Genie in the hood

Source: bustle.com    

Aladdin and his Genie. One of the most popular fictional characters. We all enjoyed their nail-biting & intriguing adventures. Their mesmerizing journey made us excited, igniting juvenescent hope and yearn for a Genie who could bring us whatever we wish for. Unfortunately, we can’t have him but we do have the next thing closest to him. Hyper-local business! Companies in this business are dedicated to delivering our basic necessity item at our doorsteps by addressing reducing the gap between demand-supply in a hyperlocal space. Thanks to them, today we just have to click our screens(our very own lamp), and sitting on our couch, we can savor Baskin-Robbins ice cream, have daily groceries delivered in 90 minutes, getting a technician, and whatnot.

So what is a hyper-local supply chain?

A hyper-local supply chain is a platform that enables consumers located within a well-defined geographic location, to access local offline services from anywhere, at any time. Hyperlocal service market under its umbrella includes food ordering, grocery ordering, home utility services marketplaces, and logistics service providers. These services are delivered, either through the company's own logistic network or through partners’ logistic network. With each day passing by, more goods and services are being added to this list. The conspicuous rise of internet users, surge of payment options, the proliferation of geolocation-aware devices, and suitable demographics have paved the way for this business.

For consumers, this is nothing less than having their own lamp. Where on one hand, they can wish and get instant access to a rich profusion of goods and services at the lowest possible price. On other hand, it allows them to buy from their trusted neighborhood seller. Companies understand customers’ preference for the ‘Touch and feel factor’ and are addressing it through Hyperlocal supply. This brings a sense of satisfaction among consumers that their seller has a physical presence, making it possible to attend to any grievances quickly.

Companies involved in Hyperlocal business, know Kiranas are (rightfully) king as they provide customized service at a very local level and constitute 95% of Indian grocery retail. Kiranas have innovated their way through all of this and their resilience has ensured that they still remain the most convenient bedrock of retail. Building a new behavior among users and suppliers. Thus, unlike non-hyperlocal e-commerce, these companies have rather joined hands with offline retailers. These start-ups are tapping into existing infrastructure, acting as a bridge between existing retailers and the consumer. This not only is an additional channel for sales but also gives them better customer reach and potential opportunities in untapped markets that might have otherwise been missed. Therefore, online hyperlocal service providers are ramping up their operations in order to increase their customer base and create more employment opportunities for the local workforce.

Over recent years, this business model has become a cynosure among venture capitalists and private equity investments firms due to proposed value propositions of this business model which aims to improve User experience (UX) and User interface (UI) and reduce consumer pain points caused by traditional business models in this sector. According to livemint, on May 16, 2019 Grofers raised $220 million from Softbank Vision Fund and other investors, marking the biggest fundraising in India’s online grocery delivery industry and ratcheting up pressure on larger rival BigBasket which raised $150 dollars 10 days before.

The growing interest of industry giants such as Amazon Inc. and Google Inc. in the online hyperlocal and home services market is expected to further intensify the competition which in turn is propelling the possibility of market consolidation. The result of this can be seen as companies are giving away heavy discount coupons for consumers on their first purchase which in turn is driving the hyperlocal services market globally. Expenditure on marketing and promotional activities are increasing exponentially with an aim of acquiring customers, which would facilitate customer’s loyalty and in turn customer retention.

Presently, North America and Western Europe leads the market in terms of demand and adoption of hyperlocal services. However, growing internet infrastructure and increasing smartphone penetration in countries such as China, India, and South Korea are expected to bring traction in the adoption of hyperlocal services in these regions.

According to the market research firm, Ken Research in its latest publication on “India Hyperlocal Market Outlook to 2020 - Driven by Rising Companies Firms and Fluctuating Investments”, the India Hyperlocal market will grow at a considerable CAGR rate thus exceeding INR 2,306 crore by 2020. Increasing urbanization, personalization of affinities along with ability to curate products that appeal to the aesthetic sensibilities or aspirational desires of the person will lead to the rise in the Hyperlocal market in India.

The surge in growth has majorly been witnessed through growth in technology, urban population, better logistic services, and large-scale public investments. The India Hyperlocal market revenues have grown at a growth rate of 41 percent as compared to 2014. These platforms invested heavily into expanding their footprint across cities in India while diversifying into other adjacent markets.

