All of you who read the blog – Technology trends in MR – would agree that technology has made the lives of researchers much more interesting and easier. An excited call from a friend last evening pushed me into evaluating yet another outcome of the technology revolution – Online Retail.
While we were in the midst of a discussion of how she got her favorite perfume at a huge discount from the comfort of her home, courtesy an online store, her mother called out to her to run and get some grocery from the nearby store. Her elation quickly turned into whines and excuses of why she did not want to do it and it set my mind ticking.
A quick Google search and a plethora of online grocery stores mushrooming in India showed up – MyGrahak, BigBasket, Atmydoorsteps, ecityindia – to name a few. Further search revealed that the past few months also saw the closure of similar grocery e-tailers like Nammagroceries, Harisabzi, Subzimandi, etc.
So, what is the future of online grocery retail?
According to a news report by Boston Consulting Group (BCG), Online retailing in India is pegged to be worth $84 billion by 2016. Whether this growth will resonate among the booming group of grocery e-tailers is a big question. It does look believable, due to the fact that Internet penetration is growing rapidly, with 75% of Internet users being below 35 years of age. Growing affluence and rise in the disposable income among youth is also a good sign for e-tailers, coupled with an increase in the number of working couples, with time-pressed lifestyles and growing aspirations.
However, a closer look at the market dynamics paints a shade of gray over the likelihood of their sustainability. Firstly, we cannot ignore the fact that overall Internet penetration is still quite low in India. To add to it, online grocery retailers are operating in one of the most complex categories. The grocery market is characterized by huge inventories, varied SKUs with uneven pack sizes, products which are highly perishable, a complex supply chain and umpteen offline players (accounting for 95% sales). Moreover, online retailing requires a solid offline process and distribution management, which makes it tough for new players to combat millions of competitors in the form of established “Mom and Pop” or “Kirana” stores, roadside vendors and chains of organized retail.
Purchase occasions are an important aspect of grocery shopping behavior. Most online stores require the customers to place advance orders (over website, e-mails or phone call) and provide some buffer time for delivering products. Hence, e-tailing is suitable for well – planned and repeated monthly purchases, and not for ad-hoc refills and ‘urgent items’. Indians also have a habit of shopping daily for fresh produce, which they tend to pick and feel before purchasing. E-shopping would deprive them of this joy!
On the business side, start-ups in the e-tailing space are hampered by low margins in the range of 15-18% in grocery and 20% on household utilities. Cut-throat price competition, discount offers/ deals and the high cost of human resources to deliver service, makes it difficult for start-ups to survive. Unless they invest heavily in their own dependable supply-chain, the business is not robust enough to be sustainable in the long run.
Perhaps, it is wiser to start a low-cost hybrid model like that of Aaramshop, which integrates existing offline retailers by providing them online space and face, or focus on gourmet/ specialty food (like Imperialstore). Or maybe follow the example of U.S company Greenlings that retails only organic food, or simply steer clear of offering fresh produce and sticking to packaged goods only?
This blog post is written by Bhawana Khater, Associate Insight Consultant – Shopper & Retail, Brandscapes Worldwide. Bhawana, a typical Calcutta girl, loves puchkas and moori at anytime of the day, as long as they don’t have too much ‘jhaal’ (spice).
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