On-demand grocery delivery service PepperTap will shutter its consumer facing business in a month’s time, diverting efforts to growing its e-commerce logistics arm. The shutdown comes at a time when investors have begun to question the viability of on-demand businesses, given their poor unit economics and high costs of customer acquisition.
Navneet Singh, CEO of PepperTap, confirmed to online magazine YourStory that the service would shut its doors to customers in the next one month, but did not give details. “Our foray into full stack logistics space is a well-pondered decision,” Singh told YourStory over a phone call.
The company’s model revolves around curating thousands of products on its website and apps. When an order is placed, it picks up the product from an offline grocer before delivering it to the customer’s doorstep.
PepperTap, which raised $40 million in September, is the smallest among rivals Grofers ($164 mn) and BigBasket ($236 mn) in terms of money it has been able to raise. Experts and industry watchers have maintained that given the high cash burns in the on-demand sector, better-funded companies will eventually win out.
US e-commerce giant Amazon, too, has brought its ‘Amazon Fresh’ model of grocery delivery to India in the form of Kirana Now. The service which was piloted in the city of Bengaluru will work with small mom-and-pop stores as well as large supermarket chains to fulfil deliveries.
While the entry of large players could scare off smaller firms, India’s largest e-commerce marketplace Flipkart, along with on-demand taxi hailing company Ola, have marked their exits from the grocery delivery space. Both companies ran pilots as Flipkart Nearby and Ola Store, but have now closed those services.
Nuvoex Logistics Pvt. Ltd., the parent company of PepperTap, already runs a reverse logistics service for e-commerce marketplaces in the country. It will expand this arm of the business to become a full-stack player, taking on the likes of Delhivery, Flipkart’s logistics arm Ekart and Snapdeal-backed GoJavas.
B2B (business to business) logistics is considered to be a safer bet than on-demand grocery or food delivery, since the cost of customer acquisition doesn’t weigh down balance sheets and growth of e-commerce ensures demand is strong.
In some ways, the writing had been on the walls for PepperTap, with the company scaling back its operations in six cities – Ahmedabad, Chandigarh, Mumbai, Kolkata, Chennai and Jaipur – in February. The Gurgaon-based firm also laid off close to 400 delivery agents employed in these cities.
Grofers, which has raised close to $164 million, also shut its operations in Ludhiana, Bhopal, Kochi, Coimbatore and Visakhapatnam earlier this year. There have been several casualties in the on-demand food-delivery space too, which faces similar issues of high-cost, low-yield as the grocery delivery industry.
Globally, too, the viability of on-demand businesses is being questioned. Instacart, an on-demand grocery delivery service in the US (around which Grofers, PepperTap and BigBasket are modeled) has increased its delivery costs up to $10. On-demand services first cropped up on the back of providing seamless service, at lower costs due to the use of technology, however, that promise is now being broken.