This has caught the attention of Industry giants and they are seeking opportunities to tap this market. Google has already invested $12.3 million in a Bengaluru-based personal concierge app Dunzo, whereas others are in talks with similar companies.

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Look before you leap

-John Heywood

 

While it ensures higher margins, replication of a services model is much more difficult.

First of all, such organizations need to choose their alliances wisely. The onus of placing products at the right place at the right time is on these external entities. Their brand is exposed to their own loyal customer base via these entities. Any loopholes can potentially make consumers try out a different brand. It can be handled by understanding customer’s feedback on these new hyperlocal channels on a regular basis. Once the alliance is chosen, the next thing is to cater to the training of people in services. Each individual has to be available wherever the customer is located. Also, they should know how to be empathetic with customers and provide seamless service.

The second challenge in their way is to convince store owners to get on board, leaving behind years of relationship with their customers. For smooth running of this business model, they would be required to share correct details of their inventory, let monitor availability of ordered stock at the correct time, etc. The message of win-win for both has to be spread across, supported by strong arguments built on facts as well as a well-designed prototype. They need to be convinced that technology can help them save time, money, and energy which will eventually lead to an increase in consumer traction and thus widen their customer base. Also, mobile applications and websites are required which have to be constantly updated to create a user-friendly and smooth experience for their consumers to shop through it.

The third challenge is the high cost of operations & delivery in a low margin business. Now, this model needs a lot of local entities to be on board. Hence, the requirement of logistics also increases here. Factors like these will swell up the cost of operations. Also, the margin in grocery lies in the range of 2% to 6% which is not a great figure when it comes to single package delivery.  However, a ray of hope lies in negotiating to make an extra margin in select products where exponential growth will be higher in the future, to cover the costs of infrastructure and logistics. For e.g. organic vegetables & fruits. Other solutions include integration of backend services, offering & promoting subscription plans which can help to retain customers, retain income from the same customer and also streamline operational costs for that one customer or many such similar customers.

The fourth challenge is to sustain growth amidst the growing competition. The key here is to make modifications in operational processes. One such includes having specific products according to the region. Others can include timely delivery of a quality product offered at a reasonable cost through a simple user-friendly mobile application & desktop portal.

The fifth challenge is balancing the pay of delivery partners. It is found that the aggregators engage with delivery partners in an effort-based pay scheme. The cost of delivery in terms of fuel cost and capital cost of vehicle is borne by the delivery partner, who is in turn paid by the aggregator based on the number of miles traveled. Since an aggregator is engaged with a large fleet of delivery partners, it leads to poor per capita earnings. Some model also lacks an efficient location-allocation method for delivery partners, In case you were affected, how much time before have you recovered?

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Our future world will have to find equilibrium in the technology pendulum swing

-Stephane Nappo

 Every business model has to be in harmony with state-of-the-art technology. Hyperlocal business is no exception to it. The Internet of Things (IoT) is revolutionizing almost all domains of a business model like marketing, operations, transportation, and logistics. They are no longer the same way they were 5 years ago. The way businesses track assets and transport goods are already being changed by advanced sensors, analytics, smart logistics platforms, connectivity capabilities, and cloud computing.  

The flowchart below shows a glimpse of how IoT will make this model more cost-effective, time-efficient, and resilient.

In August 2019, Loadsmart and Starsky Robotics announced a successful dispatch of an automated truck to haul freight using AI-powered pricing and load matching technology. The freight was priced, tendered, and booked through Loadsmart, and Starsky’s self-driving truck automatically picked up and delivered the shipment.

Also, blockchain has the potential to reduce complexity and optimize the delivery process by removing intermediaries from logistics operations and supporting a more automated, streamlined, and error-free process. Blockchain can also increase the efficiency of fleets by assisting with vehicle performance tracking and by tackling some of the challenges posed by the electrification of transportation by streamlining billing and settlement processes.

After having learned all of this, we now understand how our shopping experience is going to be comfortable and appeasing our needs. All we need to do is sit back and ask our Genie to deliver his services at our command. 

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