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January 12, 2016

What does Foodtech & Hyperlocal Cos Giving Up on Tier II Cities mean?

One by one, well funded players in the foodtech and hyperlocal sectors - including leaders Zomato and Grofers - are announcing closing down of their operation in Tier II cities.

The withdrawal reminds one of the early days (2006 - 2008) of Private Equity Investing in Real Estate when PE-RE firms had spread out beyond the metros to invest in cities like Jodhpur, Kochi, Jaipur, Nagpur, Nashik, Mysore, Indore and Vishakhapatnam. The stats highlighting the boom across Tier II & Tier III towns were, of course, supporting.  But, come financial crisis, PE-RE investors turned allergic to Tier II and started to explicitly state that they would henceforth focus on Tier I markets only.

Does the Zomato and Grofers experience mean that the "pent up demand in small town India" phenomenon that works for big guys like Flipkart and Snapdeal, will not work for food and local delivery? At least until the road traffic in these cities and towns does not make going out to eat or to pick up groceries painful enough?

Share your views on the comments thread (on LinkedIn).

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