Fresh no more: With many e-grocers shutting down, is the euphoria dying out?

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Updated: April 10, 2016 8:58:02 AM

With several e-commerce and online tech firms shutting their grocery verticals and a few e-grocers closing down operations in select cities, is the initial euphoria dying out for the once-hot sector?

With several e-commerce and online tech firms shutting their grocery verticals and a few e-grocers closing down operations in select cities, is the initial euphoria dying out for the once-hot sector?With several e-commerce and online tech firms shutting their grocery verticals and a few e-grocers closing down operations in select cities, is the initial euphoria dying out for the once-hot sector?

ALMOST A year after gaining a lot of traction—some industry experts had even called it the hottest sector to be in then—the online grocery business seems to have hit a bump in the country.

Recently, Flipkart shut its grocery service ‘Nearby’, less than five months after the e-commerce company started it as an experiment in Bengaluru. The development comes a few weeks after on-demand specialist grocery players Grofers and Peppertap closed their operations in nine and 10 cities, respectively.

Taxi-hailing firm Ola, which also tried its luck at the online grocery and food delivery businesses in the middle of last year in three places—Bengaluru, Hyderabad and Delhi-NCR—announced that its Ola Store and Ola Cafe verticals will no longer be available to customers from March this year. Ola Store had partnered with popular retail chains such as PNP Retail, Topintown and Namdhari’s Fresh, offering over 16,000 products under 13 categories such as fruits and vegetables, breakfast, dairy, bread and eggs, grocery and staples, sweets and snacks, etc.

Alibaba-backed Paytm, too, silently pulled off its grocery app Paytm Zip from app stores within three months of its launch in 2015. Started in select areas of Bengaluru in April last year, Paytm Zip was aimed at not only helping users order groceries from their favourite stores, but also allowed them to add or change the order on the fly.

In October, Mumbai-based online convenience store LocalBanya “temporarily” suspended operations to “upgrade its technology and services”. So far, its website is yet to become functional. Links Retail India, which runs the Localbanya brand, was co-founded by Karan Mehrotra, Rashi Choudhary and Amit Naik in May 2012. As per sources, the company was also likely to downsize its workforce. This information, however, could not be confirmed.

Only a year ago, things were super-hot for the business, with online grocery start-ups catching the fancy of several investors. While Bengaluru-based ZopNow, which sources products from supermarket chain HyperCity, had raised $10 million (around R63 crore) from Dragoneer Investment Group, Accel Partners, Qual-Comm Ventures and Times Internet in April 2015, Grofers had raised a funding of $35 million (around R222 crore) from Sequoia Capital and Tiger Global around the same time.

Gurgaon-based start-up PepperTap, too, had mopped up a funding of $10 million (around R63 crore) from SAIF Partners and Sequoia Capital in April last year. Only two months earlier, it had raised close to $2 million (around R12 crore) of seed funding from Sequoia Capital.

Business perishing?

Clearly, the hyper-local market has proven to be a tough nut to crack for these start-ups. “Grocery is a very complex category from a supply-chain perspective. Being able to deliver a wide range of products, including a perishable range, managing same-day delivery and high fill rates is critical to customer satisfaction. Offline supply chains are not fully developed and hence riding on them does not deliver a great customer experience. This has led to the decimation of models based on them,” says Vipul Parekh, co-founder, BigBasket, an online grocery store.

Unlike most other e-grocers that are based on the hyper-local model, BigBasket sources and maintains its own inventory. The Bengaluru-based online company, founded in 2011, has had a stronghold on the online grocery segment with a warehouse-based model that guarantees control over customer experience. “We have an inventory-led model that allows us to control quality and the fill rate, and also offers the largest range in the business. We currently operate at 99.5% fill rate and 99% on-time delivery. We offer three differentiated delivery models (all inventory-led), which are aligned with our customer-buying preferences. As a result of this, we have seen significant growth in business even while other business models have perished,” Parekh adds.

Commenting on the closure of operations in nine cities, Grofers co-founder Albinder Dhindsa says, “A few cities were part of our experimentation and we wanted to know how these markets respond to our offering. We are currently re-assessing our operations in these cities, and have temporarily shut down our services. Once we feel the time is right, we will restart our operations in these markets.”

As per Dhindsa, 2015 was the year of start-ups when a plethora of big and small players entered the online hyper-local marketplace. But eventually, it all boiled down to ‘customer service’. “We believe the service that will give a greater experience to the consumer and solve the underlying infrastructure issues will win at the end of the day,” he says.

In 2015, Grofers entered electronics and delivered iPhones right after their launch, much to the delight of consumers. It also launched new categories like kitchenware, home and office needs, and toys, among others. But Dhindsa sounds a note of caution: “2016 would be a year of consolidation. We can’t expect 10 players in every space. And since grocery in the hyper-local market is a bigger space, probably five will survive, but consolidation will happen.”

Not all’s over yet

When it launched its grocery service, Flipkart was following in the footsteps of rival e-commerce player Amazon, which had started its pilot in March 2015, and Snapdeal, which went into partnership with Godrej Nature’s Basket in April 2015. Commenting on the closure of the service, a Flipkart spokesperson said in an official statement: “‘Flipkart Nearby’ was piloted in select areas of Bengaluru. The experiment was a test for understanding efficiencies and operations of the hyper-local business. The project has now run its course and the learnings from this pilot will now be used for future operations of the company.”

