Consider this: at $360 billion (Rs 21,60,000 crore), India is the sixth largest grocery market in the world. Within this, modern retail (led by the top eight cities) accounts for around 20 per cent. If one slices the pie further, you will find that a new kid on the block - online grocery retail - is slowly wedging itself in, and is expected to reach around 2 per cent of the expanding grocery market by 2020, creating a potential market size of around $10 billion (Rs 60,000 crore).
This niche segment is expected to contribute 10-20 per cent of overall e-commerce jobs, with each warehouse of online grocery companies employing around 50 to 100 workers depending on the scale of operations, according to Randstad India. "Since this segment works with perishable items, there will be a demand for experienced supply chain management professionals, including procurement, inventory management, cold storage management, quality and logistics," says Moorthy K Uppaluri, CEO, Randstad India. Being largely localised, players will face challenges in attracting the right talent. Over and above the tough job of stocking and marketing perishables, there is the hassle of localisation. But these are small problems compared to the overwhelming task of changing consumer habits.
|GOOD TIMES AHEAD?|
If consumers are to fully convert into online grocery shoppers, some of the key triggers could be:
So why are new players joining the race in droves? What were the main hurdles that forced earlier entrants to throw in the towel? Above all, how easy or difficult will it be to convince consumers to switch from the local kirana and order cauliflower through a click?
Fixing the basket of offerings
The selling point for e-grocery is that it offers more convenience than the neighbourhood store; but to be sustainable they have to do this cost-effectively. And that is not the easiest job to pull off.
People are used to either picking up the phone and ordering from their local kirana store that offers credit, or making two grocery trips - one for the monthly purchase and another for top-up buys - a month at a nearby supermarket /mall. This has been the general trend for a long time. To get people to try e-groceries and to get them to believe that the products will be delivered fresh, on time and with post-purchase service if need be, pose a serious challenge. Add to that the lack of 'touch and feel' in the case of online perishables - FMCGs, by contrast, are pre-packed, cutting out the 'feel' factor - and the task of selling becomes a little more onerous.
A way out could be to other niches/ancillary products that e-grocery portals could try and service, which could rub off on the primary offering. This could involve the promotion of differentiated/under-distributed food products as opposed to undifferentiated/over-distributed food and grocery brands. Take Godrej's Naturesbasket. com. The portal realised early on that to survive, it had to go beyond aloo-gobi. "Considering that our focus is on offering premium gourmet experiences and with a growing proportion of consumers accessing the platform through their smartphones, a dynamic e-tailing site gives us an edge," says Mohit Khattar, MD, Naturesbasket.com. The target group? The time-constrained Indian residing in cities where it already has a physical presence. Another set comprises those who live in areas where gourmet foods are not available.
Or take the 2012-founded Mumbai-based LocalBanya, which has gone beyond standard groceries, fruits and vegetables, and stocks exotic vegetables, personal care/household supplies, detergents, kitchenware, breakfast items and packaged snacks.
Bigbasket.com, which operates in Bengaluru, Mumbai and Hyderabad, is set to increase its range too by adding pesticide-free/organic fruits and vegetables apart from pre-chopped vegetables. Mumbai-based EkStop has gone as far as to list stationery and art material on its portal. BigBasket also offers own-brand products that have a share of well over 40 per cent in the overall sales.
Apart from having a rub-off on traditional groceries, stocking ancillary products could also help improve margins. Groceries yield low margins even in physical stores. Typical gross margins hover around 7 per cent for e-grocers. "To boost margins, the goal has always been to sell a more profitable basket to customers that include higher margin products," says LocalBanya's co-founder Rashi Choudhary. For example, a section of the portal's customers, which is willing to pay a premium for top-quality branded products, try organic options and even opt for international ranges, all of which adds to its overall margins.
That said, the average Indian consumer is used to just-in-time purchases rather than buying in huge quantities - so more often than not, the average basket size is sub-Rs 1,000.
In effect, sustainability hinges on deriving margins, which in turn, requires a careful analysis of categories to be served, and, more importantly, smart sourcing.
Getting a handle on sourcing
People know what they are buying when it comes to packaged food products. But fresh produce involves a short shelf life and deft handling. That apart, e-grocery entails multiple SKUs in a single order, and unlike in the case of electronic products, single SKUs are not necessarily supplied with tamper-proof packaging to protect the contents. This essentially implies higher logistics costs to ensure there is as little damage as possible to the products.
"With fruits and vegetables, we work on a zero inventory policy and maintain a minimum inventory level in case of packaged food products," says Rajiv Tetviya, co-founder and CEO, Greencart.in. For fresh produce, Greencart goes to the vendor directly - usually the farmer or in the case of imported fruits, the agricultural middleman. At regular intervals, the online orders are checked and the farmers informed. Greencart uses cellulose films (derived from plants) for packaging to protect fresh produce from human touch and environment factors. For leafy fruits/vegetables, the company uses customised cold storage boxes during transportation. Greencart claims to have a 98.5 per cent success rate of complete fulfilment, which means it satisfies 98.5 per cent of its orders.
