On­line Re­tail

Progressive Grocer (India) - - Front Page - By Dr San­deep Puri, Dr Sh­weta Pandey, and Prof. Anand Khanna

E-gro­ceries are try­ing out dif­fer­ent mod­els around de­liv­ery. Which model can grab ma­jor mar­ket share?

The e-gro­cery seg­ment is cur­rently at a stage where the lead­ing com­pa­nies are try­ing out dif­fer­ent mod­els around gro­cery de­liv­ery: in­ven­tory-based and hyper­local mod­els. Com­pa­nies that can blend the con­ve­nience and swift­ness of buy­ing gro­ceries on­line with the cus­tom­ized, cred­i­ble, and se­cure trans­ac­tional ex­pe­ri­ence of off­line shop­ping will even­tu­ally grab a ma­jor share in the In­dian gro­cery mar­ket.

The emer­gence of in­ter­net con­nec­tiv­ity, a plethora of pay­ment op­tions and smart in­ter­net-con­nected de­vices com­bined with the need for con­ve­nience and best prices has cre­ated down a strong foun­da­tion for the rise of e-com­merce in In­dia. Ac­cord­ing to a re­port by pay­ment pro­cess­ing com­pany World­pay, In­dia is likely to be­come the sec­ond largest e-com­merce mar­ket in the world with rev­enue ex­pected to reach around US$64 bil­lion by 2020. E-gro­cery re­mains a big seg­ment in the mar­ket and as per a re­port by Fran­chise In­dia, the on­line gro­cery mar­ket is ex­pected to be about USD 3 bil­lion by 2018-19.

The e-gro­cery seg­ment in In­dia is be­com­ing hy­per­com­pet­i­tive with more than 50 e-gro­cery com­pa­nies com­pet­ing with each other for the cus­tomer base. So far, the e-gro­cery mar­ket has reached an an­nual gross mer­chan­dis­ing value (GMV) or sales of USD 600 mil­lion in 2016 and USD 960 mil­lion in 2017. An­nual trans­ac­tions have in­creased by around 35% from 35 mil­lion in 2016 to 46 mil­lion in 2017. This e-gro­cery seg­ment has been tried out by sev­eral play­ers like Big­bas­ket, Big­banya, Zop­now, My­gra­hak, Aaramshop, Askme, and Jug­noo in In­dia. Each com­pany is try­ing to of­fer the best qual­ity prod­ucts with the fastest de­liv­ery time.

Many fac­tors have con­trib­uted to the emer­gence of the var­i­ous e-gro­cery for­mats in In­dia. The

e-gro­cery model is mostly a stan­dard­ized seg­ment that doesn’t need touch-and-feel op­tions. In­dia has a size­able base of young work­ing pop­u­la­tion that does not want to spend time on gro­cery shop­ping at brick-and-mor­tar stores. Fur­ther, equipped with ris­ing dis­pos­able in­comes and sub­stan­tial knowl­edge of the in­ter­net, they find it eas­ier to shop on­line. In ad­di­tion, con­sumers liv­ing in metro cities like Delhi, Mum­bai and Bangalore find com­fort­able doorstep de­liv­ery at­trac­tive com­pared to the has­sles of travers­ing the ever-in­creas­ing traf­fic jams and park­ing non-avail­abil­ity. More­over, there is an easy avail­abil­ity of a wide prod­uct range on­line be­cause e-gro­cers of­fer more than 10,000 stock keep­ing units as com­pared to the 1,000 SKUS of the tra­di­tional re­tail­ers. This dif­fer­ence has led to a one-point avail­abil­ity of a wide range of op­tions to con­sumers in the com­fort of their own homes. The en­hance­ment of lo­gis­tics providers and tie-ups with lo­cal taxi ser­vices like Uber have also evolved the door-to-door de­liv­ery op­tions for on­line gro­cers from the pain of car­ry­ing gro­cery bags and stand­ing in long queues at the su­per­mar­kets. Fi­nally, the steep price dis­counts on bun­dled prod­ucts and min­i­mum or­der size have wit­nessed an in­creas­ing ac­cep­tance in th­ese mar­kets. How­ever, a sub­stan­tial con­sumer base re­sid­ing in tier II and tier III cities has not yet been able to get on the e-gro­cery band­wagon as they have low aware­ness, lack of in­ter­net self-ef­fi­cacy, and are more prone to face-to-face price bar­gains. The com­pe­ti­tion has been ris­ing and e-gro­cers are strate­gi­cally tar­get­ing th­ese mar­kets to in­crease their pres­ence across the coun­try.

