The on-demand grocery delivery market heats up

By: |
August 31, 2020 7:16 AM

Though all e-grocery platforms already offer scheduled delivery of groceries, the recent move is aimed at taking it up a notch by delivering to the customer’s doorstep within hours

The e-grocery segment has been one of the fastest to recover from the impact of the Covid-19 pandemic, with sales numbers reaching the pre-Covid level in June itself.The e-grocery segment has been one of the fastest to recover from the impact of the Covid-19 pandemic, with sales numbers reaching the pre-Covid level in June itself.

After several months of lockdown and social distancing restrictions, consumers are increasingly preferring ordering groceries online. Operators in the e-commerce space are revisiting their strategies to tap this market segment better. In July, Flipkart rolled out an on-demand delivery service for groceries and other products, called Flipkart Quick, in Bengaluru; food aggregator Swiggy, in August, introduced a similar service called Swiggy Instamart in Gurgaon. BigBasket, too, relaunched its express delivery service in June, after discontinuing it in early 2019.

Though all these platforms already offer scheduled delivery of groceries — Flipkart under Supermart and Swiggy under Stores — the recent move is aimed at taking it up a notch by delivering to the customer’s doorstep within hours.

The e-grocery segment has been one of the fastest to recover from the impact of the Covid-19 pandemic, with sales numbers reaching the pre-Covid level in June itself. Meanwhile, in the same month, non-essential categories on e-commerce (such as fashion and electronics) saw sales amounting to 40% of pre-Covid times, according to RedSeer Benchmarks.

Finding the right model

Flipkart is offering delivery in under 90 minutes for meat, dairy products, mobiles and accessories, apart from grocery, under its new offering, and is working on a hyper-local model. The company says it aims to tap a new set of customers with Flipkart Quick, and will be rolling out the service in other cities by early next year.

“With Flipkart Quick, we want to ensure that the customer experience is consistent, and the unit economics is playing out well,” says Sandeep Karwa, VP, Flipkart. He adds that the company is adopting “an intelligent address mapping technology”, based on the latitude and longitude principle, instead of pin code for this service, which will help make it far more efficient in creating routes and optimising capacities. The delivery fee for the service starts at Rs 29.

Swiggy has adopted an inventory-based approach for Instamart. “With deliveries in 30-45 minutes, day and night serviceability (7 am-12 am), and a wide assortment across categories, Instamart will address the unmet grocery needs of the time-pressed, convenience-seeking urban consumer,” says a Swiggy spokesperson.

The company is tapping its cloud stores (known as dark stores) for this service, and has identified an SKU of 2,500 fast-moving products. It plans to launch the service in Bengaluru soon, and is counting on its logistics and last-mile delivery prowess to get an upper hand in the market.

The cost factor

On-demand grocery delivery is not known to be cost-efficient and supply-chain hurdles make it even more challenging. That is why Grofers had to pivot to scheduled deliveries and an inventory-led model, while PepperTap had to cease operations.

“The biggest challenge for these companies is going to be managing the fill rate. They will have to identify the right inventory at each location to service orders quickly,” says Sanjay Kothari, engagement manager, RedSeer Consulting. Fill rate is defined as the percentage of orders that the company can fulfil immediately, without back orders or lost sales. “The fill rate is higher for companies with an inventory-led model (95-96%), as compared to the marketplace-led model (below 85%),” he adds.

The inventory-led model could prove to be tricky as the rentals of dark stores cannot be justified if the order volumes remain low, say industry watchers. Satish Meena, senior analyst at Forrester Research, says these companies would have to ensure that customers order repeatedly and the average order value remains high, to reduce costs, as margins in these product categories are quite low. “Retaining customers is going to be an expensive proposition; only companies with deep pockets can survive this race,” he adds.

Read Also: Marketing Conclave 2020: How companies need to focus on product development over marketing

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