Is the Hyperlocal Model Fundamentally Flawed?

Author: Suresh Kabra, Founder, PriceMap

There are about 50+ startups in India, which are offering hyperlocal services (or what is being called Offline to Online O2O) – connecting online shoppers to brick and mortar retailers. They vary in the segments that they are addressing, with grocery and daily needs being the most popular ones.

One thing which is common across all these hyperlocal startups is the process followed – they put your inventory online; make the purchase happen from their portal or app; pick-up goods from the retailers shop; and deliver to the end customer. The retailer doesn’t have any visibility on the end customer. They just receive a blind order, the packaged goods are thereafter picked up by the delivery boy, to be delivered to the right customer.

Is this model good for brick-and-mortar retail? In the short run, it may seem so as you can get some additional orders from people who shop online, but what about the long run? If you are not interested in providing a customer experience, gaining trust via human interaction and building loyalty, why are you running a retail outlet in the first place? Why are you paying rentals for a premium location and spending zillions on interior decor and training sales staff? You should pack-up and set-up a warehouse in some dingy godown and just package goods as per orders received online!

I hope you can see where it is heading. With no relationship with the customer, you have lost all your identity and differentiation. Your business gets totally commoditized. You can play only on margins and the person who has scale or is capable of running a sweat shop, to cut costs, wins. You relegate yourself and your children to the bottom of the retail pyramid, with a constant struggle for margins and playing at the mercy of the on-line aggregator. If this online partners turns into a foe and demands a piece of your cake, you are left with no option but to shell it as you have lost all capability to secure a customer based on your strengths.

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If the retailers want to get business from online shoppers, they have to offer something that pulls these online shoppers to their store. Create more footfalls by adding the online community to your regular shoppers. Not the other way round, wherein you lose your regular customers also to the faceless online world! This is what is happening with the hyperlocal offering today.

One of the alternatives could be a situation where the offline retailer may try and pull the online customer. The customer then, gets the best of both worlds. There are certain applications running in the market which connects an online shopper to the store and generates additional footfalls. It helps in retaining store’s identity and build upon the existing customer loyalty, instead of taking away the loyal customer.

You can share your views in the comments below.

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  • Devashish Datt Mamgain

    Hi @disqus_p2VWgMb0q2:disqus Instashop looks good, which plugin/library are you using for the chat?

  • Abhishek Bindal

    I completely agree with @sureshkabra:disqus, on this. If we see this in Long term, no e-commerce portals will be able to sustain on Investors money. Everything will boil down to being hyperlocal. The important thing here to be done is to improve the logistics and convenience of the Local Merchants to sell their products and provide their services online in the most transparent fashion. This is the reason AliBaba was able to make so much money, because they gave the powers in the hand of the Merchants and providing them with convenience of Logistics, Payments and Online Visibility.

    @disqus_LV5nuqQcEc:disqus, @disqus_kKhqleVp89:disqus , @disqus_QsIAHEkElN:disqus ,@disqus_hKlB6ip8qF:disqus : Asking them to maintain their local inventory is not the solution for the small businesses, because of the limited man power and the financial constraints.
    The more sustainable model is to provide power in the hands of the merchants and create a healthier and competitive marketplace for them.

    • sunilmalhotra

      Agree on all counts.

  • Anshul Udhani

    There are many other hyperlocal models, where offline retailer can partner with just the delivery service and can work on strengthening its own backbone. This ensures them to retain the chunk of customer’s who are calling and ordering.

  • Amit Kumar

    Is instashop similar to Look up or something like that ?

  • Vinod Kumar

    I totally agree !
    You mentioned: “There are certain applications running in the market which connects an online shopper to the store and generates additional footfalls”. Could you please name a few? I am very interested with this line of thought. Thank you.

    • Mayank

      Dear Vinod, I am founder of InstaShop, and we are doing exactly the same as cited by Suresh. You can check it out at http://www.instashop.io

    • Suresh Kabra

      Vinod, any such application has to be app based as the consumer is looking for this connection in real time when he or she is on the move. Also, if the buyer has to go through yet another catalog, it is highly inconvenient. Check out PriceMap Buyer app on Google Play. Once you have selected what you want by searching on-line, the app will help you to connect to retailers in local markets which offer same or similar merchandise. No catalogs to navigate. Just search on-line.

