The challenges of selling groceries online remain, but some players are using different business models and technology to overcome them
The buzz around online retail in India has reached a new high in the past few months, beginning with Amazon entering the fray in June 2013: There was the Rs 2,000 crore Flipkart-Myntra deal in May followed by the fresh infusion of funds ($2 billion for Amazon in India and $1 billion for Flipkart) in July, and Ratan Tata picking up an undisclosed stake in Snapdeal in August. The players are getting big, the money bigger.
What is significant, however, is that most online retailers in India sell books, electronics, apparel and accessories whereas groceries—which form the bulk of traditional brick-and-mortar-retail, a giant 60 to 70 percent of it—form a miniscule part of the total online retail space, which is worth $2.3 billion. And, there’s good reason for it.
Selling perishable goods online is far more difficult than selling non-perishables; storing and supplying fresh tomatoes is an entirely different ball game from storing and supplying cellphones. Online grocery stores are up against age-old local grocers who have built their loyal customer base on trust, reliability and quick, customised service. Selling groceries is a low-margin business (margins below 10 percent) although it requires expensive investments to build high-end IT infrastructure, an efficient supply chain, quality warehousing and storage facilities, and an efficient delivery system.
Consequently, investor sentiment remains unenthusiastic. Although BigBasket attracted a funding of $10 million from Ascent Capital in 2012, and more recently, Rs 200 crore from Helion Venture Partners and Zodius Fund II with Avendus Capital, others have received far smaller amounts or none yet.
Rahul Khanna, managing director of VC firm Canaan Partners, says investor interest is tempered by caution. “Understanding local needs across different cities has been a challenge. Mumbai is very different from Pune, let alone Delhi. How relevant are lessons from Mumbai in Pune or Bangalore? You almost have to create unique fulfilment, delivery models in each new city.”
While Canaan is yet to invest in any grocery e-commerce player in India, it has backed San Francisco-based Instacart, which provides a floating supply of grocery pickers and packer-delivered convenience at a premium.
An investor, who’s backed one such Indian firm, says all models in the e-grocery business today are capital-intensive. “These companies have to have a national presence to give people like us a meaningful outcome [exit],” he says, requesting anonymity.
However, in the shadows of the giants of Indian online retail, there’s a mushrooming of numerous online grocery stores that are experimenting with different business and delivery models: Dozens of them have set up shop in the past few years. Examples include BigBasket, LocalBanya, ZopNow, EkStop, AaramShop, MyGrahak, VeggiBazaar, Fresh N Daily and Farm2Kitchen.
Many of these are hyper-local, catering to single cities, sometimes even to only certain neighbourhoods of a city.
According to retail consultancy Technopak, the online grocery retail market is growing at 25 to 30 percent in the metros and other large cities in the country. “Urban India’s increasing shortage of time is fuelling the growth of online grocery,” says Pragya Singh, associate vice president, retail and consumer products, Technopak. “It is a largely standardised category; it doesn’t require much touch-and-feel as, say, apparel. Hence, online works fine. And it is highly convenient.”
Forbes India takes a look at three online grocery retailers that have developed business models that have been more successful than most others.
(This story appears in the 03 October, 2014 issue of Forbes India. To visit our Archives, click here.)