While Indian companies are pulling away from grocery delivery, Amazon India is aggressively pushing ahead. Earlier in March this year, the online retailer launched Amazon Now in Bengaluru, promising to deliver groceries and staples in less than two hours of receiving orders. The full-fledged grocery service was launched after a pilot that had lasted for months.

The company plans to deliver a majority of the orders through its own logistics service in order to ensure consistency in customer experience. It has already hired hundreds of delivery men for the initiative. It is also reportedly planning to expand the service to 10 cities in India this year.

Snapdeal, too, is gung-ho about its grocery services. Rahul Taneja, vice-president, category management, Snapdeal, says, “At Snapdeal, FMCG is a big focus for us this year. This category is one of the significant drivers of habit commerce, which is in line with our vision of having 20 million daily transacting users on the Snapdeal ecosystem by 2020.”

Commenting on Snapdeal’s future strategy, Taneja adds, “In the near term, we are focusing on weekly and monthly grocery baskets of household items, which consist of five sub-categories—beauty and personal care, household supplies like detergents, food, health and wellness. We have made these available through the ‘Daily Needs Store’ on Snapdeal.”

The category has received great traction since Snapdeal re-launched Maggi late last year. From November 2015 to February 2016, the number of users buying grocery products from Snapdeal has tripled, offers Taneja.

Despite recent developments, it must be noted that the grocery sector is not without its share of demand. As per India Brand Equity Foundation, a trust established by the department of commerce, ministry of commerce and industry, food and grocery made up 69% of India’s $490-billion retail sector in 2013, valued at $338 billion. The mere size of the segment is enough to attract any player worth its name from the industry.

In December last year, RP-Sanjiv Goenka Group-led Spencer’s Retail acquired New Delhi-based start-up Omni-Present Retail India, which operates the online grocery store Meragrocer, for an undisclosed sum. The gross merchandise value of MeraGrocer was about R5 crore at that point of time, which Shashwat Goenka, head (retail) at RP-Sanjiv Goenka Group, said would be scaled up to R500 crore over the next five years.

BigBasket, which is aiming to cross the R6,000-crore turnover mark by 2018, plans to expand its services to 25 tier-I and tier-II cities this year. “We are also focused on growing our organic and private labels, which would mean a whole new range for customers. We are also very excited about our gourmet and imported assortment. We already have over 2,000 products, with 104 types of cheese alone,” says Parekh of BigBasket.

BigBasket recently landed a $150-million funding led by investment firm The Abraaj Group of the UAE. The Series D round also includes participation from new backers International Finance Corporation and Sands Capital, as well as existing investors Bessemer Venture Partners, Helion Advisors, Zodius Capital and Ascent Capital. BigBasket’s last funding activity was in August 2015 when it landed $50 million.

Going forward, Grofers, too, wants to bring over one lakh merchants onboard in 2016. “Also, we’re looking towards increasing our partnership with farmers to help in supply-chain improvements and in order to get better produce to the markets. We don’t make annual plans. We plan semi-annually and then execute them in the quarter. We want to deliver all our users’ household needs to their doorstep,” adds Dhindsa of Grofers. In November, the company raised $120 million in fresh funds largely from Japan’s SoftBank.

But with the initial euphoria dying out, it’s now down to testing of business models and the business matrix. Perhaps, it’s time to fine-tune those less-than-perfect business models and scrap the ones that have failed to help the businesses scale up, feel industry observers.

Losing ground?

* In February 2016, Flipkart shut its grocery service ‘Nearby’, less than five months after the e-commerce company started it as an experiment in Bengaluru

* In the same month, grocery delivery app PepperTap pulled down operations in 10 locations, including metros like Mumbai, Chennai and Kolkata. As per some reports, 400 delivery men lost their jobs in the process

* In January 2016, Gurgaon-based on-demand delivery start-up Grofers shut down operations in nine cities: Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik, Rajkot and Visakhapatnam

* Taxi-hailing firm Ola, which also tried its luck at the online grocery and food delivery businesses in the middle of last year in three places—Bengaluru, Hyderabad and Delhi-NCR—announced that its Ola Store and Ola Cafe verticals will no longer be available to customers from

March this year

* In June 2015, Alibaba-backed Paytm silently pulled off its grocery app Paytm Zip from app stores within three months of its launch

Vipul Parekh, co-founder, BigBasket: Grocery is a very complex category from a supply-chain perspective. Being able to deliver a wide range of products, including a perishable range, managing same-day delivery and high fill rates is critical to customer satisfaction. Offline supply chains are not fully developed and hence riding on them does not deliver a great customer experience. This has led to the decimation of models based on them

Albinder Dhindsa, co-founder, Grofers: We believe the service that will give a greater experience to the consumer and solve the underlying infrastructure issues will win at the end of the day. 2016 would be a year of consolidation. We can’t expect 10 players in every space. And since grocery in the hyper-local market is a bigger space, probably five will survive, but consolidation will happen

e-commerce

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