Growing online grocery to be big battleground for e-tailers

With a rise in order volumes and repeat purchases, the online grocery is set to be a big battleground for online retailers like Amazon, Flipkart and Paytm.

The investors in the country are betting that the sector will turn into a multi-billion dollar category over the next few years. E-grocery sales are forecast to reach $1 billion in 2017, according to market research firm RedSeer Consulting Pvt. Ltd.

While 2016 was a challenging year for the online grocery segment, sales are likely to rebound by the end of 2017, the report said.

“After a challenging previous year, the year 2017 is on track to be a robust year for E-FMCG/grocery market with 60% y-o-y growth likely. Sales have been driven largely by volume growth, which points to growing acceptance and penetration of online grocery among consumers. Additionally, AOV growth has also been significant, driven by the increased share of cosmetics and other premium products in shopping basket,” report added.

Talking about the online grocery, a partner of top venture capital firm said that the online grocery space will be a big battleground in coming time. It doesn’t make sense for any top online retailer not to have a presence in groceries.

FMCG products are relatively small, they are generally sold in large quantities. FMCG is considered low margin and high volume business. FMCGs such as meat, fruits and vegetables, dairy products, and baked goods, are highly perishable. Other goods, such as pre-packaged foods, soft drinks, chocolate, candies, toiletries, and cleaning products, have high turnover rates.

Meanwhile, online retailers Amazon India and Flipkart are ramping up their plans for the sector. Earlier in an interview, Amazon India’s FMCG director of category management Saurabh Srivastava declared that the growth of its FMCG business has been in positive and the firm will start its grocery offering in more new cities over the coming months. At present, Amazon’s grocery and pantry business is in over 30 cities.

Amazon India recently got the Department of Industrial Policy and Promotion (DIPP)approval to retail food products in India. The e-tailer has proposed to invest at least $500 million for its food retail business in India. According to a person familiar with the development, Amazon is also planning to launch a new private label. Home-grown e-tailer Flipkart is reported to be working on the same line.

Can micro-delivery platforms give answer to loss-making online grocery businesses?

Amazon first launched its grocery offering in February last year in Bengaluru through its Amazon Now mobile app, as part of a strategy to take on hyperlocal grocery delivery businesses such as Grofers. Since then, Amazon has tied up with retailers such as Big Bazaar, Reliance Fresh, Bharat Petroleum In and Out, Godrej Nature’s Basket and Food World, among others.

Amazon offers a two-hour delivery service through its Amazon Now mobile app and encourages customers to buy staples on its platform as and when they need them. E-grocer BigBasket encourages its customers to stock up on their weekly or monthly purchases at one go. Currently, the e-grocer is in talks to raise around $200-300 million from Alibaba and digital payments start-up Paytm. The e-grocer on Tuesday raised fund. 

Bigbasket had posted a loss of Rs 78 crore on revenues of Rs 580 crore in the year ended March 2016. The company registered about Rs 1,400 crore in revenue in the fiscal year 2017.

However, the industry has witnessed a slowdown in the past. Earlier in 2014-15, online grocery had witnessed a spurt in funding at the seed level, however, euphoria got settled down in 2016.Many city-focused online grocery stores shut down as they failed to raise capital beyond seed stage.

Giant online marketplaces have so far struggled to crack the grocery business. In February 2016, Flipkart shut down its grocery app Nearby after only five months of testing the service. Alibaba-backed Paytm also closed its grocery service in 2015. Post-2016 winter, only heavily-funded players majorly Grofers and Bigbasket survived.

Making a profit in e-grocery is still a destination at distance.