Is the Hyperlocal Model Fundamentally Flawed?

There are about 50+ startups in India, which are offering hyperlocal services (or what is being called Offline to Online O2O) – connecting online shoppers to brick and mortar retailers. They vary in the segments that they are addressing, with grocery and daily needs being the most popular ones.

One thing which is common across all these hyperlocal startups is the process followed – they put your inventory online; make the purchase happen from their portal or app; pick-up goods from the retailers shop; and deliver to the end customer. The retailer doesn’t have any visibility on the end customer. They just receive a blind order, the packaged goods are thereafter picked up by the delivery boy, to be delivered to the right customer.

Is this model good for brick-and-mortar retail? In the short run, it may seem so as you can get some additional orders from people who shop online, but what about the long run? If you are not interested in providing a customer experience, gaining trust via human interaction and building loyalty, why are you running a retail outlet in the first place? Why are you paying rentals for a premium location and spending zillions on interior decor and training sales staff? You should pack-up and set-up a warehouse in some dingy godown and just package goods as per orders received online!

I hope you can see where it is heading. With no relationship with the customer, you have lost all your identity and differentiation. Your business gets totally commoditized. You can play only on margins and the person who has scale or is capable of running a sweat shop, to cut costs, wins. You relegate yourself and your children to the bottom of the retail pyramid, with a constant struggle for margins and playing at the mercy of the on-line aggregator. If this online partners turns into a foe and demands a piece of your cake, you are left with no option but to shell it as you have lost all capability to secure a customer based on your strengths.

If the retailers want to get business from online shoppers, they have to offer something that pulls these online shoppers to their store. Create more footfalls by adding the online community to your regular shoppers. Not the other way round, wherein you lose your regular customers also to the faceless online world! This is what is happening with the hyperlocal offering today.

One of the alternatives could be a situation where the offline retailer may try and pull the online customer. The customer then, gets the best of both worlds. There are certain applications running in the market which connects an online shopper to the store and generates additional footfalls. It helps in retaining store’s identity and build upon the existing customer loyalty, instead of taking away the loyal customer.