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Hyperlocal delivery turns new favourite for investors; Swiggy, Zomato, Grofers top funding chart

During the last two years, hyperlocal sector funding was led by Swiggy, which raised $1.39 billion, and Zomato’s $210 million capital infusion.

The hyperlocal sector seems to be the next frontier for startups and investors in the e-commerce market to build billion dollar enterprises from India. Not just it has topped the list of sectors that attracted maximum investments in 2018, but it also saw companies like food ordering startup Swiggy expanding into new vertical including concierge that is led by Google-backed Dunzo. Moreover, apart from Google, global investors such as DST Global, Naspers, Alibaba, Tiger Global, SoftBank, Sequoia have raised their stakes in the market that is spread across grocery, milk delivery, and pharma apart from food delivery and concierge services.

Hyperlocal startups had a maximum pie of the private equity and venture capital (PE/VC) funding last year. The sector saw investments worth $1.6 billion, 22.3 per cent of the total funding, across 15 deals. During the last two years, the funding in the hyperlocal market has been led by Swiggy, which raised $1.39 billion, and Zomato’s $210 million fundraising, said a report by consulting firm EY and PE/VC body IVCA.

Grofers ($62 million), Dunzo ($30 million), Faaso’s ($21 million), DailyNinja ($8 million), and MilkBasket ($6 million) made rest of the contribution to the overall hyperlocal deal value in two years.

Source: E-commerce and Consumer Internet Sector – India Trendbook 2019 by EY

“The services delivered through hyperlocal business models have always had a large market, be it, concierge, grocery, food or pharma. Though the sector witnessed a temporary slump in terms of deal activity as scale became a challenge with the pressure on unit economics, any optimization of logistics cost would have a direct impact on customer experience,” said the report titled E-commerce and Consumer Internet Sector – India Trendbook 2019.

The other significant players in the market have been Ola (through its food delivery arm Foodpanda), Uber Eats, UrbanClap etc. Flipkart and Amazon too through their grocery services Supermart and Amazon Pantry respectively have been carving out space for themselves.

While the sector saw a steep rise in the number of deals in 2015 from the preceding year, but in 2016 and 2017 the deals declined significantly as investors pulled themselves back from investing too much capital in Indian startups. Though the deal volume showed slight improvement last year but in value terms, the rise was phenomenal from $109.3 million in 2017.

“The existing players would look at bolstering volume through horizontal services and adding customer touch points. As the market expands, there will be consolidation in the segment; while there is certainly depth in the market, but unit economics will be difficult to achieve beyond two or three large scaled players,” the report said.

The sector saw 36 merger and acquisition deals between 2013-2018 worth $102 million.

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