With the Indian ecommerce turf heating up like never before, everyone is wondering what’s next. Be it fashion, lifestyle, gadgets, toys or home decor, all categories have been catered to and the big guns of online shopping world like Flipkart, Snapdeal, Amazon, Jabong and Myntra already have a strong hold on these categories.
What appears to be the next prospect on which focus is gradually shifting is Online Grocery Industry. It is one such segment, which is yet to reach its full potential in India, but looks promising. Thus making it one of the new niche areas to flourish and gain substantial market share of Indian Ecommerce pie.
Can Online Grocery Shopping pick up in India?
Who would have thought that people would buy shoes, mobile phones, electronics, socks or clothes online without trying or touching them? But it is today’s reality, even though it looked like an impossible feat maybe 4-5 years back.
Same logic can be applied to e-groceries. 8- 10 years ago when super markets started sprouting in India, people believed that no one would ditch local kirana stores for fancy hypermarkets. But more and more local grocery shops are shutting down whereas supermarket outlets like Hypercity are making profits. What caused this shift is ‘Convenience’. And convenience is what exactly going to be the magic calling card for Online Grocery portals.
The e-retail market has reached its pinnacle of success and now it’s time for niche online grocery players to spread their wings. Around mid this year, while speaking to MoneyControl.com Ashish Jhalani, Founder of E-Tailing India had said: “We’re predicting that over the next few yrs, economy will grow at 52 percent CAGR (compound annual growth rate). We assume that niche players will grow at a much faster rate by about 60-65 percent CAGR. On the other hand, how much will they contribute; today they’re about 10-12 percent of e-retail. We assume they would be in that range but will grow to be 15 percent.”
Since Indian Ecommerce industry is all set to reach 90 billion USD by 2021, the e-grocery space will get a great opportunity to make the most of it along with other etailing verticals.
Convenience and Ease of Buying Groceries Online
Nikita, an HR consultant, who had signed up with Local Banya shares that she received a promotional mailer from them few days before her birthday. It suggested that she could order birthday party supplies and other groceries from them conveniently. Although she was all set to visit the nearest super market, the mail prompted her to quickly order drinks, snacks and other essentials online. “The convenience of not lugging a heavy shopping cart and avoiding long paying counter queues was a huge plus of ordering birthday party supplies online”, she added.
With increasing number of working professionals, traffic, time crunch and lure of getting things at doorstep, online grocery shopping sites are boon for people, especially in metro and other urban cities. This will definitely result in popularity of such ventures provided service is impeccable.
Local Banya, Ekstop, Bigbasket, Farm2Kitchen, Zopnow and Aaramshop are some of the current players in this ecommerce niche segment. Most of these players offer their services in major metro & urban cities and follow a marketplace model with few exceptions.
Local Banyais Mumbai based company, founded in May 2012. They are an online supermarket that operates across Mumbai, Thane and Navi Mumbai. Presently they serve over 10,000 homes a month and deliver 750-800 orders a day. Women, senior citizens and NRIs form their sizeable consumer base. They follow warehousing and just-in-time (JIT) procurement model and produce is sourced from FMCG companies, cash-and-carry outlets and other distributors.
Ekstop is again a Mumbai based company that caters to consumers from Mumbai, Thane and Navi Mumbai. They entered this segment a year before Local Banya in the year 2011 and their USP is express same day delivery. But unlike Local Banya, they follow a marketplace model and buy directly from manufacturers just like Bangalore based Bigbasket.
Bigbasket ranks high in the list of start-ups that sustained over the past few years in the online grocery shopping category. For a long time they were the only player that had venture capital funds, which helped them to survive on wafer thin margins. Currently they operate in Mumbai, Hyderabad & Bangalore.
Farm2Kitchen is another online portal that was founded in February 2011 and is based in Gurgaon. They sell certified organic grocery and deliver in 262 cities across India.
Bangalore based Zopnow, a 3-year-old company delivers in their base city only and has an impressive 3-hour delivery policy. Only three months back Zopnow tied up with Hypercity, which is a great step forward in amalgamating online and offline retail network. This strategic move is helping them a great deal to enhance customer shopping experience and expand their network.
Delhi based Aaramshop is a little different than other traditional ecommerce players. Though they follow a marketplace model but what sets them apart is that Aaramshop has collaborated with existing retailers and local kirana shops. This has enabled them to operate in multiple cities across India. While explaining their business model, Founder, Vijay Singh said, “AaramShop is a hybrid retail platform that enables the neighbourhood retailers to have a web-interface for their existing physical store for free.”
Key challenges in Online Grocery Business
- Fund raising is probably one of the biggest issues faced by business owners in this category. Many online start-ups in this niche had to shut down due to lack of funds. Low margins, high distribution costs and complex logistics add further to the woes.
- Groceries have low operating margins. Add to that sourcing, warehousing, shipping and delivery cost, the margins drop even lower.
- In order for such ventures to succeed, product differentiation plays a vital role. But there is little different about groceries except specialised products like International food, organic food, special beverages and gourmet food items.
- The high distribution costs of procuring grocery and delivering to customers with free shipping and delivery is tough. Ecommerce grocery start-ups have to bear twice the distribution cost as compared to physical supermarkets since in the latter customers pick and take goods home themselves. Doing all this while maintaining the ‘lowest price’ to eliminate competition doesn’t help either.
- Maintaining quality and freshness of the produce is one of the crucial factors for achieving success in this ecommerce segment. Especially in the case of perishable items such as vegetables, fruits, dairy and meat products. One slip in the quality department and you risk losing your brand value substantially.
- It demands different product offerings for different cities. As the region changes so does the grocery needs. It can be quite challenging to adapt different models while being feasible.
- It still is highly unorganised etailing space with high entry barriers.
Online Grocery shopping has a huge potential, that’s given. Mainly because people may not buy clothes every month but no can live without groceries even for a day irrespective of their socioeconomic status. Hence, there is a lot more to be explored in this niche area and has ample space for existing as well as new entrants. Key would be to secure funds at regular intervals to sustain the initial few years of the business. If funding is secured at the right time, then companies can break even, increase customer base, market their brand and buy bulk produce without any hassle.
Another crucial factor in order to sustain is to concentrate on specific target market. It’s quite tempting to open an online shopping site’s operation for the entire country since the website can be viewed by all. But it is wise to concentrate on selected few cities or areas within a city when it comes grocery retail space. This way it is easier to maintain quality & delivery standards and enhance the customer satisfaction quotient.
Lastly in order to survive on such low margins and for steady growth, getting loyal customers should be the primary motive. This is possible only when online grocery shopping sites deliver what they promise, i.e. right & fresh product at the promised time. If shoes or dress is delayed by a day or two, customers can manage. But groceries being daily necessities, which are available locally, delay in delivering will hamper future sales. Once you bag loyal customers who place repeat orders, you are sorted.
In a country like India that has a vast population coupled with penetration of Internet and explosion of Smartphones, there is a huge uncharted space for grocery e-stores. All that existing and new players need to do is get their creative juices flowing and come up with a sustainable business model that can help to tap the niche market which is ready to grow in jet speed.