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The Emerging Hyperlocal Business Model

Introduction to Hyperlocal Business

There has been a paradigm shift in terms of the lifestyle preferences and buying trends
among Indian consumers over the last two decades. With the opening, up of the Indian economy,
Urban India has gradually embraced consumerism and is increasingly opting for seamless services.
Growing internet penetration and the rise in the number of people using smartphones have acted
as a catalyst for the hyperlocal sector while reshaping customer behaviour and expectations. Along
with this, increasing disposable incomes, the rise in aspirational values of the consumer,
urbanization, and change in technology have also contributed to a booming hyperlocal e-
commerce. Also, there is an increase in the young population who believe in ‘Working hard and
living stress-free’. They, too, are responsible for the spurt in activity in this sector. Talking of the
Hyperlocal e-commerce industry in India, it has been significantly driven by growing number of
start-ups”, enhanced investments and “on-demand delivery preference”. According to Venture
Intelligence, 26 investments worth $171 million were made in these delivery startups. Since it is
an aggregation model that is flexible, asset-light and less capital-intensive than the inventory-led
one, numerous offline businesses and service providers, both big and small started thriving on its
benefits. The market indeed witnessed a remarkable boom owing to the convenience and ease of
access it offered to urban Indian consumers. According to a research report, 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 the 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.

Business Model of Hyperlocals

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
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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, specialized laundry services, plumbers or electricians),
price comparisons, food ordering apps, etc. 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?

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
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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. 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. This category especially is
a high-repeat one as opposed to conventional services like home repair or automobile service.

Challenges in Hyperlocal Business Environment

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, local people are needed in most cases for services as they represent
the brand and should know how to handle a customer. 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 this mindset is
changing fast, with a large group of urban people who don’t have the time or patience and need
professional services at affordable rates and at convenient times. Fifth, the suppliers of hyperlocal
retailers are often other retailers. As a result, controlling quality and inventory can be a challenge
in several cases.
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. Most western countries have not been traditionally hyperlocal in their retail
business. So, countries like India developing their own hyperlocal ecommerce industry neither
have a model to learn from nor have the driving factors well established for their success.
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References:
1. http://www.financialexpress.com/economy/much-ado-about-hyperlocals/132045/
2. http://bwdisrupt.businessworld.in/article/Future-of-Hyperlocal-E-commerce-Market-
India-in-2020/24-07-2017-122707/
3. https://retail.economictimes.indiatimes.com/re-tales/hyperlocal-start-ups-the-road-
ahead/1552
4. https://www.thebalance.com/hyperlocal-ecommerce-businesses-are-coming-of-age-
1141754
5. https://yourstory.com/2015/08/hyperlocal-e_commerce/