e-grocery takes root
In the second innings of e-commerce in India, e-grocers are at last finding some promising traction, though they still need to get consumers comfortable with the idea. Who is buying groceries online?business Updated: Oct 24, 2011 01:28 IST
Several months ago, when working couple Avipsha and Anand Thakur could not find time for grocery shopping, they tried it online but did not have much choice to bank on. The duo decided to do something about it.
“Pressed for time, we felt the need to shop for groceries online. We started with a small store in Faridabad that doubles up as a warehouse and then later went online,” said Avipsha Thakur, co-founder, Easyration.com.
For the Thakurs, it started out as an experiment but later Avipsha chucked her job to manage and expand the business. Easyration.com takes orders online or on the phone to deliver groceries in Faridabad and Gurgaon.
“Initially, customers tried it out with smaller orders but after quality/service checks, they are moving to higher value orders. While Indian customers are not willing to pay for delivery, the biggest confidence driving us towards expansion into newer geographies is the fact that customers are coming back after having tried it once,” said Thakur.
e-Kirana, or online grocery services, is the latest to join the e-commerce bandwagon. At least a dozen self-funded e-grocers have sprung up to capitalise on India's growing internet base. Though Indians are not too comfortable shopping online and many are unwilling to use credit cards online, e-grocers are luring in customers to sample the service with the cash-on-delivery option.
Abhishek Chauhan, 30, a Gurgaon-based executive with a production firm, has shopped for groceries online earlier and says he will do it again. "Grocery shopping used to be a chore but not anymore. I have an option to order groceries online and get them delivered at no extra cost," he said.
Besides Easyration.com, portals including Groceryshop.in, Mygra-hak.com, Atmydoorsteps.com, Ecity-india.com, Aaramshop.com and other online kirana stores are already delivering groceries, and more are cropping up every week. Currently, most of them are operating in different geographies and there is seldom an overlap. Most say they will raise funds once the initiative has reached critical scale.
"At this point in time, there is space to co-exist and early mover advantages will work in the long-term. A combination of competitive pricing and good service matters," said Davinder Goyal, who is trying a second time with Groceryshop.in around the National Capital Region, after an unsuccessful first try in Mumbai.
"In this business, distribution costs are high, margins are low and profits come only with scale," said Sushant Junnarkar, founder, Atmydoor-steps.com. Junnurkar's online supermarket in Bangalore, which will soon expand to other towns, works on a minimum inventory model based on daily orders from retail consumers and weekly shipments from wholesalers.
The return of e-commerce has been much talked about in India, drawing both customers and venture capitalists. The venture capitalists, according to estimates, have collectively put around Rs 2,500 crore into various e-commerce start-ups. The returns and valuation, they say, would be much higher for ventures that achieve critical scale as in the case of Flipkart.com, which recently received a $1 billion valuation. Still, it can be a tricky business. Hindustan Unilever gave up after a test drive for six years in Mumbai.
“Investors are seeing that the internet penetration level is increasing in India and there is an opportunity to substitute the regular shopping cycle. When e-grocery was tried out in the US in early 2000, it did not work. It has resurfaced again,” said Abheek Singhi, partner & director, Boston Consulting Group.
“This is the second innings of e-commerce in India. In 2000, it was investor-driven — the investors imagined that e-commerce would happen to India as it was happening in the US. The ecosystem was not developed then, but this time the industry has got validation from the customers. The fact that customers are buying on the internet is for real and so it’s more customer-driven than investor-driven now,” said Sanjeev Aggarwal, senior MD, Helion.
An early- to mid-sized venture fund, Helion has strong interests in internet-based start-ups and has in the past invested money in Makemytrip.com, Letsbuy.com, Yepme.com and others. “e-grocery is a different model and it has to be built city by city first, before it can be taken national. There are lots of logistics issues involved. It’s early days and we are yet to take a stand on this business,” said Aggarwal.
Just like any other e-commerce initiative, e-grocery too is a long-term game with a slow and tedious path towards profitability. “The domestic business of Makemytrip.com started in 2005 and broke even in 2010. It takes a minimum of five years in this business to cross the profit threshold,” said Aggarwal.
“e-grocery holds out the challenge of managing extremely tight supply chain costs and inventory for profitability. How do you, for example, deliver a 20 kg atta bag with extremely thin margins and high delivery costs? It will eat into business margins. To save on distribution costs, you need to be closer to the customer, which means more stock points within the city leading to high inventory and rented space and manpower, putting pressure on viability,” said Devendra Chawla, president - food, FMCG category & food services, Future Group.
“We have tied up with a wholesaler, which in the long run will help us save costs by at least 5%. With logistics issue being taken care of, we are able to deliver groceries the same day,” said Ajit Sanap, director, Callandorder.com. The firm has forayed into e-grocery in Mumbai and operates in central Mumbai and the suburbs. It’s looking at reaching out to consumers in metros in the days to come.