New Delhi: Hyperlocal delivery start-up PepperTap is shutting operations in six cities, including Mumbai, Kolkata and Chennai, and will be laying off about 400 delivery men—a sign of heightened pressure on start-ups to conserve capital amid a slowdown in funding.
The news comes within a month after larger rival Grofers India Pvt. Ltd decided to close operations in nine cities, including Ludhiana, Bhopal, Kochi, Coimbatore and Visakhapatnam, Mint reported in January.
With investors putting pressure on start-ups to improve financial metrics, hyper-local firms such as Grofers and PepperTap are spending less on discounts and other marketing initiatives.
During the September-December quarter, the two companies had spent $2-3 million on advertising initiatives. While PepperTap, launched its marketing campaign “Bahut Aasaan Hai” (It’s very easy) on YouTube, social media, radio and print, Grofers went ahead to hit the television with its campaign “get it”, for a month-and-a-half.
In September, Gurgaon-based PepperTap had rolled back operations in smaller towns such as Agra and Meerut after a month-long pilot failed to take off. According to the company, it will now shut down business in larger cities such as Ahmedabad, Chandigarh, Mumbai, Kolkata, Chennai and Jaipur.
“Even though PepperTap has been able to establish itself as a leading hyperlocal grocery delivery service, given the short to mid-term investment climate outlook, we have decided to focus on depth rather than breadth. We are digging our heels in for the long term. We will focus on building a stellar customer experience by providing additional categories and services that differentiate us from our competition in cities where we continue to operate in,” said Navneet Singh, co-founder and chief executive PepperTap.
PepperTap, run by Nuvo Logistics Pvt Ltd, had 50 full-time employees in these cities and about 400 delivery personnel on a contractual basis. The company will continue to operate in Delhi, Gurgaon, Hyderabad, Pune, Noida, Bangalore, Ghaziabad and Faridabad, the company confirmed.
According to Singh, this will help PepperTap conserve capital it raised in the last three to six months and will give a runway of about two more years.
During September and December, PepperTap raised $40 million from India’s second largest online marketplace Snapdeal, Russia’s Ru-net, Japanese private equity firm JAFCO and BeeNext and venture debt firm Innoven Capital. Existing investors Sequoia India and SAIF Partners also participated in the round.
Founded in 2013 by Singh and Milind Sharma, the company has raised over $51 million since the start.
PepperTap claims to be delivering over 7,000-8,000 orders a day. Its parent firm Nuvo Logistics Pvt. Ltd, which also runs a reverse logistics business, posted a profit of Rs.87 lakh on revenue of Rs.19.5 crore in 2014-15. However, it is the hyper-local business which is a money guzzler. PepperTap started its hyper-local services only in January 2015.
In November, Grofers received the biggest cheque in India’s hyper-local sector from Japan’s SoftBank Corp and existing investors Tiger Global and Sequoia Capital. The company secured $120 million and like other hyper-local start-ups is trying to focus on consolidating its businesses in existing markets rather than expand.
Bengaluru-based Shadowfax has also restricted its operations to three cities—Mumbai, Delhi and Bengaluru. The company is currently focusing on generating cash flows and achieving operational efficiency.
“Without pricing rationalisation and reinventing their business model, hyperlocal delivery startups will not be able to survive in India,” said P.N. Sudarshan, senior director, Deloitte India adding that the industry will have to wait for higher level of customer acceptance wherein they will be ready to pay a premium for on demand delivery.
“The cost of delivery business is very high. Unless the order size is large enough, it does not make any business sense,” he said. However, he added that hyperlocal delivery is a required service in the country as people like the convenience. “It is just about the time when they will be ready to pay extra to enjoy that.”