Venturing into the online grocery market

Groceries sell irrespective of the state of the economy. You can stop going to the cinema and restaurants, but there's no way you can live without toothpaste, soap and, well, vegetables. Caught in the city's fast pace, tedious commuting and long working hours, many consumers don't have the time to buy groceries or would like to avoid the chore.

Buyers are now quite comfortable ordering apparel, shoes, electronics, among others, online. With improving comfort with online payments, selling groceries online has become relatively easy. With BigBasket, Zopnow, Zip.in, Nature’s Basket and several others, groceries are dropped at your doorstep after you have made your choice. However, these do not bring in the benefits of a retailer like Metro, where you get your groceries and daily-need products at wholesale prices.

Kishore Ganji, founder and MD, Zip.in, says, “We want to break the barriers for small vendors in offering products to customers directly. Many small players will be able to reach customers directly through Zip.in by providing innovative and healthy options for customers. For example, we recently partnered with a vendor who has come up with products made out of millets. As we grow, we would provide such options to many small players both in food and non food categories.”

Zip.in is the first grocery site which offered same day delivery in Hyderabad, which is the company’s USP! When it comes to using technology to manage its processes behind the scenes, Zip.in ensures to provide best experience for customer in terms of delivery, product quality and variety. Time delivery and retention of customers are key areas which the company focusses on.

With heavy competition in the e-grocery market, how does Zip.in stand out? “We believe in honesty and professionalism! A company is preferred only as long as it endures and tends to grow creatively in the market,” adds Kishore.

Retail Opportunity

If you understand the retail market, a bit of creative thinking and excellent customer service can help you build a great business. With a large customer base and increasing penetration of internet connectivity (partly through smartphones) and growing popularity of online shopping, some entrepreneurs have seen the potential in creating e-stores for groceries.

“Grocery and daily essentials take away a large share of the wallet in any household. However, it is still considerably out of the ambit of online shopping and, therefore, represents a huge opportunity,” says Kishore. Grocery e-retailing is challenging but it also has the advantage of high percentage of repeat orders. All you need to do is impress a customer with the first order. Once a customer is satisfied, your clientele lists adds another regular.

“A growing list of loyal customers means a steady growth in business. If you have a lot of households procuring groceries through an e-store, it's a decent volume of sales. We are seeing a massive response. Most of our customers are repeating orders every seven days,” says Kishore. Though such stores get customers throughout the month, weekends are relatively busier. "On Fridays and Saturdays, we see an increase in the number of orders. It is highest in the first weekend of the month," says Singh of AaramShop.com.

Given the nature of the business, online grocers are in a different league from other e-retailers. Most grocery e-stores cater to a specific city or certain areas due to the logisitic constraints. A book or mobile phone can be easily shipped to distant locations across the country from a central warehouse, but delivering a 10kg sack of rice or 5 kg pack of sugar to a different city is not commercially viable.

"The grocery category is not suited for traditional e-commerce ventures. While there have been a number of attempts in the past decade and a half, almost all have failed. The issues are related to low retailer margins, complex and expensive supply chain, ubiquitous presence of brick-and-mortar grocery stores and the prevailing consumer behaviour," says Kishore. Perishable products are also a challenge for online retailers. Vegetables, dairy and meat products cannot be stored for long.

So many e-tailers stick to packaged food items. However, there are a few retailers that sell perishable products by procuring it only after an order is placed. A small establishment selling fresh vegetables in a New Delhi locality is doing exactly the same- accepting orders over the phone for delivery the next day after getting it from the wholesale market. Online retailing in India has gained success only with a robust offline operation. With grocery retail, the offline component is more ingrained.

E-grocers have set up systems to accept orders over the phone, which in itself can be an independent business model. You will also have to break away from the online medium to advertise your e-grocery business. Buyers still relate groceries with local store and malls. So, not many consumers search for online grocery stores. You would have to educate prospective customers about the opportunity and benefits of ordering groceries online.

If you wish to become successful as an online grocer, you will also require a strong understanding of the retail supply chain-from procuring the goods and delivering it to customers on time. You will also need a robust offline local network that can fulfill the orders. In the traditional format of the delivery network, you will follow the 'hub-and-spoke' model. All goods would be procured and stocked in a warehouse, which then supplies to the hubs for the last-mile delivery. As each warehouse would be able to cater to the demand from only a certain area, you would have to invest in creating independent establishments for each city that you want to operate in.

In addition, you would have to forge tie-ups with local suppliers for many items in each location. Many e-groceries have come up, but the segment is far from saturated. Most of such ventures are catering to a few metros and many cities are yet to have such e-stores. The potential market size also ensures that there would be room for multiple players, even within cities. Though big retailers are yet to enter the segment, there is some competition from local grocery stores that provide home-delivery services.

However, smart logistics and vendor tie-ups can help e-stores gain customer favour by offering them a price advantage. Local grocery stores can also be turned into business partners, as done by AaramShop.com. It has roped in local stores to procure the groceries to be delivered, while focusing on creating the technology platform and the online interface. "We have created a hybrid model. When a consumer shops on AaramShop.com, she gets to choose a retailer in her neighbourhood that she wants to order from. The order goes to the retailer, who delivers the order and collects cash on delivery.

This ensures that the order moves from the web to the consumers' doorstep within 45 minutes, without the need to re-invent the supply chain and with no additional costs," says Singh. Given the low operating margin in the segment and the challenge of offering better deals, it is important for online retailers to optimise their supply network. The simplest way to increase the margin is to purchase in bulk by going higher up the supply chain and eliminating as many intermediaries between manufacturers and the retailer as you can.

Staple grains, for instance, will be cheaper when procured directly from a mill rather than the local market. Going further up the chain, buying directly from farmers would mean even lower prices. Going the private-label way is another strategy being used by many existing e-grocery stores. Staples such as rice, pulses and spices are procured from the market and processed in-house (or by their suppliers).

Risks

Online groceries offer ample opportunities, but not without risks. Many online stores have been shuttered after operating for a few months to a few years. Sameer Vanje the founder of Firstprice, another start up from Hyderabad says, I started freshbazaar.com, but we had to shut it down because of operational issues and time constraints.” So he continued with his education and began a course in CA. “But I gave it up as I just wasn’t interested. The idea of a wholesale online grocery store was something I really wanted to do,” says Sameer.

After going back to the drawing board, Sameer started Firstprice. “I put in more understanding and learning this time. With the help of web developers, we developed a new backend and a better user interface and renamed the site Firstprice,” says Sameer. After several tests and other runs the site was opened out to users on the March 18. Taking cue from the ventures that have shut down due to lack of funds or customers, being local and less ambitious can help online grocers remain viable.

One cannot wish to have the world as its customer base for groceries because their site can be accessed globally. A frenzy to expand across multiple cities might put undue strain on finances. One should focus on exhausting the potential of one location before targeting new ones. "For now, we are running the business on our own resources as it is picking up better than we had expected. We are currently engaged in discussions about a very exciting phase-two plan.

Once it is firmed up, we might look at external funding," says Kishore of Zip.in. If you have the desire to become a local online retailer, groceries and daily consumption goods could offer you some great business opportunities. You can even invent online markets for exotic products or food items that cannot be bought locally. Analyse the market, chart out your plan of action and be frugal with your venture. With the right business model, success might not be far away.