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Mumbai-based online grocery startup, Localbanya.com, has temporarily suspended operations as the company gears for a technology and services upgradation, reports Livemint.

In a statement on its website, the company said, “Your banya is upgrading his technology and services. We will be back shortly with more exciting features and a far better delivery experience. We can’t wait for you to experience the new and improved Localbanya”.

Rumours are rife that the company is that it was strapped for cash and might downsize its workforce as well. As per a report in ET, however, Localbanya has rejected this speculation maintaining that staff attrition was not unique to it. However, it being stated several Localbanya employees are looking for jobs with salaries not having been paid for the past two months. Nayan Choudhury is said to have quit as vice president, trading, commercial and operations, which could not be verified. The Facebook page of the company also had several consumer complaints posted recently about orders not delivered.

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Localbanya started operations three years ago and is present in Mumbai and Navi Mumbai, Pune, Hyderabad, the National Capital Region and Ghaziabad.The company was co-founded by Karan Mehrotra, Rashi Choudhary and Amit Naik has been trying to raise around $15-20 Mn for the last few months. The last round it raised was led by Shrem Strategies in late 2014.

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Hyperlocal businesses operate on thin margins and struggle to compete in a space that is increasingly getting crowded in recent times.  Hence, constant funds are required, given the fact that logistics and consumer promotion account for a significant cost for the online grocers. Players in this segment have been aggressively raising funds this year.

According to startup industry tracker Tracxn, nearly 25 grocery delivery companies in India have cumulatively raised over $160 million in the last 10 months. BigBasket.com reportedly raised $50 Mn (about INR 315 Cr) in its new round of funding led by its existing investor, Bessemer Venture Partners this August, while Grofers raised $35 Mn in April this year. Another player PepperTap raised $36 Mn from e-commerce firm Snapdeal and existing investors Sequoia India and SAIF Partners.

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The hyperlocal space is getting more and more competitive with many new players entering the segment. Even brick-and-mortar chains like Reliance Retail and Spencer’s Retail are planning to enter. Ecommerce marketplaces such as Amazon and Flipkart are also eyeing the space. Flipkart has entered this space with launch of Flipkart Nearby. Presently, the app caters to only a few areas of Bangalore. Amazon launched an express delivery platform for grocery called KiranaNow this March in partnership with mom-and-pop stores, which will presently run as a pilot project on the mobile platform in some areas of Bangalore.

Similarly, Alibaba backed, One97′s flagship brand, Paytm has also launched a new app called Paytm Zip to connect users to both local offline as well as online grocers. On-demand taxi hailing cab Ola, which had started with food delivery with the launch of Ola Cafe, is also entering this space.

Nitan Chatwal, Promoter of Shrem Strategies & Investor in LocalBanya had earlier stated,The online grocery market is set to grow very rapidly in India over the coming years. Making a great investment decision involves various factors of which potential scale and timing are key.”

As per retail consultancy Technopak, The retail market in India is expected to hit $725 Bn (about INR 43 lakh Cr) by 2017. India is the 6th largest grocery market in the world, and the online grocery market is growing at 25-30% annually in metropolitan areas and large cities. However, margins are below 10% and with the overcrowding of players, the sector looks rife for consolidation. Besides, the industry infrastructure is also a challenge as only 5% to 8% of all grocery stores in the country are organized corporations or entities. Hence, it’s a challenge for companies to get local “mom and pop” or kirana stores on board due to existing gaps in technology and integration.

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