Buy & large, online grocers a sellout with consumers

Record month-on-month growth of 15-30%; look to raise additional funds from investors .

Bangalore | Published: May 25, 2014 1:18:21 am

By Sayan Chakraborty

For the urban Indian saddled with time constraints, online supermarkets are turning out to be the new messengers of effective e-commerce. What makes them click among many consumers, especially office-going couples in metros and big cities, is the convenience they offer in terms of hassle-free shopping and savings on time and money commuting to malls and kirana stores.

The past two years alone have witnessed the emergence of a number of such websites looking to grab a spot in the consumer’s daily basket. Players such as LocalBanya, Greencart, BigBasket, EkStop, ZopNow, Eazygrocery and Onekirana promise to make grocery shopping quick and convenient for e-consumers, and, in turn, are recording a month-on-month topline growth in the range of 15-30% as per estimates. Customer retention, too, stands at an encouraging 70-80%.

It’s no wonder then that investor interest in the sector has remained intact. While Accel Partners, Qualcomm Ventures and Unilazer Ventures have already infused considerable funds into the segment, their initial success has prompted the businesses to seek more funds. LocalBanya, for instance, is on the verge of raising another round of funds to scale up operations; BigBasket, too, is in talks with investors to raise an additional R250-300 crore.

While consumers are offered the luxury of choosing from an assortment of over 10,000 products — anything from staples and imported food products to kitchenware — delivered at their doorstep, the online supermarkets see value in remaining online, despite a meagre net margin of 8-15%. This is because of the money saved on rent for physical stores and multiple warehouses, which otherwise gobbles up over one-tenth of the sales turnover.

While these businesses are weaving success stories, their biggest challenge remains in stitching together an efficient procurement and distribution network and ensuring time-bound delivery. Since the businesses thrive on ‘enhancing customers’ shopping experiences’ more than anything else, this becomes all the more important. Every store works with about 20-300 suppliers, depending on their offerings.

“We are looking at a gradual scale-up. We are cracking the logistics problem and that is where the money is going. Last-mile delivery becomes complicated, as you are dealing with perishables,” says Amit Naik, co-founder of Mumbai-based online grocery store

Launched in June 2012, LocalBanya clocks over 500 daily transactions, with an average ticket size of R1,400. The company has recorded a month-on-month topline growth of 30% and plans to launch private label products in the staples’ segment soon.

Most of these online stores maintain an inventory of non-perishable and fast-moving wares, while perishable goods are mostly just-in-time purchases. Consequently, businesses are not required to invest too much in warehouses. “We require one or two warehouses in a city and not necessarily in commercial areas. The cost of such properties is lower. We invest around

R6-7 crore in a warehouse,” says Vipul Parekh, co-founder of Bangalore-based

The online store, which expanded its operations to Hyderabad and Mumbai in December 2012, delivers around 80,000 orders a month and has recorded a 15% month-on-month growth. Besides, it plans to reach 10 cities in the next one year.

Both Parekh and Ganesh say contrary to popular perception, the business entails a lot of cash burn. “In this business, unless you scale and buy directly from manufacturers and farms, the margin cannot be good. We need at least need $5-6 million to start with,” they add.

Rajiv Tetviya, co-founder of Mumbai-based, echoes similar sentiments. “This business requires a lot of investment. Even for delivery from point A to B, there is a cost,” he said. Greencart, which specialises in supplying fresh fruits and vegetables, delivers around 250 orders a day. An average basket size is close to R1,000. It operates two separate warehouses for fresh and non-fresh category products. “At present, we offer around 1,500 products and want to take it to around 4,000 in the next 90-120 days,” says Tetviya, adding that the company aims to register a 20% month-on-month growth.

“Online food and grocery is a nascent category. It has found acceptance because people in urban India face time constraints and purchase frequency is high. Online grocery is a complex model. The supply chain is complex and margins are also lower. Besides, the local brick-and-mortar stores have home-delivery facilities,” says Pragya Singh, associate vice-president, retail, at consulting firm Technopak.

This is not saying that there is any friction between them and the conventional mom-and-pop stores. While Naik of LocalBanya is of the opinion that local stores and their online counterparts complement each other, Parekh of BigBasket says the online platform is largely meant for bulk purchases. “Three-fourths of a household’s purchases are planned and the rest are top-ups. In the beginning of the month, large buys are from us, but individual stuff like chips or soft drinks are bought from local stores. We are relevant when you buy fresh vegetables, fruits and meat,” Parekh adds.

There are even instances of brick-and-mortar stores venturing online, Delhi-based being an example. Their first physical store came up in 2002 and the online portal was launched in August 2013. “Smart phone use has picked up. People are also more inclined to avoid the rigours of traveling in heavy traffic and would rather order stuff online. Besides, when we started off, real estate and stock costs were evenly split. Today, real estate cost has gone up to 80%. All these factors prompted us to launch an online portal in addition to the brick-and-mortar stores, ” said Eazygrocery MD Vrindavan Agarwal.


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