Hyperlocal delivery startup PepperTap shuts operations in 10 cities.
Mumbai/Bengaluru | By Samidha Sharma & Digbijay Mishra, TNN | 9 Feb, 2016, 03.31 PM IST.
The hyperlocal delivery space continues to beset with problems. This time, it's PepperTap, the grocery delivery app which is shutting down operations in ten locations including metros like Mumbai, Chennai and Kolkata. Backed by online retailer Snapdeal and venture fund Sequoia Capital, PepperTap will continue operations in eight cities and suburbs out of the 18 it was present in.
The move by PepperTap is aimed at cutting costs in the middle of a fund squeeze that has hit crowded sectors like hyperlocal and food delivery which saw many 'me-too' ventures spring up last year.
PepperTap's co-founder and CEO Navneet Singh confirmed the closure of its operations across cities to TOI. A big chunk of PepperTap's workforce, its delivery fleet, Singh said was on contract and who have been let go in cities where it has shuttered operations. TOI could not ascertain the exact number of layoffs. PepperTap had 2,500 employees — a mix of contract and permanent staff — according to previous reports.
"Even though PepperTap has been able to establish itself as a leading hyperlocal grocery delivery service over the last one year, 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," Singh told TOI.
PepperTap will continue to operate in Delhi, Gurgaon, Noida, Hyderabad, Pune, Ghaziabad, Faridabad and Bangalore which, Singh said, contribute as much as 70% of revenues. PepperTap had plans to expand into 75 cities when it announced its $36-million raise last year led by Snapdeal.
TOI has also learnt that amid all the restructuring at PepperTap, the Gurgaon-based startup has held initial talks to sell its business, which Singh refuted vehemently. Singh and Milind Sharma co-founded PepperTap in November 2014.
Last year saw the rise of hyperlocal delivery players when a crush of ventures came up with little or no differentiation and managed to rope in capital. The tide turned over the last few months with investor appetite around the sector slowing down considerably and many of these players undertaking major changes to their business models. All of this comes in the backdrop of e-commerce majors like Amazon stepping on the gas and launching separate verticals for hyperlocal grocery delivery.
Earlier, SoftBank-backed Grofers withdrew from nine cities saying non-metros and smaller markets did not contribute significantly to revenues. Having raised $120 million led by SoftBank, Grofers is now operational in 17 cities while BigBasket, the other big player in the market, covers 16 cities according to its website.
In October 2015, PepperTap said it was in talks to raise an additional $20 million from a US investor besides the $36 million it had announced then. However, the on-demand delivery firm only managed $4 million in venture debt from Innoven Capital. In total, it scooped up $51 million from investors like Sequoia Capital and SAIF Partners, among others.
For grocery and household products in particular, fulfillment of orders without the support of an inventory-led model has emerged as a big challenge for most of these hyperlocal players like PepperTap.
"The dynamics of grocery delivery business are completely different from any other online business as it is extremely local in nature. One model may click in a particular city but it may not see desired results in another city. Therefore, it's better to have operations in less number of cities than burn cash by expanding aggressively without having the bandwidth of backing it with enough capital," an investor who did not want to be named said.