Indian online grocery business: breaking the mould

02nd May 2015
Indian online grocery business: breaking the mould

May 3 2015:  We share with you today extended extracts from an interesting study*  onthe state of India’s online food retail and grocery delivery industry  by US based  Investment analyst  Michael Dempsey. “This isn‘t merely a case of US-based business models being ported to a large, emerging market. Something fundamentally different is happening in India", he says.
*India's rising online grocery delivery industry: An in-depth look at the macroeconomic factors, business
models, and opportunities surrounding one of Asia‘s largest opportunities in tech. 30 March 201

This report  touches  on how the introduction of technology around grocery delivery has affected Indian citizens, how macroeconomic trends could affect tech in India, as well as specific companies that could be important in this landscape for years to come.
Key traits
•    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 country’s roads are not suitable for vehicles. Paired with checkpoints, and duty collection points that slow down traffic, infrastructure is an obstacle
In the US, while it is a mild inconvenience to drive/walk to the grocery store, park, shop for yourself, load up your car, and drive home, it is very doable in almost every city and town across the country. In India it is magnitudes more difficult, time consuming, and even could be considered impossible at some times.
India’s infrastructure and overcrowded major cities make it a nightmare for in and out shopping. In a variety of the major cities, there are very few parking lots for grocery sto- res, and the prohibitive traffic makes the time commitment and risk even higher when driving to crowded city centers 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 comp-laints 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. The online grocery delivery market in India has some very unique demographic stati- stics that have risen out of a new shopping method for the country including:

•Women ages 30-35 are the largest adopters of online grocery shopping
•68% of all users on major e-grocer are women
•14% of LocalBanya’s 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 India’s eCommerce industry. It is projec- ted that women-influenced sales will be 35% of Indian eCommerce 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 eCommerce has been attributed largely to conve- nience, 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.
The middle class is also expanding in India and will be the 3rd largest middle class in the world in 2020, and the largest in the world in 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.
Pure-play online grocery  retailers  are at the forefront of the boom in grocery eCommerce, which has over tripled in size by number of players year-over-year from under 15 in 2013 to over 40 in 2014.
These companies build large warehouses and distribution centers outside of major cities and own fleets of GPS-enabled vehicles in order to serve online demand. BigBasket and LocalBanya are the main players and use the “hub and spoke” model to build out their areas of coverage. Advantages to this model include lower real estate costs (as they are able to set up just outside of major cities), a broader range of products stocked, and a better overall customer experience versus tradi- tional grocery shopping in India. By aggre- gating demand and data around purcha- sing, these companies are also able to use their buying power to their advantage.
For example, to counter an already slim operating margin, some of the pure-play companies have started to offer private label bulk goods. Main staples such as rice and spices are being bought in bulk from suppliers and sold for a higher mar- gin under the e-retailer’s private label.
Companies like LocalBanya are negotiating with various agricultural co-ops for direct purchases. The company is also looking at commissioning the production of fruit and fresh produce, while also ex- perimenting with programs that can trans- port fresh fish and meat directly to their distribution centers to offer better quality goods than traditional grocers. This is a key differentiator as a large percentage of the “market fish” in India contains preser- vatives and are of a lesser quality. Compa-nies such as have even emerged to try to vertically serve these niches.

The winners in the long-term will be companies that can build a sustainable large-scale business that meets the needs of one of the world‘s most dynamically changing economies.

Michael Dempsey's full study can be found here
He can be contacted at this email:  This is his blog:
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