Let’s straight away come to the point:
a. Margins are low. Generally in between 0 to 15%. Its like selling medicines. Even medicines have a retail margin of 5 - 15%.
b. Consumers are not willing to pay for delivery costs/extra costs. We've seen that convenience can be charged, but in the online grocery eco-system, it’s not that way.
c. Standardising weights in fruits and vegetables is challenging. Almost all fruits and vegetables don't come in standard weights, packaging and size.Example: let’s say a consumer is requesting for 500 grams of a particular fruit/vegetable, its very unlikely to get the exact weight of the particular item. You cannot give him less than what he requested. That would create a bad experience to the consumer or in worst case scenario you may even end up losing one. So you have to give him more than he requested. That means you are losing money. You may solve this issue by marking up the prices of those items but if consumer finds out that the price is higher than market price he might tend to buy from market. Like mentioned earlier, this space is extremely price conscious. Its easy to get the lady to travel to the nearest retail grocery store, pay for parking, go through the trouble of a trolley and its broken wheels, but trying to get the same lady to pay INR 10 more for the product is like asking for a kidney.
d. It’s an operation heavy business. Requires a lot of operational and marketing costs. A friend on mine was running a grocery store in the Delhi NCR region says, “I am working 16 hours a day along with my 3 other co-founders. Our total turn over is around a crore in a month. We're left with 1 lacs each as profit. I manage more than 20 delivery boys and also manage their tantrums.”
c. If your model is based on hyper-local market place then fulfilling an order based on multiple stores is expensive, time consuming and not scalable.
There are many more problems in this business, right now all the key players in this business are burning lots of money and many start-ups are shutting down everyday. If you still want to start an online grocery shop, some helpful tips:
1. Automate all the operations with technology.
2. Make consumers realize that they need to pay extra costs(delivery costs, etc) since they were saving time and having an hassle free experience. Book My Show has cracked the convenience fee phenomenally well.
3. Giving discounts are gonna temporarily raise orders but in the longer run its the quality of your products that matters. So try to provide best quality products instead of discounts.
4. Grocermax is a product that my wife's addicted to. She's not only addicted, but has also referred her entire kitty party friends to come on it. GrocerMax got 1 thing right. Rice! If you buy 5 kg Aeroplane rice from grocer max, you get 10 kgs free. This realises in to the customer buying other products too. Pawan & I stay in the same apartment complex and he got 25 kgs of rice for gifting.
What’s the customers behaviour - Starting with 2 types?
The Annoyed One - Grocery is usually buying more than one product, sitting in front of a computer or handheld device and adding all the grocery shopping list into you cart is annoying as you won't find most of the variety that you find in a physical shop. So customer thinks of going to a physical shop and buy according to his needs and preferences.
The No-Time-For-1-Delviery - If the customer has a list of ten products to buy and finds only nine products. For that one single product the customer will have to walk out to the nearest store. Customers will instead walk in to near by store and purchases whatever he needs without waiting for the home delivery.
More types will follow...
Would love to know what you think?
Author's Bio: This Article has been authored by Imran Ladiwala, Head Product, Marketing and Operations at Eros Labs