The $1-billion online grocery space is all set for the big battle with deep-pocketed players signalling expansion and strengthening their online grocery operations. It is not just Amazon; Walmart’s recently acquired 77% stake in Flipkart could lead to a larger focus on the food and grocery segment, currently led by Bigbasket with 37-40% market share, followed by Amazon and Grofers and Flipkart.
In fact, grocery is touted as the fastest growing segment within e-commerce. According to RedSeer Consulting, it is growing at a CAGR of 60-70% and is expected to touch $4-5 billion in 2020. No wonder then, that even Future Group is running a pilot to deliver groceries online. Even the latest entrant in the horizontal e-commerce space — Paytm Mall — expects grocery to contribute a big chunk to its GMV.
Experts see Walmart becoming the biggest disruptor in this space and providing a big push to online grocery retail.
“Walmart is a global leader in grocery sales. Its online foray in the US is about to reach 40% of homes. Its strength in fresh grocery supply chain management will be the game-changer in category,” says N Chandramouli, CEO, TRA Research. “Apart from giving Amazon a run for its money in this area, online grocery retailers like Bigbasket and Grofers are likely face the brunt of it.”
But unlike categories such as fashion and electronics, grocery behaves a little differently. “There is no standard playbook for grocery. While the market is big enough to accommodate multiple players, it is a region-focussed business and large retailers in every country are local,” opines Vipul Parekh, co-founder, Bigbasket.com. “A fair bit of promotions is possible in grocery and it is a myth that it is a low margin category.”
The ‘atta-dal’ story: as local as it gets
Grocery is an attractive segment in terms of getting loyal customers. Also, the cost of acquiring customers and servicing them comes down over time as the customer lifecycle is high.
Unlike e-commerce players which are looking at e-grocery to build customer stickiness, for large format retail players, the category is more about the omnichannel play. It is about acquiring new customers and moving existing customers online.
But these advantages work only for those players who understand the local nature of the category, city-specific to be precise. “The predictability of demand at the city level is important in the segment. Unless you source it from the same city, it is not viable,” says Sreedhar Prasad, partner and head, consumer markets and internet business, advisory, KPMG India. “The traditional marketplace model involving vendor aggregation does not work. It is important to control the supply chain, get the timing of the order right and focus on quality.”
This is where Bigbasket and Grofers stand to benefit. “We are able to offer a wide assortment under our private label; our logistics is built for grocery. We have built warehousing capabilities with facilities like temperature control and incorporated technology in such a way to ensure that products are delivered at the right time,” says Parekh.
Grofers, which moved to an inventory-led model in 2016, doesn’t expect to change its strategy in the face of competition. “We are focussed on serving middle income and low middle income families, which we call motorcycle families, and give them a supermarket experience. Our private label is also positioned in the economy segment,” says Albinder Dhindsa, CEO and co-founder, Grofers. “We churn the inventory thrice a month to ensure the stock is fresh,” he says, adding that the online player is growing at 15-20% every month.
Amazon meanwhile recently announced the launch of 15 dedicated fulfilment centres (FC) for Amazon Now. “These fulfilment centres are equipped with temperature controlled zones — a first for Amazon in India — to store and deliver perishable products such as fruits and vegetables (F&V), dairy products, chilled and frozen products,” informs Sameer Khetarpal, director — category management, Amazon India. The player offers two services in the category.
Amazon Now is an app-only service in Bengaluru, Mumbai, New Delhi and Hyderabad while Amazon Pantry focusses on weekly and monthly stock-up shopping. “All Amazon Pantry orders are shipped in special pantry boxes from the Amazon fulfilment centres located near cities so that customers can get their delivery the next day. We have now expanded the service to over 40 cities,” says Khetarpal.
The right supply chain
Good quality products, speed of delivery and convenience are of prime importance to customers, especially when it comes to grocery. This is where the Walmart-Flipkart tie-up can change the equation and boost the share of grocery in e-commerce — grocery as a segment has less than 5% share currently both in terms of value and volume.
Walmart also has the advantage of its cash-and-carry formats in India, with the knowledge of warehousing fresh produce. “The possibility of Walmart adding one smaller format warehouse within a 15 mile radius, covering each city pin code, will ensure customer delivery be achieved within an hour by Flipkart,” says Chandramouli.
Bigbasket too is working on cutting down its supply chain to remove inefficiencies and provide better prices to customers. It sources directly from 5,000 farmers for fresh products. It delivers two million orders on a monthly basis, with fresh fruits and vegetables generating 16-18% of its revenue, which is higher than most big organised retailers where the average
“We have 35 warehouses across the country and plan to double it to 70 this year. The total inventory write-off in the supply chain is 0.5%, which includes products going bad, damage, theft and expiry. This is smaller than physical stores,” Parekh shares. To keep stock fresh and lower shrinkage due to expiry, it churns inventory thrice a month. Bigbasket is currently present in 25 cities, where the average basket size is about Rs 1,500.
Grofers, which is present across 13 cities, says it has cut down costs by 30% by optimising on SKUs alone. “We only keep 2,500 SKUs per city now compared to 4,500 earlier and have high sales per SKU. Whatever we sell, we sell at a very sharp price point. We do not keep many variants for each product,” says Dhindsa. Also, over the last year, the online grocer claims to have cut the last mile cost by 70%. “We now deliver next day in vans and don’t offer express service anymore,” he says.
Clearly, the Walmart-Flipkart deal has the potential to expand the e-grocery category. E-commerce players, which have acquired customers through discounting, may have to relook at their distribution and logistics capabilities to cater to grocery. “Entering and winning a category are two different things. So while managing e-commerce logistics efficiently is hard, grocery logistics is much harder. You need to have local warehouses, delivery systems and build cold supply chains,” notes Aman Kumar, chief business officer of KalaGato.
While players like Future Group can get a few pieces of the puzzle right, experts say it may struggle with online customer acquisition at scale. “Unlike their e-commerce peers, bricks-and-mortar players may not be able to cross-leverage customer data and target customers efficiently. They have bigger mountains to climb,” Kumar opines.