation, the untapped or under tapped tier 2/3 cities and towns will be the next wave of growth. Rural commerce sector is touted to be a $10-$12 billion opportunity in the coming years.

The author is chief operating officer, PAYBACK India

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