All Failed Startup Stories
PepperTap

PepperTap

Food & Bevarage

General Information

Industry Food & Bevarage Country India Started in 2014

Failure

Outcome Shut Down Cause Lack of vision and focus Closed in 2016

People

Employees 0-25

Funding

Funding Rounds 4 Funding Raised $51 Million Investors 8

What was PepperTap?

PepperTap was once India's 3rd biggest online grocery delivery service.

Milind Sharma and Navneet Singh, both IIM graduates, founded PepperTap in Gurugram in 2014 with the objective to transform the grocery delivery industry.

The idea was born when Navneet’s wife asked him to accompany her for grocery shopping. But, all Navneet wished for was someone to deliver the long list of items at his doorstep, maybe in a couple of hours. So, Navneet decided to start up based on this idea.

After a quick analysis, the duo realised that they were on to something big.

The timing was also great. By 2014, the internet was becoming accessible to almost everyone in India. So, it was only a matter of time before the convenience of buying groceries online via the internet would enter the scene.

But, how did PepperTap operate?

PepperTap's Business Model

PepperTap’s business model was quite straightforward and simple.

It basically operated as an intermediary between local grocery stores and households. Their role was limited to getting orders from customers and delivering the product to them within 2 hours.

They operated on a 100% inventory-less model. So, they were holding no products in inventory for quick delivery. They also were hyper-local. Meaning, their logistics model divided cities into zones. And, each zone had a few retail shops servicing their products to PepperTap.

Customers could find a variety of options at discounted prices at zero-delivery costs. And, for retailers, the main selling point was the opportunity to reach a wider customer base through PepperTap’s technology.

PepperTap would then earn a 20% commission on each order they bring to the retailer.

So, PepperTap was a mix between today’s quick delivery and Dukan-tech startups.

So, how was PepperTap received?

Grocery delivery was the new startup craze back in 2014. Grofers, BigBasket, PepperTap, and Local Baniyas were all eager to win over the grocery delivery space.

Investors were also bullish on the market. And, eagerly bought into the "disruptive" potential of PepperTap.

Within just one year, they went on from seed funding to two series B rounds and raised a whopping 51.2 million USD![1] Among the notable investors was the then e-commerce giant Snapdeal backed by Alibaba. In 2015, PepperTap raised $36M from Snapdeal and other VCs.

With such massive funding and in an attempt to scale up quickly, the founders went above and beyond. By the end of 2015, they were already present in 25 cities. PepperTap delivered almost 20,000 orders on a daily basis.[2]

After becoming India’s third largest grocery service, it even acquired Jiffstore, a Bangalore-based grocery delivery company for an undisclosed amount. PepperTap soon grew to a 2500-membered team.[3]

On the surface, PepperTap was aggressively expanding into different cities. Giving the impression that it had endless amounts of funds at its disposal. With their seemingly confident demeanour, you’d never guess the ultimate outcome of this startup.

But, what happened to PepperTap?

PepperTap’s idea was to create a comfortable online grocery shopping experience and get paid for the convenience offered. Although the vision was promising, the founders opted for an unsustainable mode to scale up.

While PepperTap scaled its GMV (Gross Merchandise Value) quickly, they were drowning in heavy losses right from the start.

After the aggressive expansion, they had to embarrassingly roll back all their efforts. PepperTap halted operations in 10 cities including Mumbai, Chennai, and Kolkata. It also had to undergo multiple rounds of layoffs.

Finally, in April 2016, they had to shut down for good.

PepperTap is a classic example of 'scaling too fast without building a sustainable business and eventually failing'.

Why exactly did PepperTap fail?

Despite being the brainchild of two IIM alumni and raising hefty funds within a short period of time, PepperTap's closure had been a long time coming.

Let’s look at the reasons for its quick crash.

1. Scaling too quickly without making profits

The core reason for PepperTap’s failure is its hyper-growth model.

When startups launch a service in the market, it is always good to capture the response and feedback of its audience before expanding to other markets. One reason why hyper growth at all costs is a no-no is the fact that it doesn’t allow you to understand:

  1. the needs & behaviour of your customer
  2. what solution would best serve those needs
  3. and, all the friction points in your current solution

If the focus is to win a particular area first, all your resources can be dedicated to solving the bottlenecks that occur. This would hopefully lead to a complete solution that is also a sustainable business. But, PepperTap didn’t do that.

