Online Retail: E-tailers up the grocery game

Published: August 19, 2019 1:10:12 AM

According to RedSeer Consulting, the grocery market in the country is valued at over $500 billion, out of which online grocery currently has only 0.2% share, amounting to $1.2 billion.

Online Retail, E tailer, grocery game, industry news, Flipkart, Amazon, RedSeer, BigBasket, PepperTap, LocalBanya, EY, India, Grofers, Walmart, Milkbasket, DailyNinja, DoodhwalaRedSeer estimates that the e-grocery segment is expected to grow at 71% CAGR to reach billion by 2020.

By Devika Singh

Walmart-owned Flipkart and Amazon India plan to scale up their grocery delivery services, Flipkart Supermart and Amazon Pantry respectively, which were rolled out in 2017. Flipkart intends to tap the tier II and III regions by creating city-specific supply chains, and Amazon is preparing to take its Pantry service to 110 cities in India.

Contributing almost 70% to the total merchandise retail basket in India, grocery, undoubtedly, is the single largest merchandise retail category. According to RedSeer Consulting, the grocery market in the country is valued at over $500 billion, out of which online grocery currently has only 0.2% share, amounting to $1.2 billion. RedSeer estimates that the e-grocery segment is expected to grow at 71% CAGR to reach $5 billion by 2020.

This explains why established players, from food aggregators like Swiggy, as well as hyperlocal delivery companies such as DailyNinja and Milkbasket, are strengthening their presence in this segment that has been the domain of BigBasket and Grofers so far.  However, it is not going to be easy even for the e-commerce biggies to fortify their presence in this bustling sector.

Trial and error
While grocery e-tailing is not new to India, it has been a challenging terrain, particularly in terms of scaling up. BigBasket, the oldest and so far the biggest player, claims to have clocked a GMV (gross merchandise value) of Rs 2,000 crore in FY18. Some of the other early entrants such as PepperTap and LocalBanya had to shut shop.

Meanwhile Grofers, which launched operations in 2013, two years after BigBasket, recently revamped its business model. This involved shutting its on-demand grocery delivery service, and moving to an inventory-based model to cut costs. Earlier this year, BigBasket, too, merged its on-demand delivery service with the slotted delivery service to make operations more cost-effective.

Ankur Pahwa, partner and national leader – e-commerce and consumer internet, EY India, says getting the supply chain right is tricky. “It is complicated because you are offering fresh and perishable products such as fruits, vegetables and milk, and there has to be an entire cold chain managing that. Timelines, quality of these products and last mile delivery are also big challenges,” he adds.

Players in the segment struggle with unit economics as they have to be quick to service the customer’s demand, while also maintaining quality and doing it all in a cost-effective way. “Unless you are able to increase your average order value or charge for logistics, the segment becomes more and more difficult to make money in,” Pahwa explains.

Cracking the code
According to RedSeer, Flipkart and Amazon have seen an uptick in their number of grocery orders, their basket sizes and average order value. “Flipkart Supermart, which started with Rs 10 crore of GMV is now doing more than Rs 100 crore; and Amazon is clocking more than Rs 110 crore for Now and Pantry combined,” says Shubham Vij, associate consultant, RedSeer.

However, the e-commerce giants are still far behind e-grocery specialists BigBasket and Grofers. To take them on, Flipkart and Amazon would have to beef up their capabilities. BigBasket, for instance, commands a lion’s share of the market due to its inventory-based model, private labels, dark stores and slot-based delivery system.

The delivery of hyperlocal grocery products such as milk and meat — which players are still struggling to crack — is an area where Flipkart and Amazon could gain ground, given their deep pockets. Although this segment has seen hyperlocal delivery players such as DailyNinja, Doodhwala and Milkbasket, unit economics here too is a struggle. BigBasket, meanwhile, has introduced BBDaily specifically for the perishables segment.

Industry watchers believe that scaling up could be easier for Flipkart with the might of Walmart, which has historically been adept at supply chain. “It is also doing a deal with Landmark in India; if it reaches some sort of a strategic arrangement with them, it might help,” an expert says.

However, BigBasket and Grofers don’t have much to worry about yet. Ankur Bisen, senior VP, Technopak Advisors, says, “These two players have only been focussing on food and groceries. Until Amazon and Flipkart reach a certain scale, there is no immediate threat.”

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