None of the existing online grocers will survive: Kishore Biyani2 min read . Updated: 07 Nov 2015, 12:33 AM IST
Biyani says business models of hyperlocal delivery companies are not viable
Mumbai: Kishore Biyani, chief executive officer of Future Retail Ltd, which operates hypermarket and retail chains such as Big Bazaar, Food Bazaar and FBB, is not optimistic about the survival chances of online grocers, saying their business models are not viable.
“None of the existing online grocers will survive. They will shut shop one after another. Their model doesn’t make economic sense at all," Biyani said at the launch of Big Bazaar Gen Next, an upgraded version of Big Bazaar with wider aisles, a larger food assortment and lots of interactive display, at Malad, a suburb of Mumbai, on Friday.
Biyani was referring to the hyperlocal delivery companies sourcing from local supermarkets and neighbourhood stores, resulting in high cost of operations and huge losses.
There are over a dozen e-tailers in the food and groceries space. These include companies like Big Basket and PepperTap, besides brick-and-mortar stores like Godrej Nature’s Basket which has launched online services.
Since April, five online food and grocery retailers—Big Basket, Grofers, PepperTap, Jugnoo and ZopNow—have raised about $110 million. However, there are others in the crowded sector that are struggling to raise funding.
There are signs of a slowdown and start-ups in overcrowded sectors will either fail to get higher valuations in their next rounds or not find fresh funds, leading to cost cuts and consolidation over the next one year, Mint reported in August.
All the same, companies in the space will not altogether disappear. There will, however, be consolidation in the coming years, said experts.
“You will see consolidation with the 10-15 companies at present in the space coming down to about 2-3 companies in the next 24 months," said Anil Talreja, partner, Deloitte Haskins and Sells Llp, a consulting firm, while explaining that the business will survive and find takers as traditionally Indians are used to having multiple vendors coming to their doorstep for delivery of fruits, vegetables and groceries. Over time this habit will be replaced by apps and there will be one vendor delivering food and groceries to their doorstep.
There are already 2-3 giants in the online groceries space, said Sudhir Sethi, chairman and managing director, IDG Ventures India, while adding that hyperlocal businesses are coming up everywhere and will flourish in cities with a population of over 9-10 million.
However, for such new businesses to gain nationwide scale will be a difficult task. “What we will see over time is 1-2 large companies and aggregation among the smaller companies over time," said Sethi, who recently made an investment in hyperlocal bus aggregator Cityflo and is interested in making more investments in various hyperlocal businesses, including online groceries.
The shake-out will be in the case of companies having overlaps or with no clear unique business proposition or service model, said Ashvin Vellody, partner, digital advisory practice, KPMG India, who is also of the opinion that there will be multiple business models that will be successful.
By 2020, “digitally influenced FMCG (fast-moving consumer goods) sales could be as high as $35 billion, based on a $100 billion total FMCG market size," said a May report by Bain and Co., and Google Inc., which estimated online sales of such goods reaching $5 billion by that time.