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.