Richa Maheshwari, The Economic Times

Bengaluru, 14 September 2015

Online grocers are working on shortening their delivery time to less than two hours by building more delivery points or roping in more partner stores in a bid to attract consumers who prefer quicker kiranas to waiting for delivery of online orders.

Companies such as BigBasket, PepperTap, ZopNow and Localbanya say time and convenience are driving more sales for online groceries, unlike deep discounting that has helped apparel or durables segment. In fact, if consumersdon’t get their orders on the same day, the order dropout rate could be as high as 50 per cent, industry experts said.

"In general ecommerce segment, the price differentiation is so high that the consumers are ready to wait as they won’t get such an option outside. But in our case, if we don’t deliver it when consumers need, they will go to the next kirana store even if there is Rs 20 discount on our site," said Mukesh Singh, cofounder of ZopNow.

Getting daily household, food and personal care products delivered at short notice needs investments and partnerships with a host of players.

ZopNow, which is present in five cities, is in talks with various supermarkets chains for tieups to shorten its delivery time while Amazon India, which started Amazon Kirana services in March, plans to rope in more kiranas to reduce its delivery time to 2-4 hours.

BigBasket, which recently acquired Bengaluru-based hyper local delivery startup Delyver, introduced one- hour delivery service in Gurgaon last week.

"There is a part of the basket that the customer buys on a higher frequency basis. These are smaller order values and these can be delivered efficiently through Express delivery," said Vipul Parekh, chief finance officer at bigbasket.com.

Gurgaon-based PepperTap, which offers two hour delivery service, plans to reduce the time to one hour by next year. "We are working on a technology which will help us crunch the whole process, from picking up to delivering the product," said Navneet Singh, CEO at PepperTap that currently operates in seven cities.

Mumbai-based Localbanya, which offers deliveries on the basis of time slots, also introduced two to three-hour delivery service in five cities two months ago. However, it does not plan to crunch the time any further.

"The issue is that most of this is done on a bike and hence, there is a limit to how much a biker can take along and how much orders we can accept for a particular time. Hence, we will not reduce the time any further for now," said Karan Gonsalves, head of marketing at Localbanya, which is present in six cities.

Despite these companies’ efforts to reduce delivery time, some experts say replacing local grocers still remains a huge challenge for online grocers. "Over the years, grocers have built a relationship with their customers. All you have to do is call them up and they will deliver the products to you in 30-35 minutes," said Devanghsu Dutta, CEO at Third Eyesight. That kind of service would be hard for any online grocer to match.

(Published in The Economic Times.)

Lace’n’Lingerie Magazine

Mumbai, 9 September 2015

Gap, a recent entry into the Indian apparel market, out performs other retailers with sales of Rs. 23 lakhs per day in the first month of its south Delhi store.

However, it has yet to cross Zara – the quickest apparel brand in India to cross $100-million sales mark – that has a store in the same location in Delhi.

The Spanish fashion brand Zara brand owner Inditex and Tata Group’s retail arm Trent first stepped into the Indian market five years ago. The business posted 24% annual growth in sales for the year ended March 2015 at Rs 721 crore ($114 million), and sales of Rs. 9 crore in the month of June from its store in south Delhi’s Select City Walk Mall.

On other hand, the American clothing brand Gap came to India in May 2015, in partnership with Arvind Lifestyle Brands. Gap sold goods worth about Rs 7 Crore in June from its 9,500 sq ft store, translating into Rs 242 per sq ft per day, mentioned two executives from Gap India. Zara’s sales amount to Rs 180 per sq ft per day at its 16,500 sq ft first store in the country that it opened in the mall five years ago.

J. Suresh, managing director of Arvind Lifestyle Brands said “The response has been better than what we had anticipated and it was spread across men, women and kids’ merchandise. We, however, cannot divulge sales details as it is too early,” Gap along with Arvind Brands plans to open more than 40 Gap stores in India over the next few years.

Gap had earlier said that it was targeting Rs 500 crore of annual sales in three years, with Rs 60 crore from just the maiden store in Delhi in its first year.

Experts said while initial sales of Gap were substantially high by industry standards, the company’s per store sales might drop once it opens new stores in not so prime locations and the novelty factor wears off.

“Zara has set a benchmark in terms of both growth and profitability. What has helped it is the brand’s desirability and connect with consumers,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.

(Published in Lace ‘n’ Lingerie.)

Richa Maheshwari, The Economic Times
Bengaluru, 9 September 2015

Arvind will sell premium brands such as Arrow and US Polo at Unlimited stores but will focus more on mass-priced franchise brands such as Geoffrey Beene and Cherokee.

