Ambitious new startup PepperTap wants to become the Instacart of India. Armed with $1.2 million in seed funding from Sequoia Capital, PepperTap already operates in Gurgaon and will expand to new cities starting this month.
It faces the challenge of India’s maximum retail price laws, which means that it cannot charge a premium for goods like Instacart does. Founder Navneet Singh, however, hopes that his background in logistics will help PepperTap make money in an industry where margins are notoriously slim.
Before launching PepperTap, Singh founded Nuvoex, a logistics company that provides delivery services for e-commerce giants Snapdeal, Flipkart, and Jabong. Singh says his experience helped him develop and streamline PepperTap’s delivery process to make it as cost-efficient as possible. The company plans to stick with groceries only, instead of adding other verticals like Grofers, another on-demand service backed by Sequoia, which makes handling logistics and working with new merchants much easier.
PepperTap will expand to Delhi and Noida this March and be present in Bangalore, Hyderabad, Pune, and Mumbai by the end of this year.
(Grofers is also based in Gurgaon. PepperTap founder Navneet Singh says this is a coincidence, but Gurgaon offers opportunities for their kind of business because it is a financial and business hub with many office workers who are used to buying items online.)
PepperTap does not keep its own inventory and instead focuses on facilitating orders and deliveries, which it promises within two hours. This helps it compete with more established grocery delivery services, like Big Basket and Localbanya.
“We don’t want to go the inventory model, like Big Basket. They have their own warehouse, so they have to pay a high fixed cost of running the warehouses, the capital needs of buying inventory, and the logistics cost is also higher because you have to keep running vans,” says Singh.
Singh says it takes about one week to add a store to PepperTap after an agreement is signed. Though they are smaller than top-level chains like Big Bazaar or Reliance Fresh, the stores PepperTap work with still have their own inventory data, which speeds up backend consolidation so the company can monitor stock in real-time.
“In our case, you are basically building an asset-light model, where we have customer centers, which are the stores that we pair with. These are not mom-and-pop stores, but they are stores that are relatively organized so there is enough range to satisfy a normal household’s needs.”
Another challenge is training delivery staff. India’s smartphone penetration rate is growing quickly, but still low, so PepperTap subsidizes the purchase of devices for new hires and train them to use the company’s backend apps. Most deliveries are made on scooters or bicycles.
Instead of passing delivery costs onto customers, the company charges stores a commission on each transaction. It also works with smaller chains that only operate three or four stores in a city. The benefit PepperTap offers them is increasing the number of customers they can reach without having to invest a lot of money in setting up new locations. This in turn allows them to compete with companies like Big Basket and LocalBanya.
“These guys are selling in a very small catchment area. The customers they are serving are people who can come into stores and buy. We expand the catchment area with our logistics. We can add a lot more areas and funnel orders coming from these areas to retailers. We take a cut from that, but they get more customers and more revenue,” says Singh.