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Online Grocery Market in India

In many developed countries like Japan, France, Switzerland, UK and US, online
grocery has proven to be a successful business market. Now, the market is set to
become an exciting space and experience exponential growth in India with a large
chunk of Indian population coming online.
This new era of busy lifestyle, long working hours compounded with tiresome
commuting, the growth in internet usage in society and affordability of smartphones
is creating immense scope for online grocery businesses to serve the increasing
demand. A change in consumer behaviour is noted as unlike never before, more and
more customers are getting comfortable with online shopping from electronics to
apparel to shoes etc. online. Although gaining momentum, the awareness of online
grocery is yet to gain the mindshare of consumers, with only 1 to 1.5 per cent of the
total groceries which Indians purchase online. This is expected to increase to 2 to 3
per cent in the visible future. The middle class is also expanding in India and will be
the 3rd largest middle class in the world in 2020, and projected to be the largest in
the world by 2030. This will lead to a growing number of consumers that buy
groceries, but begin to calculate a time-value analysis as their wealth grows. These
consumers will subsequently find that grocery shopping via the Internet is a high
value-add service.
India stands the sixth largest grocery market in the world at $360 billion (INR 21 lakh
crores). 20% of this market is led by the top eight cities in modern retail. Further
apportioning of the market reveals that online grocery retail is slowly gaining its
momentum and is expected to reach around 2% of the expanding grocery market by
2020, with a potential market size of around $10 billion (INR 60,000 crore).
Retail consultancy Technopak expects the online grocery business to grow at a rate
of 25-30 per cent year-on-year in major Indian cities. Research firm IGD predicts that
by 2016, the Indian grocery market would overtake Japan to become the third largest
market worldwide. Indias online grocery market, which is estimated to be less than
$100 million at present, is expected to cross $25 billion by 2020.
The market is still at an early stage of development right now. However, the growth in
this sector looks promising, considering the actions taken place from the last 2-3
years. The market has seen the entry of many emerging players over the years like
Bigbasket, ZopNow, Localbanya, Aaramshop etc, and in the recent past some new
players have made its penetration like Pinkcitykirana, Grofers, PepperTap, etc.
Slowly but surely the online grocery shopping is attracting other e-commerce players
to grab a piece of the pie. In India, Online grocery is preparing to thrive and claim a
big chunk of the market share in Indian e-commerce industry. Big shots like Amazon,
Flipkart, Ola, Paytm, Tata Groups My24x7 are trying their hands in this
flourishing portion of the market.

Grocery shopping struggle

As compared to a metropolitan city in India, it is much easier, in the developed
countries like US and UK to drive/walk to grocery stores, park and get the shopping
done, load up the car and drive back home. In India the crowded cities, horrific traffic
congestions and shopping venues with scarce parking spaces are one of the few
factors that makes regular grocery shopping a nightmare.
Indias infrastructure and overcrowded major cities make it a tedious for in and out
shopping. In a most of the major cities, there are very few parking lots for grocery
stores, and the prohibitive traffic makes the time commitment and risk even higher
when driving to crowded city centres that feature more full-service grocery stores or
modern retailers. However, while the infrastructure makes it difficult for consumers to
get to the grocery stores, the poor driving conditions and unsuitable roads, make
consistent and stable delivery service a struggle. This has led to a high number of
consumer complaints revolving around delivery timing for this still emerging industry.
While the city infrastructure is a challenge, the industry infrastructure is as well. As
stated above, only 5-8% of all grocery stores in the country are organized
corporations or entities. This not only makes it difficult for service providers to win
large contracts with a chain, similar to what Instacart has done with Whole Foods,
but it also changes overall market dynamics as Indian shoppers are rarely tied to a
larger brand for their food purchases.This has led to a push from the tech companies
to try and facilitate better organization and back-end technology for the kiranas.

Key Traits of the industry

The retail market in India is expected to hit $725 Bn (about INR 43 lakh crore)
by 2017. Retail consultancy Technopak estimates online grocery business to
grow at a rate of 25-30 per cent y-o-y basis in major cities of India.

India is the 6th largest grocery market in the world.

Only 5-8% of grocery stores are organized corporations. The vast majority are
mom & pop type shops that are similar to convenience stores in the US and
are referred to as kiranas.

The online grocery market is growing at 25-30% annually in metropolitan

areas and large cities.

Margins are below 10%.

43% of the countrys roads are not suitable for vehicles. Paired with
checkpoints, and duty collection points that slow down traffic, infrastructure is
an obstacle.

