One significant consumer spending shift that has revealed itself as brick-and-mortar stores shuttered across the country to keep the coronavirus at bay is buying groceries online.
The shift is global and likely to endure even after the pandemic.
The Indian online grocery market is smiling widely too, as sales are pegged to exceed $3 billion in 2020, a whopping 76 percent jump from the previous year.
Industry experts say that during the national lockdown between April and June this year, there was a huge additional online grocery sales of $1.3 billion.
Goldman Sachs in its recent report, ‘Global Internet: e-commerce’s steepening curve’ also points out that among the sectors highlighted for e-commerce in India, online grocery and apparel will see the biggest incremental growth over the next five years.
The report also predicts that while India’s e-commerce will reach $99 billion by 2024, growing at a 27 percent CAGR over 2019-24, the grocery segment will be a key driver and will expectedly grow 20 times over to be of $29 billion in size (currently under $2 billion).
In India and worldwide, while online retail has grown significantly year-on-year, the e-commerce of groceries didn’t draw similar high spends as segments like apparel, electronics, and homeware goods did.
The reasons, according to a senior official at Future Group is mainly because grocery purchase has typically been need based and has a degree of immediacy attached to it. Also, grocery buying and filling up carts have been more convenient at store aisles when you actually see the array of products than browsing online.
Further, grocery retailers have been slower in developing attractive online services than their counterparts in other segments.
But that is changing. The need to stock up pantries while staying at home has reduced the resistance to online grocery shopping.
BigBasket’s order size increased from 150,000 orders to 300,000 orders a day since March 2020. Though the peak hoarding of staples has reduced the demand continues to be high.
According to company officials, demand has upped by more than 30 percent month-on-month since March 2020.
Likewise for Grofers, “The surge in demand continues at a 60 percent higher level than pre-Covid-19 levels. Though it is lower than the 2X jump that we witnessed in the first week of the lockdown when consumers stocked up excessively,” says CEO Albinder Dhindsa.
Realising the potential of going online, Amazon, Walmart-owned Flipkart, and food delivery companies like Swiggy, Zomato have also forayed into the online grocery space.
Flipkart has scaled-up delivery of groceries to nearly 400 cities from five cities prior to the lockdown. It is also in talks with ITC, HUL, and D’Mart for possible partnerships.
Meanwhile Amazon, which has a lead over Flipkart in the groceries category has its Amazon Pantry service running in 85 cities now, while its two-hour delivery service Fresh is operational in the six cities it is present in.
“In the last week, we have added more than 60 cities that get essential products through Amazon Pantry, taking the total number of cities to over 85Customer demand in all these cities is more than 2x pre-lockdown,” an Amazon spokesperson told indoasiancommodities.com
The biggest game changer in this online grocery segment will be Reliance’ JioMart launched across 200 cities.
In an online annual general meeting hosted virtually using Jio’s video-conferencing platform, Mukesh Ambani announced that JioMart will function closely with WhatsApp to create new opportunities for the local kirana stores.
Reliance’s e-commerce platform currently delivers 250,000 orders a day and JioMart subsequently also plans to venture into electronics, fashion, and other categories.
Moreover, all the grocery items sold under the Jio Mart banner are 5 percent below the maximum retail price, which makes it cheaper than what the current completion offers. Also JioMart has a wide range of products as compared to other e-commerce sites and has no limit on orders.
According to Goldman Sach’s report, while Bigbasket and Grofers held more than 80 percent market share in the online grocery last year, it estimates JioMart could end with 50 percent market share by 2024. However, there will be space for two or more large players to exist in a large market like grocery.
Waking up to Challenges
Grocers were facing hiccups managing the spike in demand as supply chains were disrupted. Besides, the online grocery business has always been a logistical challenge, and the lockdown brought with it added shortage of personnel and goods.
The situation has somewhat stabilized today. But anyone who has tried buying groceries online and selected a delivery slot knows the wait could be long.
Industry experts say that online grocery shopping today is constrained by supply, not demand. The accelerated demand not just from big cities but Tier3 and Tier 4 cities in India has led many food retail chains and online grocers to rethink their strategies.
Both BigBasket and Grofers have had to scale up quickly by ramping up supplies from brands and manufacturing partners to meet the increased demand.
Moreover, both BigBasket and Grofers are looking to hire more than 4000 new workers to meet the demand.
It is a big opportunity for supermarkets to spruce up their online ecosystem.
Spencer’s Retail, which acquired online supermarket and grocery store Nature’s Basket in July 2019, is going all out to tap into the growing online grocery demand.
Operating 90 stores (including Nature’s Basket) during the lockdown, the chain has collaborated with Uber and other delivery partners for product supply in order to strengthen its last-mile capability.
It has also tied up with Flipkart to gain a platform to showcase its range of products.