Grocery eCommerce Scenario in India: Overcoming Challenges,
Competition and Threats
The year 2015 started with a plethora of investments happening in the
‘hyper local’ space, be it food delivery, home services or logistics. On the
same front, a number of new grocery delivery firms were also seen
sprouting and scaling up. The veterans in this space BigBasket, ZopNow etc. too
garnered attention from VC investors. However, the autumn of this year is
proving to be cold for several startups as they struggle with funding
challenges, can grocery delivery companies fare any better?
With increasing penetration of Internet connectivity (rise of
smartphone users), growing popularity of mobile shopping, and dealing in
daily consumption commodities, grocery e-stores do hold a potential
in India. The market share is estimated to be less than $100 million at present, but is expected to cross $25
billion by 2020, expected to grow at a rate of 25-30% year-on-year in major
Indian cities, as predicted by retail consultancy Technopak.
According to Ken Research report, Indian online
groceries market is envisaged to grow and reach Rs 2.7 billion by FY’2019.
There are roughly 25 odd companies in this space
that have received and announced external funding in 2015. The top 5 startups
that have raised maximum funding among these are shown below.
A few acquisitions have been seen in this space this year, such as
BigZop getting acquired by AutonCab,
Grofers acquiring Mygreenbox.
The first firms who came up in the online grocery sale segment were
formed in 2011, and since then this has been a growing industry in India.
In February 2015, the share of BigBasket was the largest among the online
grocery businesses, followed by Zopnow as reported by Ken Research.
While the space does holds a good opportunity, it still hasn’t
been easy to crack. Even the funded startups struggle to scale up. There are
challenges in different areas of operations – Technology, vendors, logistics
and more.
Different companies in the same space have experimented with different
models for order fulfilment. BigBasket has an inventory-led model with its
own logistics and supply chain network, Grofers and Peppertap have tied up with
local stores in cities for enabling hyper local deliveries, Aaramshop has a
hybrid model where consumers can order online and receive from one of its
nearby stores. Additionally, to add further competition for these companies,
mainstream retailer Future Group will launch Big Bazaar app for grocery
ordering.
Where do the roadblocks lie?
Challenges faced by grocery delivery startups are multiple ranging
from maintaining quality of their products to managing the inventory to
logistics to customer satisfaction and retention to even fundraising. These
niche businesses also have requirements of the right talent for vendor
acquisition and fulfilment, especially for those who are not keeping their own
inventory, tapping into the right local stores for supply is a critical but a
tough task.
“While tying up with a merchant as a partner, the poor quality of
data and regulated MRP’s limiting our margins are some challenges. The delivery
staff at times is technophobic but we are constantly working towards easing out
these challenges.” says Navneet
Singh, Co-Founder and CEO at Peppertap.
For Saurabh Kumar, Founder at Grofers, the biggest challenge was to find the right talent for their
team which would align with the vision of the company and help it grow. His
company is backed by Tiger Global and Sequoia Capital, and is in discussions withother tech VC firms like
Softbank and DST Global to raise more money.
Meanwhile, Rashi Choudhary, Co-Founder and COO
at LocalBanya opined that raising an
investment to fuel the growth and expansion of the company was a tough part for
her firm. Further, she feels that this kind of business has many vital parts
that must work together well and it takes a lot of planning and smart thinking
to pull it off. Localbanya had recently shut down its operations
temporarily and laid off a sizeable amount of its workforce.
Vijay Singh, MD and CEO, Aaramshop finds
staying in tune with the consumer behaviour as the biggest challenge. “We
are firm believers that the shopping behaviour of consumers would continue to
be multi-channel, however, the consumers’ habit of standing in a queue to shop
for groceries stays our biggest competitor.” says Vijay. “The
growth in mobile has prompted us to look at mobile app far more seriously than
we were doing last year.” he added. He had started the company back in
2011, and has been successfully bootstrapping it since then.
When we raised the same question to a recently launched startup LazyLad,
its Co-founder Saurabh Singla said, “There
is an issue of adaptability with some retailers. Some are very open to the use
of technology to enhance their business, but few of the retailers are quite
skeptical about this.”
All the companies appear to be facing issues on different fronts, this
is owing to the different models that these firms operate in. However, Vipul Parekh, Co-Founder at BigBasket sums
it well for us when he says that merchandising, logistics, people
management and technology are four key areas of challenge for a
grocery delivery firm. Delivering grocery products with varying shelf lives in
a large geographical area along with managing the inventory is crucial so as to
provide hill fill rate to the customers. Recruiting, training, managing and
motivating the blue-collar workforce of the logistics team is another
significant challenge in this line of business.