  • Suresh Kabra

    Thanks to everyone for great comments here. I want to make couple of observations here.
    – Agreed that both on-line and off-line will stay, however the exact models will evolve. On-line has to evolve to get “real” cost savings to the consumer rather than subsidizing it with VC money (refer my article on this topic: http://www.entrepreneur.com/article/250009 ). Real cost savings can’t happen till we are on marketplace model where someone from my backyard is actually shipping the product which I am buying on-line and significant wholesale or retailer margins are still built into the supply chain.
    – Hyperlocal has to evolve to justify retailers investment in physical infrastructure and adding to the customer experience in shopping from local market. Again, there has to be serious cost savings in the pipeline which are missing if you just source from local retailer and supply to local customer. If the idea is to provide convenience, a premium should be charge rather than a discount being given. If they do none, they are no different than “home delivery” from food outlets, which has been in place much before hyperlocal model evolved.
    – On convenience of both on-line and hyperlocal, shopping provides the only source of “break from the rigmarole” to a large set of Indian population ( refer http://goo.gl/1Z3z5K ) . So hyperlocal can scale not just on convenience factor. It has to make shopping in local markets more fun for consumers.

    • Mayank

      Liked your thoughts on the hyperlocal commerce space, and they resonates quite a lot with our business model at InstaShop. We at InstaShop are providing a technology platform to the brick and mortar shops to better engage with their existing customers and acquire new customer online, while retaining their identity and having full access to all the information of the customers.

      • Abhishek Bindal

        HI Mayank,

        I saw Instashop website. Didn’t download the app though. Can you elaborate more on, what things can i shop on Instashop from my nearby locality? Also where is it currently operational?

        • Mayank

          Hi Abhishek, we are currently operational in Noida and Ghaziabad parts of NCR. We cover most of the categories you find in your local market Grocery, Pharmacy, Bakery, Laundry, House Services, Hobby Lessons, Fashion and Lifestyle.

    • sunilmalhotra

      Dear Suresh,
      I don’t quite agree with your contention that retailers have to make investments in physical infrastructure if you can cleverly use mobile on a subscription basis. Would love to have your take on our http://dealchaat.in which attempts to make is frictionless for merchants and shoppers. Happy to chat sometime.

  • Vivek Prasad

    I have few points to mention here:

    1. Hypothetically even if people start going online for buying of the products the brick and mortar shopkeepers will have time and money(probably) to give their attention to alternative methods of retails may be by increasing their portfolio of products in their shop/warehouses(as you mentioned) with margins intact rather than decreasing the margins…

    2. Or if you are correct on a long term basis it may be that the industry will go for a consolidation in which fewer retailers will be there in the brick and mortar biz and more ppl(smaller retailers) will be working in a warehouse model.

    3. Or — Probably what you are talking about is mid term. As online aggregators require more retailers of brick and mortor to make them relevant in the online industry.. In long term both online and offline model will work in tandem with better effeciency. The aggregator will try to reduce the margin for the retailer; retailers will reduce the margin if he gets the volume and Customer finally will be the winner. It will be symbiotic relationship between customer, online aggregators and offline retailers.

  • dev

    Agree with both!

    In the current busy world where a individual has to work on multiple tasks at a time, Online shopping would provide added advantage to reduce the over head of traveling, standing in long queues, checking for products.
    If we are encouraging to online purchase of electronics,hosiery,home appliances why not grocery ? which takes important chunk of daily need.

    In a family if both wife and husband both are working professionals and can not afford to spend weekends in shopping they can do it online with ease saving their time.

  • Dushyant

    Agree with Manish!

    Moreover the offline stores don’t sell the aesthetics of their premises (generally) but the quality of goods. New customer acquired by the online partnership will help them in showcasing their products.

  • Manish Gupta

    I somehow disagree with this. Business is all about growth, collaboration and evolvement as per the changing environment. There will be all type of customer some who value in shop touch feel experience, some price, some convenience. Online business is not a threat to offline business both forms will ultimately co-exist and conventional retail with focus on in-shop customer experience will always have the lion share. We can see this globally nowhere in the world offline is more than 30% of overall retail

    Online business might take certain part of the business of offline but O2O has brought that business back to offline retailers again. Anyways those sellers were never walking in retail shop as their expectations of shopping were different. Atleast with O2O the fulfilment is coming back to retail store otherwise it would have gone to some warehouse.