admin
February 21, 2016
Shinmin
Bali, Financial Express
Mumbai,
21 February 2016
Having
created quite a stir at the time of their launch, hyperlocal companies
are now witnessing a dampened mood. While several have folded
up operations in some cities, others have downsized staff, tweaked
the services they offer and even made alterations to their business
models. A recent example is Grofers shutting down operations in
Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik,
Rajkot and Visakhapatnam.
TinyOwl last year was in the news for a poorly-handled downsizing
operation in Pune, with a dramatic hostage situation involving
its co-founder Gaurav Choudhary. PepperTap also recently shut
down operations in six cities.
Ironically, giants like Amazon have not only aggressively entered
the hyperlocal space, they are building on it. Amazon is currently
offering the service in Bengaluru, Amazon Now, after running a
pilot project, Kirana Now, in 2015.
The investor sentiment in India is also on a decline, as was
reported earlier this year. Investments by venture capitalists
have dropped from $2.12 billion (October-December 2014) to $1.15
billion (October-December 2015), according to a report by CB Insights
and KPMG International. This leaves an even shorter window of
opportunity for players to retain investor interest.
Albinder Dhindsa, co-founder, Grofers, states that differing
levels of technology literacy among the majority of merchants
and consumer adaptation to the online platform are concern areas
for the company. In 2016, the company is looking to bring over
one lakh merchants aboard and ensure that turnaround time stays
under an hour. Grofers delivers more than 35,000 orders per day
on average. In Q4 2015, the firm acquired teams of SpoonJoy and
Townrush to bring dynamic learning to the table.
For Swiggy’s co-founder Nandan Reddy, the focus is currently
to grow the market, while catering to a wide demographic of consumers.
He admits that in the early stages, the brand had trouble educating
even its partners. Furthermore, operating a delivery fleet in
an on-demand service offering sub-40 minute deliveries is a challenging
task, given that there are at least 15 points of failure in an
average order. Swiggy currently owns a delivery fleet of 3,800
delivery executives. The brand’s repeat consumers contribute
to over 80% of orders.
Debadutta Upadhyaya, co-founder, Timesaverz, says some of the
major challenges in a hyperlocal market are optimum resource utilisation
and matching locations, price points, and other specific requirements
to customer needs. Timesaverz currently has a service range spread
across 40 categories, aided by a network of over 2,500 service
partners across five metros. Its revenue model is commission based,
where 80% of earnings from consumers are shared with service partners.
Vinod Murali, MD, Innoven Capital, points out that as the hyperlocal
industry is in its nascent stages, it needs a fair amount of time
to grow. “One aspect to keep in mind is that a large sized
equity cheque does not imply that a company has achieved operational
maturity or robust business metrics, especially in this segment,”
he notes.
Given the recent consolidation in this category, the survivors
have the opportunity and time to focus on improving unit economics
and demonstrate that their businesses are viable and valuable.
Devangshu Dutta, CEO, Third Eyesight, is of the opinion that
hyperlocals make the mistake of borrowing business models and
terminologies from Silicon Valley, without adequately understanding
the real context of the Indian market. “Is there an existing
or even potential demand for the service claimed to be provided?
Or are you just going to introduce an intermediary and an additional
link in the chain, with additional costs and unnecessary administration
involved?” he asks.
(Published in Financial Express)
Devangshu Dutta
January 21, 2016
Aggregator models and hyperlocal delivery, in theory, have some significant advantages over existing business models.
Unlike an inventory-based model, aggregation is asset-light, allowing rapid building of critical mass. A start-up can tap into existing infrastructure, as a bridge between existing retailers and the consumer. By tapping into fleeting consumption opportunities, the aggregator can actually drive new demand to the retailer in the short term.
A hyperlocal delivery business can concentrate on understanding the nuances of a customer group in a small geographic area and spend its management and financial resources to develop a viable presence more intensively.
However, both business models are typically constrained for margins, especially in categories such as food and grocery. As volume builds up, it’s feasible for the aggregator to transition at least part if not the entire business to an inventory-based model for improved fulfilment and better margins. By doing so the aggregator would, therefore, transition itself to being the retailer.
