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_______________________________________________________ Institute of Management Technology
The Next Revolution: E-Grocery in India – Hyper Local Mobile Commerce
The case was written by Professor V. K. Gupta. It is intended to be used as the basis for class discussion rather than to illustrate either effective e ffective or ineffective handling of a management situation.
© 2015, IMT, Ghaziabad, India
Institute of Management Technology T echnology Raj Nagar, Ghaziabad, U.P, India 201001
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The Next Revolution: E-Grocery in India – Hyper Local Mobile Commerce
Dr. V.K. Gupta Professor, IMT Ghaziaiabd Former CEO India, JMAM, JMA Group, Tokyo, Japan
[email protected]
Singh, the co-founder of PepperTap, a hyperlocal service based out of Gurgaon and launched in November in 2014, raised a funding of US$10 million on April 15, 2015 from Sequoia Capital and SAIF Partners to expand by year-end to 10 cities 1. This PepperTap investment was announced almost immediately after a similar US$10 million funding round received by a competitor hyperlocal grocery delivery service of Bangalore – ZopNow. Dragoneer Investment Group (US-based) was the front-runner in the funding round with participation from Times Internet, Qualcomm Ventures and Accel Partners. Singh is trying to figure out how to respond to the challenges posed by other similar and large players in the market of India. E-RETAIL IN INDIA
A KPMG study indicates that emerging markets would lead the world’s growth (about 70 percent) with China and India contributing to about 40 percent. Investors’ confidence is likely to be attracted to emerging markets in the near future 2. The retail sector of India has close to 15 million outlets making it highly fragmented. Infact, it is expected to grow in 2018-19 from US$ 530 billion to US $ 950 billion with a 15 percent CAGR 3. The retail sector of India is continuously increasing even after existence of irregular international economic trends. A global consultancy firm, A.T. Kearney has given India the ranking four among the most attractive country for retail investment among the world’s 30 emerging markets. According to a study by Booz & Company (India) Pvt. Ltd., the Indian segment of organized retail is responsible in 2010 for only 5-6% of the complete retail market. The report of the Business Monitor International India Retail has given an estimate that sales for total retail in India are to increase from the sum of US$ 411 billion in 2011 to US$ 804 billion by the year 2015 4. The unorganized sector dominates the Indian retail sector ( accounting for more than 95%). It is expected that the organized retail by 2015 will rise from 5-6% to 14-18 % of the complete retail market, according to a report by McKinsey & Company. (refer to Exhibit I Indian Retail Sector – Size and growth).
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https://www.techinasia.com/hyperlocal-grocery-delivery-race-india-peppertap-raises-10m-days-zopnows-10m/ Accessed on April 23, 201 2 https://www.!pmg.com/"#/en/"ss$esAnd"nsights/Articles%$&lications/'oc$ments/(()-*etail.pd+ Accessed on April 23 , 201 3 http://www.crisil.com/pd+/research/o+-growth--missed-opport$nity.pd+
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Accessed on April 23, 201
http://www.investindia.gov.in/retailing-sector/ Accessed on April 23, 201
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Mergers and Acquisitions
The Indian ecommerce market growth is aided by persistent inflow of Venture capital and ongoing M&A deals to obtain the capabilities required to compete and sustain the growth momentum. Grofers earlier this month bought competitor Mygreenbox (based out of Gurgaon). Godrej’s, offline gourmet retailer, Nature Basket recently bought Ekstop.com as its online strategy. (refer to Exhibit II : M & A in Indian ecommerce market). GROCERY MARKET IN INDIA
In India, more than 14 million outlets operate having store space of less than 500 square feet. Such stores are owned and operated by family lacking scale to grow. Therefore, they offer a huge investment potential. It is way more problematic to sell perishable goods online compared to selling non-perishable products; fresh tomatoes storing and supplying is a completely different ball game from cell phones storing and distribution. The sixth largest global grocery market is India and is also one of the fastest growing online groceries markets. It is estimated that of the total $500 billion-plus retail market in India, the biggest chunk is attributed to food and groceries having around 70% market share. Out of this, around $12 billion is contributed by organized food and groceries and is increasing at a 30% compound annual growth rate. According to IGD (Research firm) the Indian grocery