Competing and Standing Out
Founders of the grocery eCommerce companies who spoke their mind
Hands down, all grocery eCommerce companies agree that the market itself
needs to be tamed first. Even though a number of parameters are in favour of
eCommerce in general like increasing Internet penetration, smartphone users,
online shoppers, logistics support and so on, grocery remains a vertical that
requires special treatment due to the perishable nature of the inventory.
Moreover, with India having multiple grocery stores in or near every
neighbourhood, a majority of the population doesn’t have to go far for its
daily grocery requirements.
Vipul from BigBasket says, “At this point in time physical
grocery stores would be our biggest competition and within them the large
chains would take preeminence.” The large chains mentioned
here, such as BigBazaar, Nature’s Basket and so on are moving into a hybrid
model as they continue to expand their offline presence. They have more
leverage over the pure play grocery eCommerce/delivery ventures owing to their
brand name and profitable parent firms.
In order to create a differentiating factor among themselves, the
companies are gunning for a consumer first approach. These firms are
working on the technology backend and optimising the supply chain to better
their competitors. BigBasket takes pride on its inventory of 14,000 SKUs,
Peppertap states its under 2 hour delivery as its USP. “As this market picks up steam, there are various players that are
making an entry with different business models. There is room to experiment and
given various factors such as location, capital and technology, we will
continue to see this occur,” says Rashi
from LocalBanya.
Walking Among the Giants?
It has to be noted that the existing horizontal marketplaces also see
grocery as a viable space. Amazon has been dealing in gourmet food products for
some time now. Flipkart is also rumoured to have plans for launching grocery
delivery this year. Snapdeal tied up with Godrej Nature Basket at the beginning
of 2015 to foray into this vertical. Paytm had launched a dedicated app
for grocery ordering in April 2015, however not much was heard of it thereafter
and it was taken down from the app store in the following June.
When asked if the niche companies should feel threatened about
this trend in the market, Vipul from BigBasket said, “This is different market from General Merchandise in terms of
supply chain, logistics and domain knowledge requirements to handle the
category well. As a result it is not an easy decision to launch grocery. I
think it will take them time and effort to develop a model which works and to
compete effectively. Having said that, this is a large retail category and with
their growth aspirations I would not be surprised if they chose to enter this
domain in some form or the other. I think their entry into the market will make
the domain more competitive but will also expand the online market for grocery
significantly. In the long run this will be significantly beneficial to leaders
in the space like us.”
Navneet Singh, CEO and Founder at Peppertap feels that with the
entry of these players in this space, the market will see a lot of momentum.
Quoting him, “It will be interesting to see if these giants get into a price
war or adopt a different strategy for customer acquisition. Online
grocery soon will become one of the top three most attractive segment for
online retailers after electronics and apparel.”
Lazylad’s Co-Founder Saurabh Singla feels that entry of Amazon,
Flipkart and Snapdeal into this space provides validation to the model. It
ensures that the market is hot and the customers buying tendency is more from
mobile. Further he adds, “The trend is changing and
there is a huge opportunity out there and a lot of innovation to be done to overcome
the problems in the sector which are very easy for a startup to tackle and
difficult for an established player to handle due to the inherent difference
between the two.”
The niche players appear to be confident about capturing the market even
post the entry of eCommerce marketplaces in the segment owing to their vertical
focus.
The Way Forward
While Indian eCommerce in general is often compared to that of US and
China, stacking it up in this segment might give contrary results. According to
a report by Nielsen, APAC is the hottest
area for grocery eCommerce.
Source: Nielsen E-commerce and the New Retail Survey, Q3 2014
Consumers in Asia Pacific region are most willing to buy groceries
online as per the survey conducted by Nielsen. This trend was also seen in
the likelihood to opt for subscription eCommerce, and ordering online and
picking up at a store. Besides those who are already operating in a hybrid
model, it might make sense for companies to indeed go hyperlocal with either
their own inventory or through reliable partner stores.
It is unlikely that these companies will replace the brick and mortar
stores, however the trend of on-demand grocery delivery might catch up as the
Millennials mature. The companies would need to develop intelligence around
what inventory to keep and how much.
Customer experience needs to be the top priority for these companies
– across technology, delivery and service – since convenience would
be the primary reason, consumers will switch to buying digitally. And this
would be where they can get an edge over their competitors. Given to the
capital intensive nature of this model for scaling up fast, only the fittest
would survive.
by Sugandh Dhawan
http://www.iamwire.com/2015/11/grocery-startups-ecosystem-india-challenges-threats-competition/126209
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