Another VC-Funded Grocery Delivery Business Falls to the Local Sabzi Guy

The grocery delivery business claimed yet another startup as reports state that Mumbai-based GrocShop has shut down. This is just one of many, many companies in the category that has faced troubles in recent times, with Nagpur-based GetNow and Delhi-based AAGAAR.com other recent, not-so-well known casualties in the space.But this clearly is a problem that is widespread across the segment.

Flipkart launched a service called Nearby, and quickly shut it down as well, because customer demand for Nearby was poor, and the company wasn't able to make much profit from the business due to low-margin on such household products. Taxi aggregator Ola, which has been trying to widen its offerings and allows you to use its Ola Money in a number of scenarios, has reportedly faced troubles in the hyperlocal market as well. Another Mumbai-based company, LocalBanya has "temporarily" shut down, and two of the best known names in the space, Peppertap and Grofers, have faced a lot of difficulties too.

Peppertap shut down operations in several cities, before shutting down completely. The company had raised millions of dollars - its latest valuation, in December 2015, was $30 million (roughly Rs. 237 crores). The company was "on track to end the year with a GMV run-rate of over $250 million (roughly Rs. 1,649 crores)," according to co-founder and CEO Navneet Singh. Yet, when explaining the decision to shut down grocery delivery, Singh wrote, "Losing cash on every delivery meant one day we will run out of cash."

If nothing else, these two statements taken together explain why so many people have come to distrust GMV as a measure of health of e-commerce companies.

Grofers has also slowed down, and backed off from nine cities where it wasn't performing too well. Unlike the others in this list, Grofers is not shutting down yet - but that doesn't mean it doesn't face difficulties. The Softbank-funded company created controversy when it withdrew job offers from candidates just two days before the joining date. A screenshot of an email circulating on Facebook shows that the candidates were told only, "Owing to market conditions and changes which affect our business, we regret to inform you that the positions are no longer available."

What exactly is going on here and why are so many of these businesses struggling? According to at least one former PepperTap executive who did not wish to be named, the problem there at least was that there were too many companies springing up from nowhere, which were all applying the same basic model, but were not really bringing anything more to the picture.

"The problem was that everyone was relying on the local shopkeeper to procure your sabzi," the executive explained, "and he already has his existing customers, and a delivery system that relies on labour he's barely paying. On the other hand, the delivery guys we relied on weren't exactly cheap."

"I left before the company closed down, but by then the writing was on the wall for a lot of us," he continued. "It's too disorganised, the sabzi guy will often give you a delivery quicker than we can. Customers want instant delivery, and insane discounts. It wasn't going to last."