Which is a bet­ter model?

The e-gro­cery seg­ment is cur­rently at a stage where the lead­ing com­pa­nies are try­ing out dif­fer­ent mod­els around gro­cery de­liv­ery: in­ven­tory-based and hyper­local mod­els. Big Bas­ket is one of the top play­ers in the busi­ness with over 500,000 cus­tomers, op­er­a­tions in seven cities, and a web plat­form and an app. Zop­now has both app and web pres­ence whereas Gro­fers is only app-based. The busi­ness mod­els across the play­ers dif­fer. Play­ers like Big Bas­ket use an in­ven­tory-based model, where the com­pany main­tains its own in­ven­tory; whereas Gro­fers fol­lows the hyper­local model.

There are pros and cons of each model. The com­pa­nies fol­low­ing the in­ven­tory-based model have more con­trol on the qual­ity of prod­ucts de­liv­ered. Also, as the com­pa­nies are tak­ing full con­trol of the sup­ply chain by sourc­ing di­rect from the farm, it of­fers bet­ter profit mar­gins. Big­bas­ket, for ex­am­ple, pro­cures the prod­ucts di­rectly from the man­u­fac­tur­ers, sup­pli­ers, and farm­ers, and then stores them in their ware­houses. Big­bas­ket also takes con­trol of the de­liv­ery to ex­e­cute full con­trol over cus­tomer ex­pe­ri­ence. The model is costly since it re­quires set­ting up a ware­house, qual­ity checks, in­ven­tory man­age­ment, and trans­porta­tion fa­cil­i­ties. There’s also the pos­si­bil­ity of wastage if per­ish­able prod­ucts are not con­sumed within a stip­u­lated time. Play­ers like Big Bas­ket also sell pri­vate brands like Fresho (fruits, meat, bread, and veg­eta­bles), Pop­u­lar/ Royal (sta­ples) to man­age their mar­gins ef­fec­tively. In spite of the ini­tial in­vest­ments, the in­ven­tory-based model looks more promis­ing in the e-gro­cery mar­ket.

On the other hand, the hyper­local model works on pur­chases made from lo­cal store re­tail­ers and de­liv­ered to the cus­tomer. The e-gro­cers us­ing the hyper­local model earn money based on com­mis­sions from lo­cal store re­tail­ers (ki­rana stores). In­vest­ments in hyper­local gro­cery for­mats have been made by sev­eral com­pa­nies. For ex­am­ple, Gro­fers is a hyper­local gro­cery app val­ued at around USD100 mil­lion. Ama­zon Ki­rana Now is al­ready op­er­a­tional as a pi­lot project in Ben­galuru and Paytm has in­tro­duced Zip mo­bile app in Ben­galuru. Ola store, a hyper­local gro­cery mo­bile app, has been in­tro­duced by Ola. Flip­kart is also ex­per­i­ment­ing with a pi­lot project on e-gro­cery with a ser­vice called Su­per­mart in Ben­galuru.

The new hyper­local chan­nel has its set of ben­e­fits and is­sues for both mar­keters and cus­tomers. It of­fers cat­e­gory man­agers another new chan­nel, apart from the ex­ist­ing tra­di­tional and mar­ket­place chan­nels to reach their cus­tomers. The mar­gins of­fered by this chan­nel are higher as com­pared to the in­ven­tory-based model as there is no need to have phys­i­cal in­fra­struc­ture. As per es­ti­mates, hy­per­locals en­joy

The com­pa­nies fol­low­ing the in­ven­tory-based model have more con­trol on the qual­ity of prod­ucts de­liv­ered. Also, as the com­pa­nies are tak­ing full con­trol of the sup­ply chain by sourc­ing di­rect from the farm, it of­fers bet­ter profit mar­gins.

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