Case: Pandemic Gives Hyperlocal Model a New Lease of Life

Challenges associated with hyperlocal grocery delivery business model

Hyperlocal delivery may be a short-lived trend since it is a stopgap arrangement at a time of crisis with ecommerce business down to a trickle, industry execs said Hyper-local delivery of food and groceries has made a resurgence over the past few weeks amid the ongoing 21-day nationwide lockdown, although industry insiders are sceptical whether the trend will last. E-commerce companies and other delivery-based businesses are forging partnerships with physical stores to fulfil increased orders at a time when customers are buying essentials in large quantities. Hyper-local delivery, a model of picking up goods from neighbourhood stores and supermarkets, had gained widespread investor interest a few years ago. A bunch of startups had launched ventures to ride the boom and subsequently raised venture capital. Those models, however, failed due to poor unit economics. This time around, though, the tie-ups between online firms and brick-and-mortar retailers, especially the larger, organised ones, are favouring the offline retailers.

“They’re certainly giving us better terms, because it’s just not possible for two players to share margins in the grocery business,” said the CEO of one of India’s leading supermarket chains, who did not wish to be named. However, industry executives told ET that hyper-local delivery may be a short-lived trend. This is a stopgap arrangement at a time of crisis with ecommerce business down to a trickle, they said. Amazon and Grofers, two leading players in this space initially, went on to set up their own warehouses instead of partnering with retailers. Amazon has since invested in retail chains like Aditya Birla’s More and in Kishore Biyani’s Future Group to ramp up its bet on the physical format. Others, like food delivery app Swiggy, which launched Swiggy Stores with retailer partnerships initially also pivoted to opening dark stores to stock products.

Walmart owned Flipkart made several attempts to work with retailers to fulfil grocery orders, but launched Supermart, which relied on a backend network of own warehouses. The reason we moved away from our previous model (of hyper-local deliveries) was because of bad economics, fill rates and customer experience,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. “Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” he added. Currently, Grofers operates on a model where it establishes large warehouses and smaller ones within cities. The mini facilities are operated by distributors who fulfil their last-mile deliveries to keep costs in check. Besides the unit economics, in the first phase of hyperlocal delivery, companies depended on offline stores, but did not have access to their stocks, leading to consumer dissatisfaction. Market researcher Satish Meena of Forrester Research said that corner stores and supermarkets were willing to work with e-commerce players for now, but it was unclear how long these arrangements would last.

Potential impact of pandemic on hyperlocal ecommerce business

“Whether these offline retailers choose to work with these companies after the lockdown will depend on how the big four - Amazon, Flipkart, Bigbasket and Grofers  approach this,” Meena said. For physical retail chains, this has come as an opportunity to sharpen their online presence. Kolkata-based Spencer’s Retail has moved quickly to partner with Uber, Swiggy, Rapido and others to enable deliveries of online orders from own stores. “We are uniquely positioned to execute hyper-local grocery deliveries because we already have stores and the distribution costs are already apportioned according to the store’s business. We’ve built a platform and added an out-of-store business that functions within a certain radius, so the unit economics work out,” said Devendra Chawla, managing director of Spencer’s Retail. Spencer's has also struck a partnership with Flipkart to list its products on the etailer’s platform. Flipkart will route deliveries through Spencer's offline stores and fulfil them using its last-mile delivery network.

However, other large offline retailers have been slower in taking advantage of the increased demand for home-delivery of groceries, although established hyperlocal delivery players such as Dunzo and Swiggy’s Supr Daily have stepped up in delivering groceries and other essentials to customers from local stores. To be sure, there is a difference between operating delivery as a side business and building a supply chain that is exclusively for delivery. “The frequency, shelf-life, number of items, all of these are constraints in a market where the margins are not as high as they are in fashion. The issue is the economics of it will not work in the normal world, unless the customer keeps paying Rs 100 as delivery charges and not just during a crisis situation like now,” said Dhindsa of Grofers.

Source: https://tech.economictimes.indiatimes.com/news/internet/pandemic-gives-hyperlocal-model-a-new-lease-of-life/75072580

1 Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. What do you think are the complexities associated with hyperlocal grocery delivery business model? Discuss in detail. (20 marks)

2 Pandemic gives hyperlocal model a new lease of life”. Do you think this boost in business will be short lived or will it create an everlasting impact on the hyperlocal ecommerce business scenario?   (20 marks)

3.Compare Bigbasket and Grofers supply chain capabilities. Which do you think is superior in meeting market requirements and is more sustainable? Justify your answer with suitable reasoning. (20 marks) 

4. COVID-19 is a black swan event but supply chain disruptions around the world are a common phenomenon. Produce a detailed discussion on how businesses can prepare themselves to minimize the impact of future supply chain disruptions. Compare the advantages and disadvantages of local vs global sourcing.  (30 marks)