What do you do when you have a splitting headache that won’t let you sleep and no Disprin tablets at home, or a sudden craving for chocolate-filled doughnuts, or your laundry has to be picked up? No problem. There are startups that run all such errands and deliver or ferry everything from parcels, food, medicines, and grocery to documents. Hyperlocal delivery startups are increasingly developing an appetite for the country’s busy urban population which is willing to pay a price for the convenience of getting things delivered at their doorstep.
For a business environment which allows competition to pop up, and thrive, at a moment’s notice, sometimes unique competitive advantages do not remain so for too long. Do what the competition is doing, and do it right. That’s exactly what is happening in the hyperlocal space today. Be it delivery service provider Dunzo, food-tech player Swiggy, or online grocery stores bigbasket and Grofers, all of them seem to be betting big on doing things right.
A recent report by EY and the Indian Private Equity & Venture Capital Association (IVCA) says the private equity (PE)/VC interest in hyperlocal delivery was revived with Google’s undisclosed investment in Dunzo. For Internet giant Google, Bengaluru-based Dunzo is its first direct investment in an Indian startup. In the past one year, companies such as Naspers- and Tencent-backed Swiggy, Alibaba-backed Zomato and bigbasket, SoftBank-backed Grofers, Sequoia-backed DailyNinja, and others have managed to woo global investors to pump money into their businesses. The EY and IVCA report says these are “companies focussed on improving unit economics by improving order densities, frequency of delivery to achieve operating efficiencies, and use technology to optimise operations and improve customer experience”.
According to the report, the hyperlocal sector recorded 80 PE/VC investment deals between 2013 and 2018, aggregating $2.3 billion, mainly skewed by a single large $1-billion investment in Swiggy by Naspers, DST Global and others last December. Among the current hyperlocal pack, Swiggy commands the highest valuations. According to data from analytics firm Tracxn, Swiggy is valued at $3.2 billion based on its last funding round.
Can this buoyancy be sustained?
Dunzo says it has grown 40 times in the past 18 months, it services two million orders every month, and is growing 15% month-on-month. The hyperlocal delivery startup—founded in 2015 as a WhatsApp beta service—allows its users today to outsource their delivery needs within a city. The Dunzo app connects the user with the nearest delivery person who can make purchases, pick up items from any store or restaurant and deliver to your doorstep. Apart from deliveries, it also provides bike-taxi services in Gurugram. The startup operates in seven cities.
For Blume Ventures, an early-stage venture capital firm that invests in tech-focussed startups, Dunzo has been a good bet. The Mumbai-based VC firm first invested in the startup when it operated as a task-based WhatsApp group.
“They were solving convenience even back then in an unprecedented manner. Dunzo is the pioneer of hyperlocal multi-category (intra-city) courier and commerce in India. It has now scaled into one of the strongest local logistics companies in India,” says Karthik Reddy, managing partner at Blume Ventures, adding that the firm has invested about $5 million so far in Dunzo.
Following in Dunzo’s footsteps and with a massive war chest for expansion, Swiggy recently launched its hyperlocal delivery service, Swiggy Go, which allows users to outsource their delivery needs within a city. In March, the food-tech company started delivering groceries, from both online and offline stores as well as through its new service, Swiggy Stores. Both are a part of the Swiggy app.
“By 2020, we will expand Swiggy Go to over 300 cities and Swiggy Stores to all the major metros,” said Swiggy CEO Sriharsha Majety during Swiggy Go’s launch.
And it’s not just the startups that are in the race. In August, Amazon India launched Amazon Fresh store, a two-hour grocery delivery of daily essentials, in Bengaluru.
However, this is not the first time that hyperlocal players willing to be your errand runners have tried to carve a niche in the delivery space. There was practically a carnage of hyperlocal newbies in 2015-16 with companies and services like PepperTap, LocalBanya, Paytm Zip, and Flipkart’s Nearby shutting down, while Grofers had to scale down from nine cities. In 2015, Grofers had also bought Bengaluru-based SpoonJoy, a food ordering app. SpoonJoy was an acquihire deal, which is typically acquiring a company mainly to recruit its employees, rather than its products or services.
Many of them were finding it difficult to raise funds from institutional investors. However, the sector is seeing a lot of renewed interest now. According to the EY and IVCA report, while hyperlocal delivery has been primarily associated with grocery and food delivery services, there are also other areas of application such as e-pharmacy and concierge services.
In early September, TechCrunch reported that Gurugram-based Milkbasket is in talks with investors to raise over $50 million in the next two months. Milkbasket is also looking to enter newer categories such as prescribed medicine delivery to its customers, the TechCrunch report added. Milkbasket declined to comment on the deal and the new service offering.
“Legality of e-pharmacies is still being questioned as a few high courts [in India] have banned e-pharmacy companies in the past. Model-wise, however, many delivery companies have been recently focussing on a subscription-based model which not only holds the customers for a longer period, but also helps in planning the workload better, in our view. A RedSeer report highlights that online grocery companies are leading this transition [subscription-based],” say JM Financial analysts Prince Poddar and Swapnil Potdukhe in a report.
Milkbasket co-founder and CEO Anant Goel feels the market is huge. “All the players entering the market is good news as the customer habit of buying from offline to online is actually driven by the ecosystem. We are excited about our future growth prospects and hope to maintain our monthly double-digit growth,” he says.
As most of these companies offer a wide range of services, the next important factor that will decide their success is experience. Experts say customers using delivery apps seek efficiency—deliveries in the least amount of time at the lowest cost. As more players come up, it allows customers to have options. However, apps that can’t deliver a great experience will eventually fall out of the race.
While the interest of the startups and funding institutions in the space is something to look at, some challenges remain. For example, the supply chain. “Hyperlocal companies will need to tap into offline merchants and encourage them to be a part of the digital marketplace to compete with large-scale retailers and e-commerce companies. Many of these merchants are coming online for the first time, so it is imperative to back them with the right technology and services to cater to their demand,” says Reddy.
However, companies are addressing the issues. Dunzo says it wants to enable local, offline merchants to be a part of the digital marketplace and be able to withstand the pressure from large e-commerce companies. The startup also recently launched Checkout with Dunzo—a new B2B logistics service for retailers and small business owners. Dunzo says the service, similar to a payment option, lets users opt for faster delivery through a Dunzo partner, at the time of checkout.
And, while no one will say this explicitly now, success in the hyperlocal space and a strong network of merchants can position them to be super-apps in the future, à la GoJek or Grab, the rival ride-hailing services, which deliver everything from food, groceries, and loans to consumers in Southeast Asia, or Tencent-backed Meituan Dianping, an online food delivery-to-ticketing company in China.
Till then, experts believe that opportunity trumps the challenges in the hyperlocal space as India has a trillion hyperlocal commerce transactions monthly, 90% of which are still offline
Reddy points out that the biggest challenge is to keep increasing micro-market (such as Indiranagar in Bengaluru or Colaba in Mumbai or Saket in New Delhi) density to a level where delivery associate capacity utilisation is maximum while increasing frequency. “Eventually micro-market profitability in every submarket is the challenge to overcome,” he says.
While the endgame is still unknown, there’s a lot more action in the pipeline.