Indian online grocery delivery market has some very unique demographic statistics
that have risen out of a new shopping method for the country including:

Women aged 30-35 are the largest adopters of online grocery shopping.
68% of all users on major e-grocer are women.
14% of LocalBanyas customers are senior citizens.
11% of orders are done in 10pm - midnight slot. Previously unattainable.
Institutional clients make up 29% of orders for select major retailers.

The prevalence of women online emerged in Indias e-commerce industry. It is

projected that women-influenced sales will be 35% of Indian e-commerce by 2016.
This is a massive departure from brick-and-mortar sales, which are dominated by
men across all industries. The rise of women in e-commerce has been attributed
largely to convenience, as well as increased privacy and safety.
Online grocers have been able to target a niche by offering later delivery windows
than many traditional grocery stores. Currently, 11% of orders are for delivery during
the 10pm 12am time slot, which was previously unattainable for customers. This
offering comes at a time when Narendra Modi has spoken about extending work
hours to 8 pm from 6 pm for government officials, while overall workers in India feel
they are working longer hours than in previous years.
Larger online grocers have also been able to attract a high number of institutional
clients from restaurants to corporations to other organizations that require groceries
in bulk. As some of the larger online grocers continue to white label consumer diet
staples, restaurant purchasing could even increase further.

Hurdles for new entrants

In this sector, the costs per order in terms of handling, packaging and delivery are
substantially high due to the perishable nature of goods in trade. If the inventory
model is not maintained accordingly, businesses are prone to face big monetary
The crucial factors that undermine the success of online grocery business are quality
assurance, cheaper products and timely delivery. Several young companies are

trying a number of different models around Grocery delivery. The online business
model needs to be driven by differentiation from off-line purchasing, instilling buyer
confidence and making the entire supply chain more efficient. Gurgaon-based
express delivery marketplace Grofers has so far partnered with over 250 merchants
across Delhi and Mumbai. The one year old company now processes over 30,000
deliveries every month. Rashi Choudhary, the co-founder of points
that while growth comes from entering new markets, the real kicker is to convert
people into repeat customers.
The nature of online grocery being a local, city-specific operation, is another the key
issues. Each time a new city is added, it is akin to launching the business afresh.
This issue makes online grocery business more challenging in terms of operations
and makes it a difficult category to cover different geographic locations.
Sandeep Agarwal, Co-founder of asserts Online grocery startups are not like a high-end technology start-ups that everyone looks for. If you dont
know the business inside out, no matter how good your technology is and how much
funding you have raised, it will fail.
Apart from the alterations of business models used for different locations around the
nation, some of the other major challenges faced by new entrants are competition
from local business/already existing online players and the lack of trust in the online
mode of shopping. Raising attractive forms of investment is also a hurdle for the new
entrants in this market.
Low operating margins in this segment pose a threat by making it difficult to offer
better deals. Optimizing supply chain network is critical for the players. K.Ganesh,
co-promoter of counter argues that the margins can be as high as
22%. In order to gain such margins, Ganesh emphasises the requirement of strong
domain expertise to source and grade the products, as well as penetrating deep into
the supply chain and build strong relationships with farmers, mill owners and FMCG

Business models
The Indian online grocery market is still at an early stage of development. Within the
market a number of young companies are trying various models surrounding grocery
delivery. Some include inventory led models while others that leverage existing store
inventory. A good amount of start-ups have been funded in this area but majority of
the investments are focused either on an asset heavy model or on logistics led
The growth in grocery ecommerce industry has put online grocery retailers at the
forefront. The number of players in the market has grown three folds in recent years.
These companies abide by pure play by building large warehouses and distribution
centres outside of major cities and owning fleets of GPS-enabled vehicles in order to

serve online demand. Online grocers like BigBasket Fresh direct and LocalBanya
follow this model.
Businesses constructed around hyper-local delivery model provide front-end and
logistics management service for smaller chains or even individual grocers on annual
fee/commission basis. AaramShop, Peppertap, Grofers are few big players operating
in along this model.
According to Navneet Singh, Co-founder of Peppertap, online grocery service is a
capital intensive business and this model is yet to be cracked as it has its own
implications. The Gurgaon based mobile-first hyper local grocery delivery service
was founded in November 2014 by Navneet Singh and Milind Sharma. PepperTap
offers a wide-range of groceries and daily-need products. Currently, PepperTap
offers more than 15,000 SKUs across categories including Staples, food & dairy
products, household items, fresh fruits & vegetables etc.
Right now, players are trying different business models to differentiate themselves in
this space. Given the potential market, it will be wise to take a closer look at different
attempts to build companies that strive to tackle this opportunity in different ways.
The players more likely to succeed in this market are the ones that can deliver a
thriving supply side eco-system and significantly attract and retain consumers.

