A report by The Business Standard says that Bangalore-based online grocery retailer BigBasket is planning to expand its operations to tier 2 cities, after clicking in the metros. The store, launched in 2011, had started operations in the National Capital Region (NCR), Pune, and Chennai in May 2015. It plans to move to tier 2 cities such as Madurai, Trichy, Coimbatore, Vijayawada and Vishakhapatnam in tine with its plans to cater to smaller towns and cities. Apart from the tier 2 cities, BigBasket plans to deliver to the nearest towns from their major warehouses.
Among the players (Zopnow, Local Banya, to name a few), as of now BigBasket rules the roost. (Read IOS article: Leading online grocers in India)
The scope in smaller cities
The concept of online grocery clicked in the Indian metros because the young, urban working population has no time to go to the shop to buy their monthly grocery needs. If you can get all your grocery packed and delivered at your doorstep at the click of a button, then why not?
As with any online shopping, online grocers are also doling out good discounts to customers. Shoppers can also specify the time they want their purchases to be delivered. There are express delivery facilities for same day delivery and delivery in three hours. While most purchases are delivered free, there is a small charge for express deliveries.
As of now, most online grocers are operating in the major metro cities. With BigBasket announcing its operations in tier 2 cities, it has opened up a greater scope, and hope for other players. However, the question is whether it will click in suburban India. While the youth across regions are taking to online shopping like fish to water, it is the older generation that is still taking care of household purchases.
Perhaps online grocers need to take it slow. They should do trial runs in a few tier 2 or 3 cities before they invest in warehouses and facilities. Till then, it should be a wait and watch situation.
The main issue is getting adequate funding. According to Forbes India, investors are hesitant to place their bets in the online grocery market. The major players like BigBasket have managed to garner funding, but the others have not been as lucky. The Forbes article quotes Rahul Khanna (MD of Canaan Partners, a global venture capital firm) as stating that delivery models for groceries are a tricky business. Khanna goes on to say that a delivery model will need to be tailor made for each city based on its needs.
Profit margin is a huge challenge for online grocery stores. The potential profit that a grocer can earn is comparatively low. For now, online grocers should focus on strengthening their customer base. With a growth in business, it will be easier to break even and reach a profitable model.
Another main concern is the delivery. As it involves the delivery of perishable goods, the stakes are high for the sellers. One solution to this is to have tie-ups with sellers closest to the buyer’s location. Having own warehouses with proper cold storage can help overcome the risk of spoilage.
Before customers in metros warmed up to the concept of online grocery, the segment attracted a lot of skepticism despite the potential for growth. Similarly, although smaller towns and cities have scope, it is too early to predict if a move like the one BigBasket is about to take will click. Let’s wait and watch, right?