The stores will mostly stock full priced merchandise with an added focus on women and kids wear. "Space for women and kids will nearly double at our new stores compared to earlier which was mainly focussed on men’s range," Suresh said.

Megamart started as a discount outlet to liquidate old stocks in 1995. Arvind transitioned the Rs 600-crore Megamart chain into a value retailer three years ago and started optimising it to improve profitability. As a result, its store count has come down from 216 in in FY12 to about 130 at present, but it could not really get rid of the discount format tag.

Industry analysts point out that the online players have almost completely wooed away discount hunters across the country.

"If you look at the market, the whole discounting trend is owned by ecommerce sites now," said Devangshu Dutta, chief executive at retail consulting firm Third Eyesight. "For any physical retailer if there is an opportunity to review its real estate, then it’s better to look at something with better prices and better margins," he said.

Arvind now plans to halt expansion of smaller Megamart stores as they earn just 1.5% EBIDTA margins and have been a drag in sales too with 2% growth last fiscal.

Instead, the company will only open large format stores that operate with 8% margin. The existing Unlimited stores contributed nearly Rs 300 crore in annual revenues.

In India, the value department store chain format is less crowded with only three large players — Tatas’ Westside, Reliance Trendz and Landmark Group’s Max — currently operating in the segment.

"If you look at the value space, I think it is the largest market and quite unorganised today," said Suresh of Arvind Lifestyle. "But as we go forward, it will get organised," said the man who steers the traditional textile group’s efforts to shift its business focus away from ‘commoditised’ clothes business to brands and retail. Besides having its own brand such as Flying Machine and Excalibur, Arvind also partners nearly two dozen international fashion brands, including US Polo, Gap, Elle and Ed Hardy, in the country.

Market analysts are positive about the company’s potential. "Attractive revenue growth driven by the scope for growth for large brands in India, improving margins driven by the ‘power brands’ and optimisation of Megamart operations, better working capital, and asset turns higher than the company average should all fuel its financials," a recent Credit Suisse report said.

(Published in The Economic Times.)

Devina Joshi, Financial Express

Mumbai, 8 September 2015

Recently, there was news of restaurant reservation site EazyDiner expanding operations to Mumbai from the National Capital Region, having secured Series A funding worth $3 million led by existing investor DSG Consumer Partners, and Saamna Capital.

As per a PwC analyst, investors have pumped more than $150 million into companies like Grofers, TinyOwl, Swiggy, LocalOye, Spoonjoy, Zimmber and HolaChef, among others. Judging by the patronage showered upon them by customers and investors alike, it would appear that hyperlocal start-ups are all set to create the next big boom in the Indian retail sector. But is it really all that rosy? Probably not, as can be amply witnessed by acquisitions taking place in the nascent yet already overcrowded market.

Between November 2014 and February 2015, the Rocket Internet-backed Foodpanda acquired rivals TastyKhana and JustEat.in, and is rumoured to be in acquisition mode with TinyOwl. Restaurant search app Zomato, which recently got into the food ordering space, is also reportedly looking to acquire minority stakes in food-ordering firms.

While investors are attracted to hyperlocal start-ups, controlling logistics well is key to sustained growth for these businesses — all of these will definitely go through a constraint in the supply of delivery boys, for example. In India, organising fragmented labour is a challenge and, hence, a services-based hyperlocal needs to figure out the mechanics of human capital even more than a traditional, product-based e-commerce firm.

For services, another challenge is customer stickiness. If a user uses an app to obtain the services of a plumber, for example, he may not go through the app to contact the plumber next time if his services are found satisfactory. Discounting can induce trials, but just like in any other business, prove fatal in the long run. Like what led to the end of HomeJoy in the US — excessive discounts to dissuade direct contact between servicemen and customers.

Even for product-based start-ups, maintaining data quality is a big hurdle as stock and prices may not be updated by retailers in real time, making it difficult to track offline sales.

Since the game is hyperlocal, you need to be physically present in the city to bring retailers aboard. For that, you need a city team. Other challenges include retailer verification and assessment, given that hyperlocals deal with small city retailers.

Stickiness is needed on both sides, and each locality will certainly evolve into having a market leader and a follower, with other players falling far behind. “So the critical success factor for a hyperlocal is being able to rapidly create a viable model in each location it targets, and then—to build overall scale and continued attractiveness for investors—quickly move on to replicate the model in another location, and then another,” says retail consultant Devangshu Dutta of Third Eyesight. As they do that, they will become potential acquisition targets for larger ecommerce companies, which could use acquisition to not only take out potential competition but also to imbibe the learning and capabilities needed to deal with microcosms of consumer demand.

(Published in Financial Express.)

