(This article is one of a three part series. Part 1 looks at the definition and benefits of hyperlocal business. Part 2 will outline the challenges and pitfalls in going Hyperlocal. Part 3 will offer solutions and differentiators based on technology, that can give your hyperlocal business a head start, powered by Anant technology)

In my first blog on hyperlocal (Link) I discussed the definition of hyperlocal and we saw how the concept is deeply embedded in our culture. Having established the potential market for hyerlocal business and the advantages for customers, let’s now examine the potential pitfalls and challenges that this business holds.

It is the dream for every entrepreneur to create a new business idea that not only answers unmet customer needs, but also truly impacts and changes their lives for the better. Whatsapp is such an example. It saves the cost of SMS, builds bonds by facilitating creation of groups, and it is even used by businesses to promote, interact with customers and trigger sales transactions. Whatsapp is a compelling reason for people to get a data connection or upgrade their phones, because others have told them of its benefits.

Hyperlocal cab services like Ola and Uber are another example. They have changed the commuting landscape of cities where they operate. If you had a flight to catch, chances are that you would have had to dial a call centre the previous night and stay on call waiting for several minutes, before you succeeded in getting a confirmed cab booking. Now you wake up, open an app and scan for the nearest cab in your vicinity. You no longer need to have money in hand to catch a cab, you can use a mobile wallet.

Uber benefits not only customers but also drivers. It is responsible for generating both capacity utilisation and employment. Many people around the world drive Ubers and work around the clock, keen to earn large sums of money, not just by dropping customers to their destination, but also by offering polite service, which gets them higher incentives.

In my mind, when I review hyperlocal businesses today, none of them have created this immediate and compelling need. And that’s the immediate, overarching challenge that needs to be addressed by any new company wanting to enter this overcrowded space. How can I answer a deep need for both retailers and customers? A business that cracks this, will succeed. Any other business will join the many established players, and struggle to gain foothold, while spending a lot of money on promotions and awareness building.

Here are some of the other challenges and pitfalls of the hyperlocal business from the end consumer perspective

  1. Adapting to existing, fixed behaviour patterns of consumers: As compared to occasional purchases like clothes, books or gadgets, we already have a set pattern for our grocery purchase. Usually, the big ticket and bulk purchases are made at the beginning of the month, once a month. The rest of the month, we do emergency purchases or top-ups. This behaviour is unlikely to change drastically. So essentially, every hyperlocal competes for share of one big grocery basket. The way that most hyperlocal businesses tackle this, is by offering big discounts on first purchase/ referrals etc. This works initially but then consumers grow to expect it, they start comparing on discounts and then all businesses are bound to keep offering such discounts which eat into their margins. Remember that offline grocers like Reliance Fresh also offer discounts, and home delivery.
  2. Offering something over and above local stores: 
    • As discussed earlier, local stores are already keen to add value to customer’s lives. They offer free home delivery (often at lower values than hyperlocal brands) and always within a few hours. Some of them offer credit to regular customers.
    • Hyperlocal businesses definitely offer the benefits of convenience and time saving but ultimately it boils down to one difference – with a local store, you can order on the phone, with a hyperlocal, you order through an app.
    • Just by virtue of aggregating different products in an app, is a hyperlocal business offering enough of advantage over and above the regular store? If not, then the recourse is to fall back on discounting, and as we have seen, that is not a viable long term business model.
  3. Bringing in the advantage of the human element: It goes without saying that Indians are used to human interactions, at various stages of the purchase process. Without negating the speed and ease of online ordering, here are some simple things that a real life local retailer can do, which become challenges in a hyperlocal app
    • If good arrive broken or damaged, the local retailer can immediately send a replacement.
    • If you forget to order something, you can call back and add it up to your original order
    • If a product you want is not in stock while ordering, the local retailer can immediately inform you and suggest a replacement
    • At any stage, the proprietor of a local store is just a phone call away (and not a call centre away!). Decisions can be taken immediately and executed.

This human element of retailer interaction is missing in the hyperlocal app, and while technology or systems can compensate for it, they will still not be as user friendly as a call to sort out issues, with a retailer whom you already know.

Now, let us look at the challenges from the perspective of retailers

  1. What will motivate a local retailer to come online? First generation hyperlocal retailers like BigBasket maintained their own warehouse and inventory, which allowed them a greater control over the customer experience including updated stocks on website and quick delivery time. The newer trend for startups like PepperTap, Grofers, ZopNow and Amazon’s Kirana Now initiative is to not hold the stock, but source it from local grocers. This makes business sense as it reduces costs and enables scaleability. However on the flip side, take a look at any app and you will realise that the ‘local’ is missing in the hyperlocal! Chances are, you will find only a handful of local stores represented and many of the famous local stores may be absent from a hyperlocal app. Talk to hyperlocal companies and they will admit that onboarding of local retailers is one of the major challenges that they face.  If we look closer, we can understand why. Retailers look at Life Time Value of a customer – the repeat business that they get through loyalty, not just through one person shopping but also through referral and word of mouth. On a hyperlocal app, a local store does not get any particular showcasing. More than just earning revenue, retailers have to see how their business can change by being on a hyperlocal app  
  2. Lack of Customisation of offerings by locality and retailer: Large cities like Mumbai have marked geo-demographic segments in each locality. Eg. Matunga-Sion has a large Gujarati and Tamil population. Dadar is predominantly Maharashtrian. This also means that each area offers local specialties that you do not find elsewhere, or which are unique to that area. Eg. Shops in Dadar have special sweet ‘puran polis’ made in Maharashtrian style. Restaurants in Matunga are valued for their authentic South Indian food. And even if a specific area is not famous for some particular items, chances are that the local populations preferences and purchase patterns may be different from another area. Retailers already understand this and have customisations. Hyperlocal businesses do not reflect it. Instead they offer a generalised spread of basic products in all areas. When a retailer can showcase their own specific and unique produce (eg. Hot Samosas – for limited time only!) then it helps their business and
  3. Are hyperlocal apps really meant for everyone? For a local retailer, everyone’s business is valuable – be it the housekeeper who runs the house, the rich home maker, or the elderly grandparents who are at home while the younger generation goes out to work. All the people who shop, are not technically savvy or comfortable with using apps. While this is generally true for e-commerce (or any app/internet usage) I do not see Hyperlocal apps making a special effort to include different segments, in the way that Myntra, Amazon or Flipkart do. They are catering to a young, tech savvy population which is still a niche audience. To scale up, it is not just necessary for them to enter different cities. Instead, they need to scale DOWNWARDS ie. Go deeper within specific localities to include more shops, more customers. That is how the business model will develop, as more retailers will be keen to get onto the platform and cater to a larger customer base.

What other challenges do you think are faced by Hyperlocal businesses? I would welcome your answers and an interesting debate on this topic!