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Global e-commerce giant Amazon recently piloted its grocery delivery process, branded Kirana Now, in Bengaluru wherein one could place orders via mobile phone. Home-bred Flipkart plans to go down the same path in the second half of this year. The market for food and grocery is set to get more competitive with players such as 24x7Fresh, PepperTap, Falsabzi and Justshop24 throwing their hats into the ring.
Though small and highly disintegrated at present, online grocery retailing in India is growing at 30 per cent annually and is expected to touch Rs 270 crore by 2019 (according to a Ken Research report), thanks to the surge in the number of players operating in the industry. "This is the 'mother of all categories' in terms of size and the repetitive nature of the need. Grocery shopping is also the biggest pain point for the consumer," says K Ganesh, a serial entrepreneur and promoter in online grocery store Bigbasket.
Globally, grocery retailing - which comprise 60-70 per cent of traditional brick-and-mortar-retailing - seems to be the next frontier for online firms to conquer because that segment is still relatively untapped. A new study, "eCommerce Supply Chain Insights in Groceries and Consumer Packaged Goods in the United States (February 2015)", by Amitabh Sinha of University of Michigan and Paul Weitzel of Willard Bishop (with research assistance by Manqi Li, Jianyu Liu), shows that even in the US, e-commerce in the grocery and consumer packaged goods (CPG) sector is lagging. It currently only accounts for about 3 per cent of total sales. But the authors expect the sector to grow rapidly across all e-commerce retailers, including pure play and brick and mortar stores. "Brick and mortar retailers that also have e-commerce operations are moving toward an omni-channel strategy," the report says.
While the potential is obvious, selling groceries online is a bigger challenge than any other category, given the complexities of supply chain management, logistics, relatively low margins and the consumer need for quick fulfillment. "This is not a game for angel investors and early stage VCs - margins are low and scale is important. Since 2012 there were 40 companies of which only three have managed to raise money and 30 of them have shut shop," adds Ganesh.
Eye on stock management
Managing inventory is the most challenging task for any player in this space, especially if it follows an inventory-led business model. Delivering on the promise of reaching perishable items in mint-fresh condition is easier said than done. Bigbasket has tied up with around 400 suppliers such as large FMCG companies like P&G, Unilever, Kellogg, institutional farmers, importers and aggregators to source products that they wish to sell to the final consumer. Hence, it is critical to hold small inventory as more inventory means more storage space and probably more wastage. On the other hand, too little inventory may mean falling short of consumer expectation.
But how do you determine the ideal inventory amount? This will require forecasting and a well-oiled turnaround mechanism. Technology is the biggest facilitator in this. "If you plan and rotate the inventory with the help of technology, you can ensure minimum capital compared to a brick and mortar stores where the minimum holding period for inventory is between 25 and 30 days," says Rajiv Tetviya, co-founder, Greencart. Greencart stocks gourmet and grocery products based on the daily and monthly requirement.
Bigbasket also manages its orders with the help of algorithms that factor in sales rates, seasonality of products, suppliers' frequency of delivery, their performance in the past and so on. Even order placements are forecasted with the help of algorithms, which can be adjusted to factor in variables such as a promotional offers or a new launch, both of which can trigger changes in consumer demand patterns. Co-founder Vipul Parekh says the firm operates with 10-day inventory, with perishable items like fruits and vegetables having a smaller window of a day and a half.
Bigbasket operates in Bangalore, Mumbai, Hyderabad, Pune and Chennai and has a warehouse in each of these cities. The suppliers deliver at the centralised distribution centre where inventory is held and delivered to the transhipment points or customers premises directly. The company has invested around Rs 30-40 crore per warehouse and around 20 per cent of its investment is towards technology.
Now consider ZopNow, an online grocery store based in Bangalore, which has gone through a shift in its business model. The company used to manage its own inventory in the past but switched to a tie-up with offline retailer HyperCity. "We save on rentals of warehouse and other associated capital costs," says Mukesh Singh, CEO, ZopNow. Since it delivers from stores located in the central part of a city, its shipment costs have gone down dramatically. Almost 40 per cent of its orders are now delivered in less than 90 minutes from the time it takes the order; in some cases the delivery time is as low as 30 minutes. "It opens up the entire omni-channel route for us where offline and online businesses can work together to pass on the benefit to the consumer," adds Singh. The company plans to step into Pune, Mumbai and Hyderabad in some time.
On its part, LocalBanya employs a mix of just in time (JIT) sourcing and warehousing. Fast moving items such as staples are stocked in warehouses as there is steady and measurable demand for them. For other items, it uses JIT, procuring things from vendors and suppliers on as-per-need basis. "It is not possible to warehouse everything. So we have to employ this mix in an efficient manner," says Karan Mehrotra, co-founder, LocalBanya.
Keeping it fresh
It is important to ensure perishable items reach the customer without delay or damage. As soon as an item of food is delivered to Bigbasket's warehouse, it goes for a quality check, cleaning of debris and mud, segregation of dead leaves etc, followed by packaging and labeling before finally hitting the shelves. More than 80 per cent of its orders are for fresh produce. "You need to innovate and think of solutions that would work in the Indian market. That means looking for local suppliers for equipment, products and so on," adds Parekh. Another new entrant, Falsabzi, has earmarked an investment of Rs 100 crore in the next five years. "Our operating margin will be 30 per cent and rest we want to pass on to the consumer," says Rajesh Gupta, chairman, RSND Group.
Some players have started branding products that they sell. "Any company in this space has to build its own brand of staples and other items but it will require deep sourcing expertise on where and how to source the best products at a competitive price and consistent quality," adds Ganesh.
Meanwhile PepperTap, an on-demand hyper local grocery delivery company, claims that 90 per cent of its transactions come through the mobile. PepperTap connects directly with the local vendors and supermarkets and promises delivery in two hours. It is working on a marketplace model. "We didn't want to incur a lot of capital cost involved in setting up or manning a warehouse," says Navneet Singh, co-founder, PepperTap.
But that has its own challenges. "A major constraint in the store pick models is reduced margins since the company will have to share it with stores they operate with," adds Parekh. To get around this, Bigbasket is tying up with local kirana stores in Bangalore to supply the inventory to local stores. In this model the company has more control over the supply quality and the availability of products.
People movement & logistics
Technology can also help in picking, packing and delivering orders accurately. In the cold chain facility at Greencart's warehouse, employees follow a specific code of conduct to ensure there is a minimum human touch involved in the entire process of handling fresh produce. So far the company has invested more than Rs 50 lakh in its cold chain. "Human processes and their integration with technology have improved productivity for Greencart by almost three times," claims Tetviya. The company works on the "relay race principle'' where it takes less than three minutes to process an order.
At Bigbasket, the warehouse is designed in a manner that it minimises the path a picker has to cover, thus saving on time. It has around 400 vans to manage its operations.
Greencart has drawn up a service level agreement with set standards that all its suppliers have to adhere to. The onus for a product past its expiry date lies with the supplier. Bigbasket is working with a few recycling companies to dispose of organic waste. Technology plays a crucial role in the last-mile as well. It is now working to introduce a 'track your exact time of delivery' feature. Most of the ZopNow vans are also GPS tagged and orders are geo-fenced to give an insight into the time it takes to deliver, helping it to map the delivery processes accurately.
"The average delivery time was about 95 to 100 minutes and with technology, in some places we have been able to reduce it to 60 minutes," says Singh of PepperTap.
| Key focus areas for online grocery: Rachna Nath |
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Rachna Nath
Leader, retail & consumers, PwC India
Leader, retail & consumers, PwC India
