This is a Guest Post by Kishore Ganji, CEO, Zip.in
Virtual grocery stores have emerged as an excellent alternative for urban, time-tested citizens who after a grueling day in office or tending to domestic chores lack time to visit an offline store, wait in a queue and haggle over prices and lug bags full of groceries back home. Thanks to tech-backed portals that have come to the rescue of such customers, it is now possible to get all kinds of essentials delivered at one’s doorstop from the comfort of one’s office desk or kitchen counter. While virtual shopping has gained a strong foothold in several foreign countries, the trend is slowly catching pace in India as well.
Currently, India’s online grocery market is estimated to be less than $100 million and is expected to cross $25 billion by 2020. According to retail consultancy Technopak, the online grocery retail market is growing at 25 to 30 % in the metros and other large cities in India. What is attracting more and more customers to shop online is the ease and attractive offers that these portals come up with.
The online grocery model is largely a standardised category which doesn’t demand touch-and-feel options. Moreover, with most physical grocery stores introducing eStores and mobile apps, online grocery shopping is gaining momentum. The Indian market is currently at a stage where a number of fledgling players are trying out different models around grocery delivery, including both inventory and hyperlocal-led models. An aggregator-led online grocery model procures a wide range of products from the large vendors and clubs multiple large orders thus enabling buyers to purchase in bulk. Meanwhile, a hyperlocal delivery-based online grocery model depends on the local kirana shops, which may have limited access to smaller inventory for grocery items.
With more and more grocery delivery startups vying for space in this segment, the existing players need to up the ante with more customer-friendly options, in a way that naturally pull consumers to their platform. While doing so, these players face major roadblocks such as raising capital, sourcing the right products, finding vendors and maintaining the quality of the items. A bunch of leading hyperlocal startups have had to undergo a rough patch in this space due to teething problems that have remained unsolved.
The idea behind hyperlocal startups was to revolutionise grocery buying through faster delivery and attractive discounts. However, the marketplace model witnesses high transportation and logistics costs, which tends to be higher than its margins due to multiple small deliveries. For them, tapping into the right local stores for supply is a Herculean task, as they not only have access to a limited choice of products but also to have to compromise on the quality of the products for the sake of quicker deliveries. As hyperlocal firms are incapable of sourcing monthly grocery items to a household due to limited options, the order value automatically goes down. The average order value ranges between Rs 250 and 400 and in return they earn a meagre sum of 5% commission from the kirana stores. These players often assume that customers will order fewer quantities multiple times. But, at times, they receive bulk orders and are unable to deliver on time. Also, they use two-wheeler as a mode of transport, which increases the risk of damage caused to the products. These hyperlocal grocery startup firms are unable to conduct multiple deliveries due to the lack of delivery boys as well. Most delivery manpower is unskilled and unreliable. Stringent recruitment and training is often missing when it comes to them. The end result: These grocery start-ups operate on wafer-thin margins and end up losing money on every delivery.
In order to stand out among their peers, startups need to keep the primary focus on enhancing consumer experiences apart from improving the technology and optimising the supply chain. With too many startups sprouting up in numbers within the same sector and catering to the same market, consolidation is necessary to streamline the process. Despite the initial cost they bear, the inventory-based models are the ones that look promising in the online grocery space at present. Such models have the capacity to facilitate multiple large orders from customers obliterating the problem of a limited inventory. Since the model focuses on large orders, the company in question ends up earning better margins as operational costs can be brought down significantly due to economies of scale. It can undertake large orders and can ensure delivering all the products safely and without any damage. During the delivery process, it ensures that the perishable food products are supplied in temperature-regulated containers. Eventually, it is able to enjoy a palpable increase in the number of orders, high margins with low cost of delivery along with negligible returns.
With most virtual grocery companies now available through their mobile apps, ordering groceries has become even more of a cakewalk with customers browsing, choosing and booking orders, with a swipe on their touchscreen. However, companies will have to do much more than just offering plum discounts to lure first-time customers to their page in order to win a loyal customer base. Quality of produce and reaching customers on time continue to remain the basic challenges that need to be overcome in order to claim retention in the long run. Country-wide expansions need to be strategically planned after a careful study of demographic and market needs of a particular geography as these differ from metros to small towns.
Online grocery is touted to be on the list of the three most lucrative segments for eTailers after electronics and apparel. In the race to emerge as a front-runner among other online grocery players, startups should come up with innovative solutions and look at competing with offline stores for an imperishable future rather than focus on a high marketing spend and customer acquisition costs. Grocery-based startups that can blend the convenience and swiftness of shopping for groceries online with the personalised, credible and secure transactional experience of offline shopping will eventually be the ones to grab a lion’s share of the pie.
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