Peppertap was a pioneer in the hyper-local grocery delivery
space in India. By October 2015, they were one of the top 3 grocery delivery
companies in India, doing slightly more than 20,000 orders per day. It just
announced a few days back that it is closing down.
One of the biggest reasons for its closure was the negative
unit economics the business model faced. In India, discounting has been the
most commonly used tool by startups to attract customers. Peppertap was also using
the lure of cheaper prices to attract customers. Also the committed delivery
time (of less than 2 hours) meant that company was having to spend money to
create spare capacity in its logistics and supply chain. This too had a significant
cost.
The startup was effectively bearing a big loss on every sale
owing to discounts and the logistics costs. Since this loss was not visibly
looking to come down drastically even in the longer term, the founders decided
to close the startup.
Advice – A startup
can bear negative unit economics in the short term. However in the longer term,
positive unit economics are a must for the business to sustain.
No comments:
Post a Comment
What do you have to say about this post?