Customer acquisition has become very expensive over the last couple of years, with marketplaces and online retailers having driven up advertising costs – on top of that, customer stickiness is very low, which means that the platform has to spend similar amounts of money to re-acquire a large chunk of customers for each transaction.
The aggregator model also needs intensive recruitment of supply-side relationships. A key metric for an aggregator’s success is the number of local merchants it can mobilise quickly. After the initial intensive recruitment the merchants need to be equipped to use the platform optimally and also need to be able to handle the demand generated.
Most importantly, the acquisitions on both sides – merchants and customers – need to move in step as they are mutually-reinforcing. If done well, this can provide a higher stickiness with the consumer, which is a significant success outcome.
For all the attention paid to the entry and expansion of multinational retailers and nationwide ecommerce growth, retail remains predominantly a local activity. The differences among customers based on where they live or are located currently and the immediacy of their needs continue to drive diversity of shopping habits and the unpredictability of demand. Services and information based products may be delivered remotely, but with physical products local retailers do still have a better chance of servicing the consumer.
What has been missing on the part of local vendors is the ability to use web technologies to provide access to their customers at a time and in a way that is convenient for the customers. Also, importantly, their visibility and the ability to attract customer footfall has been negatively affected by ecommerce in the last 2 years. With penetration of mobile internet across a variety of income segments, conditions are today far more conducive for highly localised and aggregation-oriented services. So a hyperlocal platform that focusses on creating better visibility for small businesses, and connecting them with customers who have a need for their products and services, is an opportunity that is begging to be addressed.
It is likely that each locality will end up having two strong players: a market leader and a follower. For a hyperlocal to fit into either role, it is critical to rapidly create viability in each location it targets, and – in order to build overall scale and continued attractiveness for investors – quickly move on to replicate the model in another location, and then another. They can become potential acquisition targets for larger ecommerce companies, which could acquire to not only take out potential competition but also to imbibe the learnings and capabilities needed to deal with demand microcosms.
High stake bets are being placed on this table – and some being lost with business closures – but the game is far from being played out yet.
Devangshu Dutta
January 15, 2016
Retailers seem to be fighting a losing battle against the growth of ecommerce, and it is only the nature of the shopping activity, especially for fashion – interactive, social, and immersive as it is – that has kept many retailers relevant and in business.
However, the defensive stance is changing, and now they’re using technology to get the customers back into the store. Forward-thinking retailers are reimagining trial rooms, stores, business processes and entire business models. It’s not a physical versus virtual approach but an approach that integrates both sides. The idea is to create a more immersive experience than pure digital retail can be, using some of the same tools as ecommerce.
It is important to remember that the whole retail environment is a “suggestive” environment. Due to cost and other operational factors most retailers are ill-equipped to provide appropriate levels of excitement, suggestion and support during the browsing and buying process.
For many, the simplest move could be screens serving up their catalogue to customers within the store. For instance, US department store chain Kohl’s has initiated connected fitting rooms that identify products the customer is carrying, and bring up not only those items onscreen, but additional colours and sizes that are available. If the customer wants an alternative, a message goes to a sales associate who can fetch the requested option. Macy’s and Bloomingdales are using tablets in the trial rooms, while Nordstrom, Neiman Marcus and Rebecca Minkoff are attempting to boost their fashion sales using magic mirrors to provide similar enablement. These devices and the processes empower and involve the customer far more, while leaving store staff free for other activities.
A step up, Puma is using “virtual trials” for its apparel products by having a customer take images of herself in specific positions, and then mapping styles on their own images to visualise how they might look. While this needs more work and investment, this is still only a more developed product browser technique from the customer’s point-of-view.