market would overtake Japan to become the third largest market by 2016. Meanwhile, The online grocery market of India, (estimated to be less than $100 million currrently), is expected to be worth billions in the near future. “We anticipate it to cross $20 billion by 2020,” says Menon 5. Ecommerce’s next generation is going to be the hyperlocal mobile commerce category for more repeated use cases such as food and groceries according to the managing director of Sequoia Capital India, which backs companies like Grofers and PepperTap as well as their counterpart Instacart in America. Grocery has high frequency purchase which makes it the largest and the segment with the highest turnover of the e-commerce market. Perishable goods online sell far more difficult than nonperishables; it is entirely different to store and supply fresh tomatoes compared to storing and supplying of cellphones. The main competition of the online grocery stores are the local grocers who have been able to build their loyal customer base on reliability, trust and fast, customised service. This business of selling groceries is low-margin (margins well below 10 %) even though expensive investments is required for building high-end IT infrastructure, a supply chain which is efficient, quality warehousing & facilities for storage, and an proficient system for delivery . Out of the products that are being sold on the platform of e-commerce major items include, fruits, vegetables, bakery, meat, staples and dairy products. Further on, there is a varied selection of beverages, packaged food, baby care products, confectionery, pet care products , personal care products and home need products. For returns, most of the companies have a policy of no-questions-returns. So customers are able to return any item/product which is not to their satisfaction to the associate for delivery at the delivery time.
http://!nowledge.wharton.$penn.ed$/article/online-groceries-in-india-will-cons$mers-&ite/ Accessed on $ne 1, 201 http://economictimes.indiatimes.com/small-&iz/start$ps/on-demand-delivery-how-start$ps-are-ma!ing-money-as-they-
challenge-esta&lished-+irms/articleshow/40330.cms Accessed on April 2, 201
http://+or&esindia.com/article/real-iss$e/online-grocery-stores-m$shroom-across-india/3/1 Accessed on April . 201
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In India, online grocery stores are becoming popular because of ease of shopping, high convenience and a rapidly growing market. On a global scale, retail for online grocery is increasing nearly 7 times quicker than on-ground formats and the market in India may be able to soon catch up to that level. The retail industry of India is being estimated to have worth of over $500 billion (one of the top 5 markets across the globe) and 30-40% of the total businesses will be attributed to the online retail space over a span of next 7 years. Thus this is a great opportunity for e-tailing of any form, especially the e-grocery space. Currently, e-tailing in grocery in India is a massively unorganised space and tends to pose a big challenge with respect to stiff entry barriers. The traditional ways of management of inventory and logistics require intense cash-burning - a condition of business most of the bootstrapped Indian startups are not able to meet. Also, a crunch of Series A funding also made companies like Mumbai-based ShopVeg to shut down their operations. Hence, when some other Mumbai-based start-up decided to begin grocery e-tailing in that year only, the situation were not looking too exciting for the new rival. But 22 months down the line, LocalBanya.com has not only set up the first online supermarket of Mumbai but also raised Series A funding for the next level expansion. (Refer to Exhibit III: VC Funding in Hyper local start-ups in India in April 2015). Although there were firms before that had tried different grocery retail m odels in the digital space and not succeeded, LocalBanya has come up with a lean business model that focuses on a convenient warehousing and cash-and-carry mix. This has decreased the company's reliance on operations that are capital-intensive and enabled it to implement a thoroughly efficient supply chain. Added to that, the company has brought about some unique ways to take convenience of customers to the next level. Here is a snapshot that tells about the start-up's viability and vision . Hyper local e-grocery
