The proliferation of online grocery retail formats – arguably the headline news in the modern Indian retail evolution story – is causing both excitement and concern in various quarters of the investor community. While an assortment of venture capital investors have poured more than Rs 750 crore into online grocers and delivery companies over just the past 18 months, the evolution of two distinct e-grocery delivery models – hyperlocals and marketplaces – has incited debate on which could be the more sustainable format in the Indian context.
Pure-play e-grocery businesses, including BigBasket, ZopNow, LocalBanya, Grofers and Peppertap, may be among the most visible names on the radar as of now, but start-ups are launching virtually every day. In addition, multi-category marketplaces such as Flipkart, Amazon and Snapdeal are also entering the grocery space through both aggregation and tie-ups with brick and mortar retailers.
Starting from last year, the ‘hyperlocal’ delivery model has gathered steam, with startups such as PepperTap, LocalBanya, Lazy Lad and Zopnow marrying the unique advantages of neighbourhood pop-and-mom stores with a technology-driven delivery model. Most are structured around linking kirana stores with customers through mobile apps and online portals.
On the other side are inventory-led models such as BigBasket, which has already raised Rs 400 crore in three rounds of funding, and has stated that it expects to break even by the second half of 2016. The Bangalore-based company, which launched in December 2011, offers over 10,000 products in categories such as fresh fruits and vegetables, grocery and staples, meats, personal care, etc.
“Grocery customers prefer buying their requirements in a consolidated manner — monthly for all requirements and weekly for their fruits and vegetables and top up requirements. This ensures that their home is stocked up and they don’t need to go running to the market to buy requirements for the day. Moreover they can also save by consolidating their requirements and getting the best deal,” says Seshu Kumar, National Head-Merchandising, BigBasket. “An inventory-led model meets both the requirements- monthly as well as weekly requirements and provides the best deal on them.”
[While the marketplace model is beset by high inventory, maintenance and logistics costs, hyperlocals are limited by lack of control over product quality and range, given that they are dependent on available SKUs at mom-and-pop stores.]
However, some industry watchers are of the view that while the model provides the e-tailer with greater control over inventory and product quality, it is also capital-intensive as compared to the lower-overhead hyperlocal format.
“The inventory model is also a more capital intensive model with investments required in cold storage and supply chain besides handling and transportation,” notes Anurag Mathur, Partner, Consumer goods and Retail sector at PricewaterhouseCoopers,
“Short shelf life of products and handling requirements coupled with traffic woes, poor roads and the lack of cold storage capabilities have made it difficult for grocery e-tailers to fulfill orders,” he adds.
Making a case for the aggregation-driven hyperlocal model, Mathur points out that given the poor supply chain infrastructure in the country, collaborating with local retailers would aide last mile connectivity. “Several e-commerce players in this space have entered into tie ups with kirana stores to this effect.”
"The hyperlocal model enables quick delivery and differentiates it from the more centralised online grocers, thus making businesses like ours easier and faster to scale up," says Navneet Singh, co-founder of Gurgaon-based PepperTap.
“Inventory-led models require more capital expense, have higher fixed running costs, higher working capital needs, are more prone to wastage losses, and have sub-optimal logistics with limited delivery slots. Thus our on-demand hyperlocal, asset-light model is better placed to be more scalable,” Singh adds.
Noting the key challenges being faced by the two models, Mathur observes that while the marketplace model is beset by high maintenance and logistics costs, hyperlocals are limited by lack of control over product quality and range, given that they are dependent on available SKUs at mom-and-pop stores.
Most analysts are unwilling to take sides at this time, noting that it is early days for the grocery e-tail format in India, though incumbents and industry watchers agree that widest possible SKU ranges coupled with consistency in product and service quality will separate the winners from the also-rans.
“In order to succeed, e-retailers must exercise control over the supply chain to ensure consistency in the quality of the products delivered along with a wide range of product catalogues to choose from, thereby presenting the consumer with the best of both worlds,” Mathur asserts.
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