The next level, augmented reality trials and virtual fit, are significantly more sophisticated at creating simulations of a selected garment image draping and falling on the customer’s body even as he or she moves normally. Imaging and texturing of the simulated garments is technically challenging and expensive, repeated for each new style and option. The imaging also needs to mimic the “wearer’s” movements. Nevertheless, retailers such as Polo Ralph Lauren are finding it worth their while to investigate these new technologies, as these reintroduce the much needed “theatre” that are integral to a successful retailer.
For the customer virtualisation expands the number of items “taken” into the trial room, and creates more convenient product discovery. More products can be seen in the same shopping time, and sharing of images and videos with friends and family, engages them in the shopping process as well.
For retailers, the benefits multiply. Inventory can be optimised, and there is reduced handling and shrinkage. Even without sales associates, it is feasible to prompt for alternatives and related products, improving conversion and transaction values, reducing space and costs of physical trial rooms, and increasing the number of customers serviced especially at peak traffic times.
A phenomenal advantage is the data captured that is relevant while the customer is in the store, but which can be linked to future promotions. Valuable intelligence, such as what is being tried and for how long, can help the retailer to quickly gauge demand patterns, and adjust pricing and promotions. Normally retailers only capture sales transactions (post-fact), and miss out the rich information on in-store behaviour that etailers do collect and analyse.
However, massive hurdles to virtualisation remain, including data input accuracy, product accuracy, and the technical capabilities of the tech solution adopted. A bigger concern is whether technology is intuitive and seamless, or whether it gets in the way of the shopping experience. Further, consumers do have privacy concerns about the images and other data collected.
Its important to remind ourselves that, on its own, technology is just a novelty – huge transformation of business processes, organisational capabilities and behaviours must happen as well.
That is perhaps the biggest mountain to climb.
admin
September 8, 2015
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.)
Devangshu Dutta
July 30, 2015
Much has been written recently, with more than a touch of surprise, about ecommerce companies opening physical retail stores. Whether it is Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK or FirstCry and Flipkart in India, young tech-based ecommerce businesses are adopting the ways of the dinosaur retailers that they were apparently going to drive into extinction.
Perhaps, the seeds of the surprise lie in the perception that the ecommerce companies themselves built for their investors, the media and the public, that it was only a matter of time that the traditional retail model would be dead.
Or perhaps we should pin it on their investors for keeping the companies on the “pure-play” path so far – venture funds that have invested in ecommerce have largely taken the view that the more “asset-light” the business, the better it is; so they’re far happier spending on technology development, marketing, salaries, and even rent, than on stores and inventory.
After a bloody discounting and marketing battle, in a few short years, there are now a handful of ecommerce businesses left standing in a field littered with dead ecommerce bodies, surrounded by many seriously wounded physical retailers who are trying to pick up unfamiliar technology weapons. And their worlds are merging.
Which is a Stronger Building Material – Bricks or Clicks?
Online business models offer some clear strengths. Etailers have a reach that is unlimited by time and geography – the web store is always up and available wherever the etailer chooses to deliver its products.
An ecommerce brand’s inventory is potentially more optimised, because it is held in one location or a few locations, rather than being spread out in retail stores all across the market including in those stores where it may not be needed.
However, we forget that consumers don’t really care to have their choices and shopping behaviour dictated by the business plans of ecommerce companies or their investors. The fact is that physical retail environments do have distinct advantages, as etailers are now discovering.
Firstly, shopping is as much an experiential occasion as it is a transaction comprising of products and money. In fact, the word “theatre” has been used often in the retail business. For products that have a touch-feel element, the physical retail environment continues to be preferred by the customer. Of course, there are products that could be picked off a website with little consideration to the retail environment. For standard products such as diapers or a pair of basic headphones, online convenience may win over the need for a physical experience. However, non-standard products such as apparel or jewellery lend themselves to experiential buying, where a physical retail store definitely has an edge.
Shopping in a physical retail environment is also a social and participative activity. We take our friends or family along, we ask for their opinion and get it real-time. The physical retail environment lends itself to the consumer being immersed in multiple sensory experiences at the same time. These aspects are not replicable even remotely to the same degree by online social sharing of browsed products, wish-lists and purchases, nor by virtual smell and touch (at least not yet!).