Devina Joshi, Financial Express

Mumbai, 8 September 2015

E-commerce, as we know it, is old news. Hyperlocal is the hot new buzzword in retail hallways, going by the recent spate of well-funded launches in this space. There is already a wide range of services on offer, from grocery delivery to home, office and personal care services. Hyperlocals, services-based or inventory-based, are largely an urban India phenomenon. Services are hyperlocal by their very nature, driven by locality or communities. When moving into a new city, for example, people would like to stabilise as quickly as possible and here, such services step in.

To put the whole picture in context, the Indian retail industry is worth $500-600 billion. Of this, grocery items account for about 67% of the revenue. However, in case of fast moving consume goods (FMCG) and grocery, modern retail formats account for less than 10% of the total sale. E-commerce or hyperlocals are obviously a tiny part of the pie just yet. Most companies, therefore, are still at a stage where they have to prove their business models and change consumer behaviour.

While on-demand grocery delivery—the model that players such as Grofers ride on—has immense potential in this space, other high potential categories include delivery of services (such as supplying peons/delivery boys, specialised laundry services, plumbers or electricians), price comparisons, food ordering apps, etc.

Hyperlocal startups in India

It is a no-brainer that an aggregation model, since it is asset-light, is less capital-intensive than the inventory-led one. Moreover, it is easier to scale up such a model. The new generation of hyperlocal start-ups is coupling aggregation with logistics/delivery, thus controlling even the last mile.

Take Zopper, a product-based hyperlocal which started off as a price comparison website for electronics but now is a platform for purchasing products from offline stores. It counts on faster delivery through tie-ups with local shops near a buyer. “City by city, we need to bring more merchants on board, and all they have to do is download an app and their product can be listed on Zopper,” says Neeraj Jain, CEO, Zopper. The company’s margins vary from 2-8%.

Home services start-up Taskbob, founded by Aseem Khare, charges a 20% commission from its servicemen. Product price comparison website MySmartPrice works on commission too, while providing a free six-month on-board period to offline sellers, where they can use the platform for gaining traction. The revenue model of BookMeIn, another home services company, includes a monthly subscription fee for a SaaS-backed system given to service providers to manage their business. Further, it gets revenues on leads/bookings done by customers on the website, along with revenues through ads of service providers. So what’s working in their favour?

A fertile environment

Indian retail is still dominated by brick-and-mortar stores, which, oddly, is an opportunity in disguise for hyperlocal players. Unlike non-hyperlocal e-commerce, these start-ups are not really competing with offline retailers, but are partnering them instead.
Hyperlocal business models spell instant, on-demand delivery as they cater to needs of a more immediate nature. The gratification is far more accelerated – the entire transaction can be completed in an hour sometimes. Customers also tend to trust hyperlocals more than non-hyperlocal e-commerce websites, as the stores they buy from through online platforms have a physical presence, making it possible to attend to any grievances quickly. Further, the start-up can tap into existing infrastructure, acting as a bridge between existing retailers and the consumer.

“Due to the convenience factor, by being able to tap into consumption opportunities that might have otherwise been missed, the aggregator can actually drive new demand to the retailer in the short term,” says retail consultant Devangshu Dutta, chief executive, Third Eyesight.

Within hyperlocals, services have higher margins of around 20% as opposed to product based models which earn 2-10% margins or even non-hyperlocal e-commerce companies, which operate on 3-7% margins, depending on the category.

This is because there is virtually no warehousing, inventory management or logistics involved in a services hyperlocal. Within services, food-ordering apps have an added advantage of the frequency of purchase as opposed to, say, e-commerce products. “The category is a high-repeat one as opposed to home repair for example,” says Saurabh Kochhar, co-founder and CEO, India, and chief business officer, global, Foodpanda.

A word of caution

While it ensures higher margins, replication of a services model is much more difficult. Training of people in services is very difficult as each individual has to be available wherever the customer is located. “Second, when a product delivery happens, I need local people to deliver it but if a person is coming to give a service, he represents your brand and should know how to handle a customer,” says Alagu Balaraman, partner and MD, Indian operations, CGN Global India, a supply chain management consulting firm.

Third, as the services industry is rather fragmented, it is difficult to form partnerships with associations or groups of such service providers, as specialists are spread out across the country. Fourth, creating a need for services might be difficult as people may already have their own local set-up in place. “But that mindset is changing, with a large group of urban people who don’t have the time or patience and need professional services,” he says.

The biggest learning will be the capability to scale. A hyperlocal that focuses on a single ‘locality’ will find it difficult to get the scale needed to create an economically viable model. Being able to identify a widespread but local need, and having a model that adapts to each new market will be crucial.

(Published in Financial Express.)