DailyNinja merges with BigBasket due to shortage of funds

Shortage of funds makes hyper local marts to eye merger with competitors as availability of large sums of capital to scale independently becomes a challenge.

"The smaller milk and grocery delivery startups are finding it challenging to independently scale without significant equity funding and there is likely to be continued consolidation in the space," said Ankur Pahwa, Partner and Consumer Internet Leader at EY India.

The talks come as DailyNinja which was trying to raise funds for growth for over six months has faced challenges in those efforts, said a source. Dailyninja could be sold for about Rs 100 crore, the person added.

For larger entrenched incumbents in the hyperlocal delivery space, these milk-delivery startups are attractive as they offer customer stickiness that comes with the daily delivery of essentials like milk.

Startups engaged in the milk delivery business such as Milkbasket and Dailyninja see as many as 80,000-90,000 orders a day, indicating their need and popularity.

However, the challenge of competing with mature and well funded rivals such as BigBasket, Grofers, Flipkart and Amazon makes it a low-margin and competitive business.

Consolidation in the sector also stems from the proposed entry of Flipkart and Amazon, which have the ability to sustain long periods of cash burn to dominate the market.

"Hyperlocal delivery has also matured with a number of large e-commerce as also food tech players who have deep pockets and a strong logistics network. So the smaller players are finding it difficult to sustain the business. Unless they can add a greater share of private labels and increase average order values, economics are difficult to achieve," said EY’s Pahwa.