In a market that is dominated by advertising noise, a physical store also helps to create a more direct and stronger connect for the consumer with the brand than any website or app can. An offline presence creates credibility for a brand, especially in an environment where online sales are dominated by discounts and deals, and many brands have risen and fallen online in the customer’s eyes during the last 3-4 years.
As a matter of fact, every store acts as a powerful walk-in billboard for the brand. If used well, the store conveys brand messages more powerfully than pure advertisements in any form. This reality has been embraced by retailers for decades, as they have created concept stores and flagship stores in locations with rents and operating costs that are otherwise unviable, except when you see it as a marketing investment.
Showrooming vs. Webrooming
As ecommerce has grown and brands have become available across channels, offline and online, the retail sector has been faced with a new challenge: customers browsing through products in the store, but placing orders with ecommerce sites that offered them the best deal. This obviously meant that retailers were, in a sense, running expensive showrooms (without compensation) on behalf of the ecommerce companies! The industry adopted the term “showrooming” to describe the phenomenon.
However, ecommerce businesses are now getting a taste of their own medicine as retailers are benefitting from a reverse traffic.
Consumers have now started using websites to conveniently do comparative shopping without leaving the comfort of their homes, and collect information on product features and prices but, once the product choice has been narrowed down, the final decision and the actual purchase takes place in a physical store.
This is described with a slightly unwieldy term, “webrooming”. This is one among the reasons that lead to consumers abandoning browsing sessions and carts when they’re online.
Bricks AND Clicks
The wide split between offline and online channels is mainly because traditional offline retailers have been slow to adopt online and mobile shopping environments.
Most physical retailers around the world have approached ecommerce as an after-thought, with a “we also do this” kind of an approach. Ecommerce has typically been a small part of their business, and not typically a focus area for top management. So, in most cases the consumer’s attitude has also reflected these retailers’ own indifference to their ecommerce presence. However, due to the accelerating penetration of mobiles, tablets and other digital devices, a serious online transactional presence is now vital for any retailer that wants to remain top of the consumer’s list.
On the other hand, ecommerce companies, as mentioned earlier, have so far mainly stuck to “pure-play” online presence due to their own reasons. However, with passage of time there is bound to be a convergence and eventually a fusion between channels.
The Journey to Omnichannel
Omnichannel today, in my opinion, is still more a buzzword today than a reality. Being truly omnichannel requires the brand or retailer to offer a seamless experience to the customer where the customer never feels disconnected from the brand, regardless of the channel being used during the information seeking, purchase and delivery process. For instance, a customer might seek initial comparative information online, step into a department store to try a product, pay for it online, have the product delivered at home, and be provided after-sales support by a service franchisee of the brand.
Very few companies can claim to offer a true omnichannel experience, due to internal informational and management barriers. However, having an effective multi-channel presence is the first step to creating this, since operating across different channels needs a completely different management mind-set from the original single-channel business. Having a presence across different channel means that a retailer will need to juggle the diverse needs. Capabilities, processes and systems that are fine-tuned for one channel, may not be fully optimal for another channel. This requires the retailer to restructure its organisation, systems and processes to handle the different service requirements of the various channels.
For instance, brick-and-mortar retailers moving online need to rethink in terms of the service (“always open”), speed (“right now”), and scale (“everywhere”). A traditional retail organisation is seldom agile enough to work well with the new technology-enabled channels as well.
An etailer opening physical stores, on the other hand, needs to embrace product ranging and merchandising skills to allocate appropriate inventory to various locations, as well as the ability to create and maintain a credible, distinctive store environment – in essence, inculcating old-world skills and overheads that they thought they would never need.
The retail business is not divided black-or-white between old-world physical retailers and the upstart online kids – at least the consumer doesn’t think so.
Retailers need to and will see themselves logically serving customers across multiple channels that are appropriate for their product mix. They need to mould their business models until they achieve balance, proficiency and excellence across channels, and eventually become truly omnichannel businesses. It doesn’t matter from which side of the digital divide they began.