When the startup was launched, it started small, operating only in Delhi. But, in a very short time, it set up its operations in 17 cities in one go. They scaled to 25 cities in one year and tried scaling to other smaller cities also with pilot campaigns.

The move to tier 2 tier 3 cities proved unwise, as those locations were not profitable. So, all the money spent on expanding was a complete waste during that time.

In the end, the mindset of ‘scaling quickly without worrying about profits’ brought its doom.

2. Heavy discounts, cash burn and an unsustainable business model

PepperTap relied heavily on discounts. Instead of focusing on the quality of products or services, their sole focus was discounting.

They offered discounts as high as 50% burning investor money in the process. What added fuel to the fire was their strategy to offer a no-cost delivery service.

PepperTap also operated on a 100% inventory-less model. This meant that they had to onboard all the products at the MRP from the local stores. So, there was barely any room for them to make any profits.

To summarize the impact of these decisions, let’s take an example.

Assume the order size of product X is INR 200.

  1. PepperTap would sell products on MRP ⇒ Order cost = INR 200
  2. They were hoping to make a 20% commission on each order ⇒ Commissions gained = 20% of INR 200 = INR 40
  3. But, they provided discounts as high as 50% ⇒ Discounts = 50% of INR 200 = INR 100
  4. They didn’t charge any delivery fee, so they didn’t make any money but their logistics cost went up to 35% of their order value ⇒ 35% of INR 200 = INR 70

So, the net loss on each delivery = INR 40 - INR 100 - INR 70 = -INR 130!

Extrapolating this to 20,000 orders a day, we get ⇒ INR 130 x 20,000 = INR 26,00,000

That’s a daily cash burn of INR 26,00,000 or INR 26 lakh.

3. Ignoring technical glitches

In addition to all the other problems, they also had to bear the costs incurred from the technological and operational processes.

Given the high volume of orders in a day, shopkeepers had to update their inventories on the app at least 2-3 times a day to ensure the availability of items. This was a tough ask from non-tech-savvy shopkeepers who found the user interface complex.

Website and app glitches aren’t completely negotiable even for other giants in the internet business. Similarly, at times, the platform did not allow consumers to see all the items listed due to technical glitches and bugs. Such repetitive experiences stirred customer dissatisfaction.

Instead of addressing the issues at hand, PepperTap focused on adding new stores to the platform. This move proved to be fatal.

4. No quality checks

PepperTap sourced groceries from local stores and delivered them based on the orders received. It merely acted as a mediator.

Now, PepperTap had no checks to ensure the quality of products delivered and relied entirely only on the local stores.

Naturally, there were multiple instances where consumers received poor-quality products and had a sub-par experience.

5. Quick grocery delivery is NOT really a burning need

Multiple reports suggest that the total addressable market or TAM for quick grocery delivery is in millions ($300M in 2022) and growing to billions ($5.5B by 2026). But, we still have no working quick grocery delivery model that is profitable and sustainable.

You see, in India, people don't mind going to a store and buying groceries. Getting groceries delivered at your doorstep is more of a luxury.

The only reason why people use grocery delivery apps is to avail the discounts or in case of an emergency.

Now, the main play of these startups was to provide discounts till the users are hooked forever on the convenience of these apps and then roll back the discounts. But, that may not happen at all, especially when the local store is a mere 5-min walk away.

So, what do we learn?

In 2016, the chaos finally hit the fan and PepperTap started to let go of its employees. One of the employees came forward and mentioned to a journalist that PepperTap’s hyper-growth model was a result of incredible pressure from their investors.[5]

PepprTap was eager to make money in the grocery delivery space and compete with Grofers and BigBasket. Seeing the 2 other startups give heavy discounts and aggressively grow, investors pushed PepperTap to do the same.

Initially, they were only planning to expand to 2 cities apart from their home city, Delhi. But that was not enough. As the investor pressure came in, the strategy changed. In some cases, the startup even sacrificed its commissions to make its expansion quick and easy.

But, alas, quick and easy is not always good.

Lessons:

  1. When building a product, always think of building an MVP first. Launch a version of the product, get feedback, iterate & build on top of it.
  2. Fast, good or cheap - At any point, you can only get 2 out of these 3 right. A good quality product made quickly won't be cheap OR A cheap product made asap won't have great quality.
  3. Startups not only require you to learn, but ALSO un-learn all the lies popular media has told you about building it.
  4. All startups don't have to become unicorns. Buildd something that can give you the lifestyle you desire and the happiness you seek.
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