The sale of groceries witnesses no halt, irrespective of a country's state of economy. However, caught in the city's fast pace, tedious commuting and long working hours, many consumers don't have the time to buy groceries and hunt for ways to get it done without any hassles. The advent of online grocery has made this chore absolutely comfortable and hassle-free. This is a successful business model in many developed countries and now the market is becoming an exciting space, recording an exponential growth in India with a large chunk of the country’s population coming online.
Out of $525 billion retail markets in India, 60% is spent on groceries, which makes it worth $350 billion. The country also counts among the 6th largest grocery markets in the world, and every major e-commerce portal wants a share of this pie. Meanwhile, India's online grocery market, which is estimated to be less than $100 million at present, is expected to cross $25 billion by 2020.
According to retail consultancy Technopak, the online grocery retail market is growing at 25 to 30 percent in the metros and other large cities in the country. Urban India's increasing shortage of time is fuelling the growth of online grocery. It is a largely standardised category which doesn't require much touch-and-feel. Hence, online works fine for this type of business and is highly convenient. Moreover, with a large customer base and increasing penetration of Internet connectivity (partly through smartphones) and the growing popularity of online shopping, some entrepreneurs have seen the potential in creating e-stores for groceries. In fact, the Indian market is at the stage, where a number of young players are trying a number of different models around Grocery delivery, including both inventory and hyperlocal-led models.
Let us first understand how both the models function. An Aggregator led online grocery model offers a wide range of grocery products as it procures all items from the large vendors. It can club multiple large orders thus enabling the buyers to buy in bulk. Since the model focuses on large orders, the players end up earning better margins since operations costs can be brought down significantly due to economies of scale. Meanwhile, a hyperlocal delivery based online grocery model depends on the local Kirana shops, which leaves them with access to a much smaller inventory for grocery items. This increases their transportation and logistics costs, which tends to be higher than its margins due to multiple small deliveries.
Delivering the orders appears as one of the crucial factors in this model. Normally, e-commerce works with a delivery promise of a certain number of days while e-grocery follows the adage, 'the deadline was yesterday'. Players following the Aggregator led models undertake large grocery orders that allow them to deliver the product safely and without any damage on four wheels within three-four days. Meanwhile, the primary focus of a Hyperlocal marketplace lies in quick deliveries as soon as the order is received. As the players assume that customers will buy fewer quantities multiple times and expect a fast delivery on every purchase, they are not allowed to deliver the bulk orders as they use two-wheelers, which increases the risk of damage caused to the products.
A majority of city dwellers rely on online grocery shopping for an enhanced quality shopping experience and an inventory model focuses more on this rather than just ensuring quick delivery. They focus on supplying quality food products under a regulated temperature, thereby ensuring freshness followed by complete customer satisfaction. During the delivery process, the company ensures that the perishable food products are supplied in temperature regulated containers. A hyperlocal model based company is mostly dependent on the local groceries and vendors that leave it with very little option to deliver perfect quality of food products.
Most families hailing from metro cities prefer to purchase groceries on a weekly basis. Hence, the inventory mode of grocery shopping is perfectly compatible with the fast-paced city lifestyle and fits aptly according to the Indian market, whereas, a Hyperlocal model relies on consumers who can shop more often in a week rather than once a week.
Selling perishable goods online is far more difficult than selling non-perishables; storing and supplying fresh vegetables is an entirely different ball game from storing and supplying a packet of toothpaste or mosquito repellants. It is a low-margin business although it requires expensive investments to build high-end IT infrastructure, an efficient supply chain, quality warehousing and storage facilities, and an efficient delivery system. Risk capital-rich hyperlocal ventures are dependent on riders making dozens of daily deliveries of food, groceries and even medicines from local neighbourhood stores to residents in the vicinity. While that may sound like a great opportunity to network disconnected stores to potential proximate customers, in reality, it takes a lot more to build out this profitable, but risk-laden industry.
A marketplace model that brings together a variety of sellers offering an assortment of products is most suited for this segment. The online grocery category needs a regulated inventory-led model and anyone entering the segment is definitely going to have to focus on product differentiation to be able to make an impact.
Authored By: Kishore Ganji, CEO and Founder of Zip.in