The hype around hyperlocal retail

This is an AI-generated image created by Midjourney

We recently evaluated some companies providing automated solutions in the hyperlocal grocery space. As part of this evaluation, we visited several mom-and-pop stores across different product categories and captured some on-ground perspectives of these local shop owners, especially as they now compete with the Amazons and the Flipkarts of the world. 

We talked to shop owners operating in the following categories –

• Mini marts with FMCG

• Fruit / vegetable sellers

• Pharmacies

• Toys + Stationery

• Crockery

• Footwear

• Salons (local and franchises)

• Dry cleaner (local and franchises)

• Mobile shop

• Electronics (fridge, washing machine, etc)

Our learnings

Impact of Amazon, Flipkart, and other large e-commerce players

• Everyone acknowledges that online players have taken away business for them – the extent of it depends on the category

• In a few categories, offline shops can offer better prices or a newer version of the product (electronics, fruits). With others, they cannot compete with online pricing (medicines, crockery)

• Few tried listing as a seller on e-commerce websites but underwent a poor experience. They received damaged products in returns and experienced long waiting periods for payouts from the platform

Purchase behavior at these small stores

• A large portion of daily sales is through walk-ins. With larger ticket items (say a washing machine), people visit a couple of time to enquire before purchasing

• A meaningful portion of buyers do place orders by calling or texting on WhatsApp – either they ask for delivery or the order to be ready for pick-up

Customer experience at these stores

• They are prepared to offer some discounts from their end to the customer (price matching with online products depends on the product category)

• Focus on building the relationship and offering great service – better returns & exchanges, ordering specific items from distributors / other shops on request

• Try to deliver within 30-60 mins; offering free delivery within a certain radius and/or with a minimum order value are quite standard

Usual advertising methods

• Their packing bags are branded with the store’s logo and contact information

• They give out visiting cards or fliers to walk-in customers and actively push discounts

• They also distribute these fliers through newspapers in the small radius of their stores

• They place their fliers or banners in the residential societies close to their stores

• Run Whatsapp groups or broadcast lists to share information / offers with existing customers

These small shop owners have mastered sales and customer service – no large retailers or marketplaces can match them in terms of offering a better customer experience. Further, they are okay with going the extra mile (regular offers, delivery, replacement, returns, services) for the customers in their area as it ensures repeat orders.

However, small shops are limited by 

(a) the number of SKUs they can stock (large retailers / online marketplaces carry a much higher number of SKUs across different categories) and 

(b) the margins they operate with. 

Deep discounting to acquire customers is a concept relegated to internet platforms. These small shop owners are looking for a support system through which they can compete with the larger players. Amazon or Flipkart aren’t the answer – their economics and terms are at odds with what’s viable for smaller shops. The economics of online marketplaces only make sense when a brand directly sells on them. Further, we’ve observed that while marketplaces used sellers to initially build supply, they’ve largely shifted focus to large sellers and private labels as their customer base grew.

So, small shops are essentially looking for just one thing – higher sales. Volume seems to be the name of the game and they are prepared to pay for marketing to more customers. With the high penetration of these online marketplaces in these Tier 1 city households, they are searching for infrastructure that allows them to directly sell to consumers online. Whether or not India’s public digital infrastructure will offer a holistic solution for these mom-and-pop shops is a question that remains yet to be answered.