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Come February, shop for grocery on Amazon

Having stolen a clear lead over its peers during the Diwali sales, Amazon is readying for an official launch of its grocery arm Kirana Now next month.

Written by Prabhu Mallikarjunan, Avanish Tiwary | Bangalore | Updated: January 7, 2016 4:47:09 pm
Prabhu Mallikarjunan The e-tailer plans to open 14 collection points in Bengaluru.(Reuters)

Having stolen a clear lead over its peers during the Diwali sales, Amazon is readying for an official launch of its grocery arm Kirana Now next month. The e-retailer will test the waters in the R20 lakh crore ($308 billion) Indian grocery space with a hybrid model that is both inventory-led and allows for direct pick-ups. Kotak Institutional Equities (KIE) estimates the size of the opportunity for organised (including online) retailers at R3.4 lakh crore.

Amazon will take on not just brick and mortar grocers such as Food Bazaar but also online grocery stores such as BigBasket, the country’s largest online food and grocery store with 14,000 products, and Reliance Fresh Direct. Moreover, it will also compete with hyperlocals such as Grofers — which operates within a distance of 4 km and delivers within 90 minutes — and PepperTap. Typically, hyperlocal companies can break even if their feet on the street manage 22-25 deliveries a day at R40-50 per delivery.

“At the current scale of 10,000-20,000 orders a day, the inventory-led model seems to have a better margin profile. However, if the scale rises 10X, the inventory-less model could yield better margins as delivery costs could reduce dramatically,” KIE observed in a report on Wednesday. Typically, gross margins in the grocery business are around 20%.

According to three Amazon employees working on this project but who did not wish to be named, Kirana Now has partnered with 10-15 supermarket chains in Bengaluru such as Reliance Fresh, Nature’s Basket, Value Bazaar, Big Bazaar and Amex Supermarket.

For the inventory-driven business, the e-tailer plans to open 14 collection points in Bengaluru.

However, hyperlocals are grappling with high attrition; blue-collar attrition ranges anywhere between 12% and 30% month-on-month. Amazon plans to have a team of delivery boys and drivers in place by January end. “Right now we require 130 delivery boys for 14 collection centres around Bengaluru. Kirana Now will pay anywhere between R10,000 and R16,000 including incentives to delivery boys,” a source said. It expects to receive around 12,000-15,000 orders a month after the launch.

Amazon declined to comment for this story. “We do not comment on what we may or may not do in the future,” an Amazon spokesperson said.

Given the number of Indian women shopping online is tipped to grow 12-fold to 100 million by 2020 from 8 million currently, it’s not surprising e-commerce players such as Amazon, Flipkart and Paytm are looking for a share of the grocery pie, estimated to be growing at 25-30% year-on-year but accounting for less than 1% of the total market. Hari Menon, CEO at BigBasket, believes one or two players entering the online segment is not enough. “Competition is always good and is needed for the ecosystem to grow,” Menon told FE.

Flipkart had launched its grocery delivery app Nearby last year in October as a pilot. One97 Communication that runs e-commerce portal Paytm also plans to launch a similar service in the next quarter. Snapdeal too has shown interest in this vertical with its investment in PepperTap.

Grofers, which shut shop in nine cities, has raised a total of $166 million while PepperTap managed to raise $47 million from different venture capitalists, including e-commerce portal Snapdeal. Big Basket has raised $108 million.

Harish HV, partner at consulting firm Grant Thornton, said, “Tying up with local merchants may result in quality issues. When placing orders on Amazon, people would expect reliability, quality, etc. But if because of the partners they don’t meet that expectation, it would reflect badly on the overall business. Naturally, when a big player enters, it may kill other smaller players.”

The Amazon India store today sells over 40 million products, adding over 55,000 offerings per day.

(The article first appeared in The Financial Express)

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