How Indian grocery business is becoming big?

There are over 12 million small stores in India and account for over 90% share of the Indian F&G market, which is predicted to reach USD 810 Billion by 2020
How Indian grocery business is becoming big?

The grocery business in India is distinctive in many ways, primarily due to the diversity of consumers and the unique distribution models of the retail sector. From mom and pop stores to giant supermarkets to online grocery stores, the grocery business in India operates across channels. However, most of India's grocery business happens through the unorganized sector, which mainly comprises of small stores, also known as kiranas. There are over 12 million small stores in India and account for over 90% share of the Indian F&G market, which is predicted to reach USD 810 Billion by 2020.

Indians have traditionally relied on mom and pop stores for their monthly food & grocery needs. These stores have a personal connection with their customers and are well versed in customer preferences, which in turn enables them to stock locally relevant products. Indians prefer buying their monthly supplies from these local stores for various reasons such as proximity, availability of credit, and the option to return/exchange products.

The Bigger Picture

Globally, India is the sixth-largest grocery market and has a humongous potential for growth due to the rising population as well as disposable incomes. The Indian grocery market, which accounts for 69% of India's total retail market, offers plenty of opportunities to retailers. Many retail players have tried tapping into this potential without substantial results. The local kirana is still the epicenter of Indian grocery business with 90% of distribution under its belt. Even as retail giants battle against each other to become the consumer's habit when it comes to buying grocery, the small stores have held their ground.

The Rise of E-grocery:

However, with rising disposable incomes and internet penetration, the eGrocery market is expected to grow by leaps and bounds in the near future. The eGrocery market size, which was worth USD 0.69 billion in 2017, is projected to grow to 16 billion by 2020; translating to a staggering of 148% CAGR. The fact that India is home to the youngest population in the world (avg. age - 27.6 yrs) plays a major role in the predicted shift in the Indian grocery market. Equipped with disposable incomes and smartphones, young consumers are internet savvy and prefer ordering their grocery online, given their busy lifestyle. This change has majorly contributed towards creating a dynamic market environment in India and has opened up opportunities for the organized e-retail players.

The Challenges:

The poor logistics system in India is the biggest barrier to the growth of e-commerce in the F&G sector. E-grocery players need to work in tandem with small stores to succeed. However, the two major business models in online space - inventory led and aggregator based - which are being used to capture the US$ 810 Billion Indian market by 2020, haven't been able to include the small stores in the organized sector. This can be attributed to the fact that these stores suffer from inefficient inventory management, lack of product variety, a high cost of procurement, and haven't adopted new technology, which limits their participation in aggregator based e-Grocery models.

On the consumer front, eCommerce players haven't been able to replicate the personalized service provided by the traditional mom and pop stores. In order to fill these gaps, Planet11 is tapping into the vast potential of the unorganized food and grocery sector. Instead of sticking to pure-play e-commerce, we have adopted the Online to Offline (O2O) format to leverage existing kirana stores and create a win-win platform by working closely with small store owners.

Bengaluru - the perfect testing ground:

Bengaluru is home to diverse demographics (which includes 10% of expats), large white-collar workforce, tech-savvy consumers. These factors, combined with the well-established start-up ecosystem, make the city an ideal testing ground for e-retail. When I visited Bengaluru back in 2014 on an assignment, I was captivated by the startup drive that I found in every nook and corner of the city. The opportunities and challenges that Bengaluru offered to the e-retail sector inspired me to conceived Kirana11, an O2O eGrocery platform that leverages the offline presence of local stores in an area to meet the emerging consumers' needs.

Bengaluru is a cross-section of the true urban India. The city is a perfect testing ground owing to its cosmopolitan nature. Being the 3rd most populous city and 5th most populous urban agglomeration in India, Bengaluru holds a large market share while offering unparalleled retail penetration. What can be a better place to try out innovative eGrocery formats than Bengaluru?

To sum it up, the emergence of internet connectivity, multiple payment options and popularity of smart devices, combined with the growing demand for convenience by the young Indians, has created a sound base for the rise of eGrocery in India. However, given the logistics and SCM challenges faced by the grocery segment in India, the O2O business model is the next big thing in the Indian grocery business.

The article has been penned down by Nakkyun Chong, CEO, Korean Expat

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