From a time where there was a laundry list of e-tailers in the online grocery space, we are down to relatively fewer but in-it-for-the-long-run players. How the e-grocery segment shapes up — to grow and consolidate — will redefine how India shops for groceries.
The Indian food and grocery market has been on a simmer for a while now. The recent go-ahead from the government for food retail in July turned up the heat allowing players to stock and sell food and groceries in India. Post the announcement, players in the space have dug their heels in to best leverage the opportunity. The space, now in its consolidation phase, is set to undergo transformation amidst changing purchase patterns from the consumer side when it comes to food and groceries. As per a study conducted by 6Wresearch, the Indian online grocery market is set to grow at a CAGR of 62% between 2016-2022. The segment, apart from the government approval, had demonetisation to thank for driving further traffic or attention in the very least towards itself. A survey conducted by CashKaro.com, shortly after the demonetisation move, indicated that over 50% consumers had switched to purchasing groceries online; cash-free transactions at 31% and better deals and discounts at 25% attracted consumers to shop groceries online. The benefit of convenience, the survey further said, ranked lower at 24% and flexible delivery time slots stood at 10%.
Currently the largest e-commerce player, Amazon has programmes such as AmazonNow, its app-only service intended to enable customers to access everyday essentials. To enhance customer experience and to highlight convenience, the platform launched services such as Subscribe and Save, Super Value Day and Amazon Pantry. Saurabh Srivastava, director, category management, FMCG, Amazon India says that the app has witnessed a positive uptake by customers in Bengaluru, prompting its expansion to Hyderabad, Delhi and Mumbai. “We service more than 80% pin codes across these cities,” Srivastava informs. Where AmazonNow provides daily solutions, Amazon Pantry comes to the customer’s rescue on a weekly and monthly basis. All Amazon Pantry orders are shipped in pantry boxes from the Amazon fulfilment centres located near cities to fulfil next day deliveries. Flipkart also recently launched a pilot project for its foray in the grocery segment. Hyperlocal players like BigBasket and Grofers have been in the grocery game for relatively longer.
While the target audience for BigBasket is a broad range from 25-70 years, Grofers primarily targets the 25-35 year-olds with its secondary audience segment being in the 35-45 year age group. Vipul Parekh, co-founder, CFO and CMO, BigBasket shares, “Our consumer base comprises households with an average annual income of minimum Rs 4 lakh per year. A majority of households are between 25-40 years of age and this group makes up for 40% of our customers. We are currently present in 25 cities with 85% of the revenue coming in from the top 10 tier I cities.” The average monthly purchase happens to the tune of about Rs 4,000-4,500 on BigBasket.
Parekh provides that BigBasket claims to have a fill rate of 99.5% to 99.6%. For customer acquisition, the brand depends on direct communication with 3-4% of revenue attributed to marketing spends. “A lot of BigBasket’s customer acquisition, about 50-60%, is actually directly through ATL; the balance 40% is through digital media,” he adds. Prashant Verma, director, marketing, Grofers, shares an important insight that unlike other e-commerce categories where 75-80% purchases are done by men, online grocery is a market where it is more of an equal split.
“Grocery is a space that allows us the chance to bring women onto the online space,” Verma says. For Grofers, web contributes to 15-20% of orders. The platform sees around 14,000 orders a day with average order value (AOV) around Rs 1,300-1,400; weekends see higher value orders, the first few days of the month being ‘the stock up’ time. Verma elaborates, “Average orders during the weekend are around 10 to 15% higher than on weekdays.” Grofers claims a fill rate of 99.8% on deliveries. On the private label front, the brand claims to earn margins between 25% and 40%. Delhi NCR is the top most performing city for Grofers, followed by Mumbai and Bengaluru.
Bricks-and-mortar grocery players like BigBazaar and Reliance Retail are also present in the online space. Reliance Retail is also the order fulfilment partner for food and groceries for Grofers in 14 cities and BigBazaar is a partner store for AmazonNow in Hyderabad, Mumbai and Bengaluru. Reliance Retail’s omni-channel offering and the online journey began nearly two years ago with Reliance Fresh. The rebranding from ReliancefreshDirect.com to RelianceSmart.in happened last year. The retailer offers online delivery through phone, web and its app in Mumbai, Bengaluru and Pune.
Apart from gaining market share while improving processes, the space has many challenges ranging from improving delivery capabilities, quality control and optimised processing to name a few. Rajat Wahi, partner, management consulting, Deloitte India notes that online grocery shopping is about a big change of habit, convenience and the faith that items are fresh. “One challenge is around selling in packs for food and vegetables — if a retailer tries to sell packed potatoes or tomatoes, customers would not necessarily want to pick up the pack as a whole but rather inspect the freshest, cleanest items from within each pack and thereby open the packs,” he observes. “There will be some level of customer acquisition by online retailers, but by and large it is about converting the people that are buying online to start buying e-grocery.”
The top challenges for the online grocery category going forward will need to address issues like the best delivery policies, returns policies and maintaining quality and hygiene in the products being delivered. Wahi says that the average online grocery margins will not be more than 25%-30%. It could reach 40% if the sourcing is directly from the farmers. To go mass, these players still have to compete with the kirana store, which offers credit, gives them the choice to pick the freshest items, allows returns, and offers service at the doorstep of the customer (on a phone call). The room for growth for players and for the category to develop is ample. There is a huge want for business models to be reconsidered, processes streamlined (or new ones introduced, where necessary), all the while trying to match the direct contact purchase experience (which includes everything from value to wider choice to convenience benefits) that the Indian consumer has been used to for decades.