Stock, deliver or both: What’s the best model for online grocers? | business | Hindustan Times
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Stock, deliver or both: What’s the best model for online grocers?

Over the last 4-5 years, two distinct models of e-tailing grocery has emerged -- the stock and deliver model, and the deliver-only model.

business Updated: Sep 29, 2015 10:29 IST
Kalyan Subramani
Representative image
Representative image(Picture courtesy: Wikipedia)

India’s half-a-dozen large online grocers would have you believe that some two million people have stopped going to grocery stores. They simply touch widgets on their smartphones, and voila! the fridge is filled up.

Over the last 4-5 years, two distinct models of e-tailing grocery has emerged -- the stock and deliver model, and the deliver-only model.

The big daddy among Indian e-grocers is Bigbasket, which claims to have half a million customers. It is eyeing the million-mark by end of this financial year. Co-founder and CFO Vipul Parekh claims that “The range of products delivered (around 15,000 individual items) at customers’ doorsteps at a fill rate (proportion of items on customers’ shopping list that are met) of around 98% to 99%, along with strong domain knowledge, are the key to our success.”

Bigbasket has its own warehouses, and has even started selling its own private label.

Deliver-only models are yet to touch the magical 100% mark.

Peer website Peppertap’s founder Navneet Singh, who has taken the deliver-only route, believes the stock-and-deliver model is inefficient, and blocks capital. Peppertap claims to have pulled in half a million customers in 9 months — it took Bigbasket 4 years to get there – and is eyeing a million by December. It plans to double its coverage to 30 cities this year.

Another e-grocer, Zopnow, which used to maintain stocks, has stopped the practice. “We have run warehouses in the past. (But) it very capital intensive and return on investment (RoI) does not justify this. Aashirvaad Aata from your own warehouse or from any other store would taste the same,” said Zopnow co-founder Mukesh Singh.

It has shifted to what it calls an “omni-channel” model, and is partnering two retailers - HyperCity and AV Birla group’s More.

Mumbai-based Localbanya has a model similar to Zopnow, but has tie-ups with eight large format offline retailers. Co-founder Karan Mehrotra said: “Big-format retailers have huge warehouses, which are underutilised. We are simply using this (without making any investment) and returning double-digit gross margins.”

Ironically, the RoI philosophy is precisely what hoarders such as Bigbasket believe will aid them in the end. Bigbasket’s co-investor and serial entrepreneur Ganesh Krishnan says most delivery-only players operating on single-digit margins will find the going tough: “Delivery alone will not work. Gross margins are too small to recover even the cost of delivery.” From nearly 40 or so start-ups that offered doorstep delivery four years back, only 3-4 remain, Ganesh said.

Remember, there is no such thing as customer loyalty.