1. Hybrid model gives buffer to online grocery

Hybrid model gives buffer to online grocery

Until a couple of months ago, the neighbourhood kirana store was the go-to-shop for regular groceries and staples but growth of online grocery stores changed the story.

By: | Updated: August 31, 2016 6:52 PM

Until a couple of months ago, the neighbourhood kirana store was the go-to-shop for regular groceries and staples but growth of online grocery stores changed the story. The online grocery market has lured several entrepreneurs but only a few have survived in the high cash-burn business. Localbanya and PepperTap had to shut shop in their respective markets as losses mounted and orders fell but Grofers and

BigBasket have managed to survive.

Zapmart, a year-old Mumbai-based startup in the grocery space, has adopted the hybrid model of hyperlocal and inventory to crack the online grocery space. Its in-house delivery fleet of 25 people pick grocery from local vendors and its own warehouse in Worli and cater to a consumer base of 6,000-7,000 people in Mumbai.

Besides groceries, Zapmart also deals in FMCG products and items of personal and healthcare. “We plan to move into home appliances and electronics later as we diversify. The reason behind diversifying to electronics and home appliances is better margins. This will happen when we complete our operations in Mumbai and move into other cities — Pune, Lucknow, Hyderabad,” Parvez Siddiqui, founder and MD of Zapmart said.

To tackle low-margins in the B2C grocery business, Zapmart launched its B2B services where it provides grocery and other items to large businesses which fetch larger volumes. “The ticket size per order is between R750-1,200 but in our B2B model the ticket size goes up to R2,500-3,000,” said Siddiqui. “We got into corporate gifting where we make baskets and it does not only have groceries but products of healthcare and chocolates as well. The baskets can be customised according to the requirement of the client,” he added.

Grocery can bring in 5-7% margin while margin on government and imported products can go as high as 20-25%. Siddiqui says that plans to launch Zapmart’s private label are underway and are expected to fetch margin to the tune of 15-20%. Zapmart clocks between 500-700 orders every month but the number is expected to grow with the launch of its offline stores.

Siddiqui is betting heavily on Zapmart’s offline stores with first one due in first week of September in Bandra, Mumbai. He plans to open five more offline stores around Mumbai to support his online business and contribute additional revenue. “We have seen that hyperlocal and inventory system does not work very well. We have lower profit margins than our competitors so to tackle that we are launching our offline stores,” he said.

“The offline stores will act as inventory. We will store our fresh products there. It will also become a delivery hub to cater to Mumbai,” Siddiqui explained. The offline stores are expected to improve the delivery mechanism and reach customer who are still not comfortable shopping online. However, to build its physical presence in the market, Zapmart will have to stock-up adequate funding.

“To launch offline stores in a larger manner I will need a huge sum of investments. With the new investment we will launch more stores and launch new products,” Siddiqui said. The company is in talks to raise about $10m from three angel investors in three tranches and it is expected to close the first tranche of $3m by the end of August, he said. In July, the company clocked revenues of R40-45 lakh incurring a total loss of R7-8 lakh, the founder said. Zapmart’s revenue jumped four times from R10 lakh in November 2015 while the losses spiked more than five times from R1.5 lakh for the same period.

In the innovation space, Siddiqui is pivoting a model that will allow Zapmart to offer discounts in the later stages too. It is making an SMS prototype exclusively for Zapmart — a device that will display all the offers and discounts available and allow the consumers to place an order.

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