In the case of EkStop.com, the sourcing of perishables is done real-time through agricultural markets in Vashi (Navi Mumbai) and through wholesalers who serve as stock-points within city-limits. With 180 employees across four locations in Mumbai, EkStop uses a hub-spoke model for warehousing.
For its part, LocalBanya has set stringent hygiene and storage standards that its vendors have to meet before their produce is accepted in the warehouse. If a customer gets a product that is not up to the mark, there is a no-questions-asked return policy.
The e-grocer also ensures that fresh produce spends the least possible time in storage - typically only a few hours - to ensure that it remains in top condition when it reaches the customer. "We achieve this through direct sourcing, using finely tuned inventory models and using technology to predict customer-buying patterns," says Vipul Parekh, co-founder, BigBasket.
As opposed to a traditional retailer who has to hold about 1,000 SKUs on an average at any given time, BigBasket carries more than 10,000 SKUs. Technology has been the biggest facilitator in inventory management; typical inventory turnover at BigBasket is about 40-45 times a year.
Managing inventory and delivery
Normally, e-commerce works with a delivery promise of a certain number of days while with e-grocery, 'the deadline was yesterday' as the adage goes. Internationally, pick-up-point-based delivery models are popular but these are unlikely to work in India. The key reason is that customers order groceries online to avoid the hassle of going to the store, and a pick-up will undermine the convenience factor. Besides, India is a DIFM ('do it for me') market as against the DIY ('do it yourself') mindset prevalent in the West. But unlike the personal care category, the existing courier-delivery model cannot be used for e-grocery. At any given point, an e-grocery firm deals with 500 vendors at a time, which adds to the complexity.
EkStop brings six, two-hour, delivery timeslots and like other players, offers free same-day home delivery. The company has beefed up its delivery team four-fold since inception in 2012. Greencart goes so far as to text its customer should a delivery be made before time. For same day delivery, it takes online orders right up to 3.00 am.
Naturesbasket.com uses its offline stores to manage deliveries, minimising the need for warehousing. LocalBanya, on the other hand, tries to create differentiation by letting users enter up to three addresses as their delivery destination. In addition, the portal offers corporate programmes wherein employees of participating companies get discounts if they choose to have their orders delivered to the work place.
Based on order analysis, LocalBanya uses a mix of JIT (or just-in-time inventory that comes in at pre-fixed time slots from vendors and moves out as quickly as it arrives) and warehousing for product management. LocalBanya, which clocked in revenues of Rs 10 crore in FY13, is targeting Rs 70 crore for FY14, on the back of the 700 deliveries it makes per day through over 130 employees.
BigBasket also rides on technology for forecasting, buying and managing inventory. Picking, packing, storage at the warehouses and delivery routes are tech-assisted and deliveries are managed by using GPS-enabled devices and transport. To differentiate itself from the others, BigBasket offers customers guaranteed delivery times with built-in penalties for late or incomplete deliveries.
One of the key issues with online grocery is that it is a local, city-specific operation. Every time you add a new city, it is akin to launching the business afresh. This makes grocery a more difficult category to go national with, and more challenging in terms of operations. "However, an online player who builds an efficient model can quickly scale up across cities," says Parekh of BigBasket.
EkStop's protocol and processes, teams, corporate structure, marketing, sourcing, warehousing and logistics have been built with a 'copy-paste city-capture' model. "Attacking micro-markets to scale the business and having tier-A processes to provide customer delight and drive a robust operational process is the best approach to the e-grocery business," says Sumat Chopra, co-founder and CEO, EkStop.
There are players like Aaramshop.com, who follow a near-hybrid, asset-light business model. It fulfils orders placed on the site via the preferred neighbourhood retailer closest to the customer, who will deliver at the consumer's doorstep within a couple of hours of placing an order. "We are leveraging the existing last mile strength of the independent neighbourhood retailers and integrating it with the opportunities offered by the entire digital eco-system," says Aaramshop CEO and MD Vijay Singh.
By providing contact information of the nearest retailer, isn't Aaramshop in danger of becoming a classifieds for kiranas? Not really, says Singh, as Aaramshop's revenue model is not based on specific transactions, but on premium services offered to brands (like analytics, activations, coupons, advertising etc) and subscription-based privilege services for retailers. The attempt is to enable engagement between retailers and customers, be it through walk-ins, phone-based orders, online orders or even a mobile app (to be launched in August). Aaramshop currently operates in 35 Indian cities with 3,500 retailers with an access to 2.5 million urban households.
Experts still feel that for an e-grocery company, a localised operation may be viable, but a scaled up version of the same is where the model could get stressed. Our advice: Go hyper local with e-grocery, even while thinking of acquisitions.