Hyper Local or Local Hype? ...a look through the inventory lens

For some investors I knew, Hyper-Local was always pronounced Hype-Local since the 'r' for revenue was missing. How on earth, they say, will anyone make money just delivering stuff at no margin while overpaying delivery boys and doling out coupons? I'm sure we've all done our doomsday reading on Food-Tech, e-Grocery, Home-Improvement and Local Logistics, and probably Hyper Local too. The aim of this post isn't naming all the many startups in trouble but to figure out why.

Some people ask if the early death of such ventures is a bad thing at all. A lot of startups and investors I know are celebrating the separation of the chaff from the wheat. Many food-tech startups, for them, had no 'tech' in them. They were helping people do on an app what they used to do on a phone call, e.g. explore menu options or order food. Many on-demand local-logistics people were just overpaying drivers and under-charging merchants in the hope their inflated orders are seen as traction by their investors. Grocery, similarly, is a tough game with notoriously thin margins. It took Ocado 15 years to deliver the first year of profits. Service aggregation has its own problems that prevent every business from becoming the oft-touted Uber-of-XYZ.

So, getting back to the point, what's the deal about Hyper-Local?

Let me make a very basic point. Inventory can be classified in many ways but a useful classification is on the scarcity axis, which translates into premium chargeable. One can have the following kinds of inventory on this logic:

• not-found elsewhere including rare, private-labels and exclusive inventory

• hard-to-find or hard-to-get elsewhere

• better-priced / faster delivery than elsewhere

• commodity inventory

Most delivery startups (sorry, hyper-local is what I meant) are just playing the third or fourth bucket, with a very thin reason-to-believe that they'll transit to the first two. What that means is that customers will use a provider today as long as no premiums are charged, and the moment that changes, the customers will just delete the app and revert to their default behavior (of ordering on phone, informal credit, month-end-billing etc) as will retailers (more on an earlier article by me), and the investor will be left high-and-dry while entrepreneurs will leave with small packets of moneys paid to themselves and good credentials to get another business funded. 

The last two buckets are red oceans. Even if one has an edge today, the slope will stay slippery. even if one goes directly to sub-distributors or the local wholesale market as these startups do, the advantage is a very small percentage.

Secondly, the true brand customers buy is a 'Maggi' or 'Amul Butter' (destination) and not a Grofers or Peppertap (journey). Most hyperlocal businesses are building for destination loyalty (read: apps) in a world of price-sensitive pre-planned purchases. Once users feel they're not getting a price advantage, they'll get antsy - they'll first disable notifications, and then delete the app altogether. The fact that one gets a branded carrybag from a deliveryman wearing a branded Tshirt isn't going to make anyone loyal. The fact that these guys turn up late with orders mixed up and frequently without change is just a further irritant.

The nemesis of hyperlocal isn't a supermarket or large mall or even a visit to the local kirana shop - the nemesis of hyperlocal is phone-ordering from a nearby kirana guy who knows you by name, prioritizes your order, doesn't mix up orders since he's in the trade for the last thirty years. It's a business that underpays its unorganized labor and doesn't give them T-Shirts and keeps them on their toes, that underweighs and doesn't pay all taxes and uses every trick in the trade to steal your pennies and yet make you feel great. And, remember, these businesses are strongly cash positive - so much so that they may not even know what valuation means, or even a P&L - they only understand cash.

Bottomline, the litmus test of hyperlocal in its present form shall be when the discount moneys get throttled. For then, the true-convenience buyers will remain. It will still be a sizable market, but maybe not as infinite as it is projected to be today. If there is a better source of inventory somewhere in the market, hyperlocal shall provide it consumer access. If there is better inventory that customers don't know about, hyperlocal can address that gap. Eventually, determinants of success shall include easy-to-use powerful technologies, control on product and service quality and the final challenge of jumping orbit to the first two buckets of unique or hard-to-find inventory.

[previously published in ET Retail on Dec 24, 2015]

What constitutes "good" inventory?

Is "good" inventory a lot of things to sell? In a marketplace context, we often speak of one platform having better inventory than the other. Please correct me if I'm wrong, but this is often a statement that comes out of an inside-out view. Let me try and explain. 

My usual method to feel the elephant in the room, regular readers know by now, is to ask questions. So, when we say a platform has good inventory, do the customers also say that? Is buyer-feedback good enough on this topic or is non-buyer feedback equally if-not-more important? Let's take an example of shirts. If you have a million shirts and none in my size, do you have good inventory? If you have a million in my size but none that I like? What if you have a thousand that I like in my size and like the ones I like, and I'm not able to find them using your search and browse? What if I find what I need but I don't like the price or terms of delivery? Feel the elephant? Isn't it bigger than we imagined? The end of all these paths is no sale. 

But like they say, no two silences are the same since both could be the absence of a different word.

Let's get the basics out of the way. Having a lot of products to sell, on the shelves, is not a guarantee to a perception of good inventory. Second basic, the perception we just mentioned, is reality. There is no other sense of 'good' or 'bad' inventory. Third, all enablers we keep worrying about - having the right sellers or suppliers on-board, getting them to list everything they can - are all just that - enablers, and the customer doesn't think of those as inventory. 

Consumer in, the first thing to build would be Demand. If the consumer doesn't want it, or is not aware that the category exists on your platform, why even bother? The second could be findability. Through browse or search, the consumer must be able to find or discover the product. The third bit could be decision-tools if needed (spec-compare, shade-match, size-converter etc) along with the completeness of range (could mean SKU coverage for standard cataloged products and width otherwise). Then there is the catalog itself, or listing quality if the category is uncatalogued - often a stumbling block for marketplaces. And the picture still isn't complete without the all-important wrappers of price, payment and delivery terms. If all matches, and these don't, it is still, after all the effort, not a sale. 

Before we link a perception of bad inventory to bad sourcing, therefore, we should check for where the funnel is broken. It is possible for customers to, rightfully, feel you have bad inventory for more reasons than that.