New Delhi: Snapdeal-backed PepperTap has decided to shut down its cash-burning grocery delivery
operations and instead focus on expanding its logistics business. Citing issues like high customer acquisition costs and poor app integration with partner stores, PepperTap CEO Navneet Singh said the company was "losing cash on every order" and has decided to "preserve a large amount of the investor capital" than "be at the bottom of the abyss".
"We couldn't shake off the feeling that we were walking (not racing like some other companies) towards the edge of a cliff hoping that things will get better before we reach the abyss... The unique challenges of this business are not solvable in the short term and certainly not solvable without massive injections of capital. We would have to confront this issue sooner or later," Singh said.
PepperTap, which is controlled by Nuvo Logistics, has raised USD 40 million so far and counts e-commerce major Snapdeal, Sequoia India, SAIF Partners, Ru-Net, Beenext and JAFCO Asia among its investors. Last year, it had also acquired Bengaluru-based delivery startup Jiffstore for an undisclosed amount.
When contacted, a Snapdeal spokesperson declined to comment on the matter.
The decision to shut operations will result in about 150 job losses. "We have about 200 people. While about 50 are being absorbed in the logistics business, we will have to let go of the others. We are offering compensation packages with upto three months of salary depending on the seniority and tenure of the employee," he said.
The company will now focus on expanding the logistics business. "We are already working with many e-commerce firms and have a strong reverse logistics operations. In the next few months, we will focus on strengthening our forward logistics," Singh said.
Nuvo has a presence in 32 cities in the country and works with e-commerce players like Snapdeal, Patym and Shopclues.
According to industry analysts, hyperlocal delivery startups like PepperTap, BigBasket and Grofers have been
feeling the heat of a slowdown in investment as they operate on wafer-thin margins and end up losing money on every delivery.
PepperTap was already scaling down operations in certain cities. "The most logical thing to do to solve all three of these problems simultaneously, was to halt operations in some cities. We decided on this list by looking at the size of our customer base in each city, and the pain we would cause to all stakeholders by shutting them down. Relatively new cities with a small customer base were selected for closure," he said.
In a blog, Singh said described his journey as "a roller-coaster with ups and downs in equal measure".
Set up in September 2014, the company was processing about 20,000 orders on an average daily by October 2015 and was the "only business in town to be operating on a 100 per cent inventory-less model".
"We were going to revolutionise grocery shopping. No more queues, no more parking hassles, no more bickering with sabzi-wallahs. We would bring the existing inventory of local stores online to our app and then deliver customer orders through our super-optimal, well-trained delivery fleet for a minimal charge," Singh said in the blog. He added that customers also seemed to love the app with local stores on its platform witnessing improving sales by an average of 30-40 per cent.
"In the race to pepper the whole country with PepperTap, we had brought too many stores online far too quickly.... To keep enticing customers to buy from our platform, we were spending a lot of time and energy to devise clever sales and discount schemes... This was not hugely problematic in itself, we had money in the bank and investors were on board with this plan," Singh wrote. However, the "harshness of a pessimistic funding environment globally also started creeping in", which Singh said found the company at "the toughest node in the decision tree yet".
"At this point, we were forced to ask ourselves whether our continuing to operate in the grocery delivery space was
not, in fact, doing a massive disservice to our current investors and employees," he added.