Online Grocery stores mushroom across India

The buzz around online retail in India has reached a new high in the past few months, beginning with Amazon entering the fray in June 2013. There was the Rs 2,000 crore Flipkart-Myntra deal in May followed by the fresh infusion of funds ($2 billion for Amazon in India and $1 billion for Flipkart) in July, and Ratan Tata picking up an undisclosed stake in Snapdeal in August. The players are getting big, the money bigger.

Most online retailers in India sell books, electronics, apparel and accessories whereas groceries—which form the bulk of traditional brick-and-mortar-retail, a giant 60 to 70 percent of it—form a miniscule part of the total online retail space, which is worth $2.3 billion. And, there’s good reason for it.

Selling perishable goods online is far more difficult than selling non-perishables, storing and supplying fresh tomatoes is an entirely different ball game from storing and supplying cellphones. Online grocery stores are up against age-old local grocers who have built their loyal customer base on trust, reliability and quick, customized service. Selling groceries is a low-margin business, besides; it requires expensive investments to build high-end IT infrastructure, an efficient supply chain, quality warehousing and storage facilities, and an efficient delivery system.

Consequently, investor sentiment remains unenthusiastic. Although BigBasket attracted a funding of $10 million from Ascent Capital in 2012, and more recently, Rs 200 crore from Helion Venture Partners and Zodius Fund II with Avendus Capital, others have received far smaller amounts or none yet.

Understanding local needs across different cities has been a challenge for an investor. Mumbai is very different from Pune, let alone Delhi. How relevant are lessons from Mumbai in Pune or Bangalore? Investor has to create unique fulfillment, delivery models in each new city. Adding, all models in the e-grocery business today are capital-intensive. These companies have to have a national presence to give a meaningful outcome.

However, in the shadows of the giants of Indian online retail, there’s a mushrooming of numerous online grocery stores that are experimenting with different business and delivery models: Dozens of them have set up shop in the past few years. Examples include BigBasket, LocalBanya, ZopNow, EkStop, AaramShop, MyGrahak, VeggiBazaar, Fresh N Daily and Farm2Kitchen.  Many of these are hyper-local, catering to single cities, sometimes even to only certain neighborhoods of a city.

The online grocery retail market is growing at 25 to 30 percent in the metros and other large cities in the country. Urban India’s increasing shortage of time is fuelling the growth of online grocery. It is a largely standardized category; it doesn’t require much touch-and-feel as, say, apparel. Hence, online works fine. And it is highly convenient.