The temporary shutting down of online grocery delivery firm Localbanya indicates that the engine driving the delivery of food, groceries and other services at the hyperlocal level could be losing steam. With investors staying away from making any new investments in these areas, a large number of such companies are expected to shut shop in the next few months.
About 270 city-focussed start-ups have mushroomed in the country since early 2014, to ensure faster deliveries of grocery, food, and so on. Of these, only about 60 have been able to raise funds, according to start-up tracking firm Tracxn
On Wednesday, Localbanya, announced that it was temporarily shutting shop on grounds that it was working on a new business model. Market watchers say the company may have run out of cash.
But Localbanya is not the only one. Over half a dozen such start-ups, including Bengaluru-based Dazo, Langhar (Delhi) and OrderSnack (Chennai), have met with a similar fate in the last year or so.
Experts believe the high cash burn rate and paper-thin margins are making the going difficult for the not-so-well funded start-ups.
“High competition in this space is making it the battle of the riches. You can’t make money in this market without reaching scale and you can’t reach scale without burning cash,” a founder of one of the hyperlocal start-ups told BusinessLine on condition of anonymity as the firm itself is struggling to get funding. The entrepreneur said that due to the massive competition, salaries for delivery boys are skyrocketing, making delivery cost much higher than the margins.
“There is low entry barrier for hyperlocal start-ups but there is only limited money in the system chasing these outfits,” said Abhishek Gupta, head of TLabs, which in 2012 funded Langhar, an online platform selling home-cooked food. However, the company had to shut shop last year as it wasn’t able to create a market for itself.
“Clear leaders will continue to see strong investor interest with possible consolidation in the crowded verticals,” said Rohan Dedhia from Orios Venture Partners.