Covid-19 impact: E-grocery to grow at a much faster rate beyond 2020

Likely to become $18-billion market by 2024 with Tatas, Reliance throwing their hats in the ring

The year 2020 brought a lot of changes in everyone’s lives and a major one is the way people buy their weekly fruits, vegetables and other staples.

After the Covid-19-induced lockdown, online became the preferred medium of grocery shopping not only in tier-I cities but also in smaller cities and towns with consumers stocking up essentials staples, laundry detergents, and snacking items.

The pandemic forced households to go online and many have formed new habits that will stay beyond 2020, according to sectoral players. After e-commerce, e-grocery is emerging as the next area of interest for several big players with marquee names such as Tatas, Reliance and Amazon trying to build serious inroads into the sector.

While Reliance is upping its grocery game with JioMart, the Tata Group is said to be in the final stage talks to acquire a majority stake in BigBasket at a valuation of over $2 billion.

With such big names emerging to grab a piece of the e-grocery basket, existing ones feel it will be the most hotly contested retail segment in 2021, with enough room for all to grow and expand the overall industry pie. “We find ourselves in a unique position, considering we have built a grocery-specific supply chain over the last seven years. This keeps us ahead of our competition and we foresee increased capital allocation in online grocery,” says Albinder Dhindsa, chief executive officer (CEO) and co-founder, Grofers. The online grocery firm, he says, witnessed 64 per cent first-time grocery shoppers on its platform since the lockdown happened in March.

Tiger Global-backed BigBasket, which has seen competition increasing every year for the last six years, too agrees that competition will intensify in 2021. “While pricing will be an important criteria for customers to choose any shopping channel, convenience, assortment and quality of fresh products will play an important role in choosing a grocery,” says Seshu Kumar Tirumala, national category head of BigBasket.

Arjun Balaji, co-founder and CEO of Gourmet Garden, says winners will be the ones who have a full-stack approach to the category and are offering a differentiated level of quality and safety to the increasingly demanding customers. A plain vanilla aggregation or convenience-centric game in this space will not succeed, he felt. According to a RedSeer and BigBasket report, total size of the e-grocery market in the country is expected to grow from $1.9 billion in 2019 to $3 billion by the end of 2020. At an annual growth rate of 57 per cent, it is expe­cted to hit $18 billion by 2024.

A Euromonitor report points out that since grocery is 60 per cent of the total $500 billion retail market, online grocery will be the most promising category for retailers. Due to the sheer size and the purchase frequency it brings, this is one of the key markets for any horizontal commerce company to win. The current online penetration is still under 0.4 per cent, which presents a massive opportunity for sustained high growth rates at large scale. “There is clear potential for the online grocery market to grow 10X in the next 4-5 years, especially with deep capital coming into the space. We expect to see M&A activity around supply chain integr­ation and investments in warehousing and logistics to support the exponential growth,” says Karan Sharma, executive director and co-head, digital & technology, Avendus Capital.

According to Dhindsa, the sector also presents a lucrative opportunity for investment considering online grocery is a booming market. “That said, we are profitable and have a healthy balance sheet with enough capital to sustain the company for a long period of time,” he says.

The year 2020 saw several new entrants start to offer grocery and fresh produce to customers. Many of these were opportunistic pursuits solving only convenience and they might struggle to keep up sales and margins in the post-pandemic world. Foodtech platforms Swiggy and Zomato have already been scaling down their grocery ambitions, which they rolled out in the first half of the year, say reports. 

“The players who have a full-stack approach to grocery will capture more value and grow faster owing to delivered quality and consistency, says Balaji.