Scope to prosper
Even though a number of e-grocery has already entered the market, this segment is
far from saturation. Most of the businesses are catering to the metropolitans and
other growing cities. Due to limitations binding logistics, a large proportion of online
grocery stores serve to specific cities or specific locations within the city. The
potential size of the market ensures enough rooms, within the cities, for multiple
Online grocery stores have a significant percentage of repeat customers and orders.
Availability of a wide range of products compounded with competitive pricing and
prompt delivery methods, equips the businesses with the advantage of converting
the first customer into a repeat consumer.
Most e-retailers prefer packaged items due the challenge imposed by the perishable
nature of food products like vegetables, meat and dairy which cannot be stored for a
long term. This adds to the advantage of e-grocers offering fresh items, over the big
online players.
The cost involved with owning a domain and hosting an online store is negligible
when compared with the investment in a Brick-mortar retail store. This opens up the
scope for businesses based on hyper-local delivery model to enter the market
without heavily investing in the physical infrastructure of the business. With the zero
inventory option, hyper-local delivery model might turn up as the best option.
Besides, there are multiple areas of opportunity for players like payment gateways,

real estate and logistics to get benefit from the ongoing boom in online grocery
Mohan Kumar, Director at Norwest Venture Partners is of the view that the grocery
delivery is an operationally intensive space, and technology is only an enabler. The
team which can manage large fleets of logistics and manage those staff will come
ahead, and in the end only a couple of pure-play, on-demand logistics players will
There are no disputes among experts who believe that this sector has headroom for
growth. Kunal Bahl, co-founder of snapdeal states the market will see more growth
as the number of players increase within the segment. Bahl is neither worried about
a player like Amazon with deep pockets and global expertise. The future of a
business in this segment also depends on the effectiveness and efficiency in
adapting to the diverse and complex nature of the Indian market.
Karan Maheshwari, angel investor in claims that this market, still in its
early stage of growth, has enough space to accommodate everyone but anticipates
shakeouts, mergers and acquisition in the near future.

Future Outlook
Offline grocery stores are becoming increasingly aware of the trending shift in
consumer base towards mobile technology and the need for them to evolve as a
business. The future of online grocery market seems to be flourishing with the
increase in demand for convenience in lifestyle compounded with the growth rate in
purchasing power of the Indian economy.
Currently, the online grocery delivery industry is both small and fragmented. New
batch of start-ups, who have hyper-local logistic model in place, seem to have
gained significant traction and are likely to contribute towards the growth of this
industry by providing innovation of services. The online grocery market is a potential
gold mine for investors if issues like infrastructure, supply network and taxation
regime is improved.
Companies that are successful at customer retention will grow significantly and will
find themselves in a comfortable position to become leaders in e-commerce market.
Furthermore, given the potential size and the growth forecast of the market, with the
right type of interested investors, there is an opportunity to build billion dollar
companies in this segment.

Experts opine that the Return on Investment (RoI) in this industry is

expected to be excellent, considering the Indian demography and
consumer behaviour. Further, it would also depend on the monetization
model within this industry. Grocery in India is a huge market and grocery

shopping on mobile is already seeing strong adoption. We believe that

hyperlocal marketplace approach is the most efficient way to cater to this
market, and can scale very rapidly, said Ravi Adusumalli, MD, SAIF
Partners. - See more at:
Moreover, with investors support theres an opportunity to build billion
dollar companies in the online grocery space. If companies are successful
at customer retention, this model will grow significantly and be wellplaced to become a huge winner in the e-commerce sphere, asserts
Aparajita Choudhary, Franchise India
Ashish Jhalani, Founder of E-Tailing India had said: Were predicting that
over the next few yrs, economy will grow at 52 percent CAGR (compound
annual growth rate).We assume that niche players will grow at a much
faster rate by about 60-65 percent CAGR.

Special Factor - marketing

Nikita, an HR consultant, who had signed up with Local Banya shares that
she received a promotional mailer from them few days before her
birthday. It suggested that she could order birthday party supplies and
other groceries from them conveniently. Although she was all set to visit
the nearest super market, the mail prompted her to quickly order drinks,
snacks and other essentials online. The convenience of not lugging a
heavy shopping cart and avoiding long paying counter queues was a huge
plus of ordering birthday party supplies online, she added.
Presently they serve over 10,000 homes a month and deliver 750-800
orders a day.

Salt n Soap stands on 4 innovative business principles

- Provide Personalized Shopping Assistance to customers
- Provide Social Shopping Experience to customers
- Provide Open Analytics to customers
- Operate on Lean Logistics Model

According to DS Rawat, Assocham secretary general, "The smartphone and tablet

shoppers will be strong growth drivers. Mobile phones already account for 11% of ecommerce sales, and their share will jump to 25% by 2017."

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