CityBiz: Hyperlocal start-ups raise millions

But even as investors continued to pour in money, there are growing challenges for many firms in this space: increasing competition is forcing companies to raise discounts and burn cash. They are facing increased costs and an inability to cut them because of lack of scale — companies typically operate on wafer thin margins in the retail business — there is still a question of what the correct business model is, should you hold inventory, or just aggregate orders.

This has led to a shakedown in the market. City-based LocalBanya has shut shop since October; its website says it is under renovation. Godrej Nature’s Basket acquired Ekstop, another online grocer. Similarly, Helpchat acquired Mumbai-based Niffler last year. If companies aren’t closing down or are being acquired, then they are certainly pruning their operations. Grofers scaled back and will no longer deliver in nine cities. TinyOwl and Zomato had to lay off employees.

What does this mean for online buyers in Mumbai? Expect consolidation in this sector this year. In other words, fewer startups and shuttering of operations by some others. While some private equity investors continued to aggressively invest in this space, they are likely to call for a focus on profitability.