In today’s world, the disruptors of brick-and-mortar retail are becoming rapidly vulnerable to the threat of a new breed of hyper-local ventures that are smartphone app-based and which bring on board local retailers servicing consumers in a fast time. They are able to deliver everything be it groceries or mobile phones or medicines in a matter of a few hours and sourced directly from the supermarket right next to your house. The group's retail arm, Trent Ltd operates an equal joint venture with retail major Tesco from UK called Trent Hypermarket Ltd and is running an online grocery retailing pilot 10. Another important player is Reliance Retail promoted by Mukesh Ambani that is already in testing phase for the online grocery retailing space with www.reliancefreshdirect.com and is present across different pockets in the city of Mumbai. ( refer to Exhibit IV: Hyper Local e-commence )
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http://www.&$sinessinsider.in/his--grocery-tart-$p-5ses-A-6ean-7odel-8or-"ts-9nline-$permar!et-"n-al!s-o-*aise-
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Accessed on April 2, 201
http://articles.economictimes.indiatimes.com/201-0-22/news/204231instacart-e-commerce-online-retail Accessed on
$ne 1, 201
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http://www.dnaindia.com/money/report-tata-gro$p-+orays-online-grocery-retailing-2022 Accessed on April 1, 201
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Some of the Hyper local e grocery players in India
The aim of BigBasket is gross merchandise volume (GMV) of INR 8500 million gross merchandise volume (GMV) in FY16, (three fold growth) from the runrate of INR 2750 million which has already been achieved on an annualised basis. The other online store, LocalBanya is targeting INR 1500 million GMV by the end of this year, a growth of almost four fold from the Rs 40 crore which it is expected to reach by March 2016 11. Currently BigBasket has a kitty of more than 10,000 products across 1,000 brands and more than 450,000 active customers across five cities. It is expected to close FY14-15 with INR 2500 million (US$40 million) as revenue. The company plans to expand its presence to around five more cities by December this year. And over the span of next two years, it is expected to rise to INR 1,8000 million (US$288 million) 12. Operating in Bengaluru, Hyderabad and Mumbai already, B igbasket.com launched in Pune last month, and will reach Delhi in March and Chennai by February end. Mehrotra feels that LocalBanya.com will span across 12 cities by this year end. It is currently operating in Pune and Mumbai and will be in Delhi by mid-March, Hyderabad by June and Chennai or Kolkata by next year. These online grocery stores will face competition not only from new entrants Flipkart and Amazon but also from existing massive grocery chains going online. Nature's Basket, Spencer's, Reliance are all becoming online too. So the two hyperlocal grocery delivery services are in mode of expansion, one in the north from Gurgaon near Delhi, and the other in the south from Bangalore. Six months ago, ZopNow pivoted to the hyperlocal model. Before, it had a model based on inventory such as the older Indian online grocers, like BigBasket. Then it changed to pick up grocery from retailers and deliver the same to local customers, using two-wheelers as riders. This was a more scalable and less capital-intensive than the inventory-based one (requiring warehousing and preservation of perishable food). The hyperlocal model similarly of PepperTap enables fast delivery and differentiates it from the more centralized online grocer BigBasket, which has scaled up slowly, raised US$32 million for expansion last September after nearly three years its previous funding round of US$10 million. PepperTap which was launched in November 2014 offers a varied groceries range and daily-need products through apps. PepperTap right now offers more than 15,000 SKUs across a number of categories including Staples, fresh fruits & vegetables, household items , food & dairy products, , etc. The focus of the company is building experience of buying the the best grocery and fr esh product for their customers. They are able to delight the customers, increase sales for partner stores while creating a concrete and sustainable business for shareholders through their unique business model. Quality funds like SAIF Partners and Sequoia Capital participate in their Series A funding establishing the fact that there is focus to create a niche place in the market. This investment will help them iron out any chinks in thier armor, and build on strengths to take the business from a single-city operation to across cities. Consumers are able to place their orders through a mobile app and deliveries are made in two hours, making it ampng the quickest services of its kind 13. PepperTap right no accepts only Cash on Delivery payment option but in the near future it plans to launch plastic card based payment options. The model of Localbanya is an asset-light model, wherein about 2,000 products are sold from its warehouses in Pune and Mumbai and the balance 12,000 products are got from various distribution 11
http://www.+irstpost.com/&$siness/delhi-is-ne;t-&attlegro$nd-+or-online-grocery-ma
