Online Grocery not so hyper anymore; time to prove its mettle

In the past few months, several online grocery businesses either shut down or scaled down. Some of them are:

• Cab aggregator Ola shut down its hyperlocal grocery delivery service in cities like Bangalore, Gurgaon and Hyderabad
• Peppertap closed operations in 6 top metros
• Grofers stopped last-mile delivery operations in 9 cities
• LocalBanya is yet to come out of its temporary closure
• Flipkart decided to shut down its grocery delivery app ‘Nearby’
• Paytm pulled out their grocery app Zip

This brings us to an important question – is the e-grocery market dying?

No, it’s not! But hyperlocal players are struggling.

Players are failing, not the e-grocery potential

The online grocery market is growing at a healthy CAGR of 62% and several studies indicate that there’s huge potential as the need for on-demand services has only grown with time.

The inherent complex nature of the grocery business is what’s turning out to be the biggest problem for etailers.

BigBasket’s co-founder Vipul Parekh describes why some have failed or are struggling,

“Grocery is a very complex category from a supply-chain perspective. Being able to deliver a wide range of products, including a perishable range, managing same-day delivery and high fill rates is critical to customer satisfaction. Offline supply chains are not fully developed and hence riding on them does not deliver a great customer experience. This has led to the decimation of models based on them.”

Mettle being tested

A year back, it was an open-to-all boom period. Several players entered and funds flowed freely. But the ecommerce industry on the whole has changed. Valuationsare getting realistic and actual performance matters rather than a speculated figure.

Currently, Big Basket is the leader in this sector. And Parekh believes that inventory-led model helped them to combat the challenges. He shared,

“We have an inventory-led model that allows us to control quality and the fill rate, and also offers the largest range in the business. We currently operate at 99.5% fill rate and 99% on-time delivery. We offer three differentiated delivery models (all inventory-led), which are aligned with our customer-buying preferences. As a result of this, we have seen significant growth in business even while other business models have perished.”

The ones with on-demand model are gradually realizing how tough it’s to ensure quality & quantity while maintaining service standard and fast delivery.

Future plans of existing players and new entrants

While the independent e-grocery startups are struggling, marketplace leaders such as Snapdeal and Amazon are counting on this segment.

“At Snapdeal, FMCG is a big focus for us this year. This category is one of the significant drivers of habit commerce, which is in line with our vision of having 20 million daily transacting users on the Snapdeal ecosystem by 2020”,revealed Rahul Taneja, VP – Category Management at Snapdeal.

Below are some of the moves e-grocery players intend to execute in the coming years:

• Snapdeal is going to focus on weekly and monthly grocery baskets of household items through ‘Daily Needs Store’
• BigBasket plans to enter 25 tier-I and tier-II cities
• BigBasket is also looking to expand its offering by introducing new organic & private labels and gourmet & imported food items
• Grofers plans to onboard more than 1 lakh merchants
• Partnership with farmers also on the cards for Grofers to improve supply chain