E-grocery market to hit $3 bn this year

Bengaluru: As the pandemic pushed customers to go digital, India’s online grocery market turned out to be the next battleground with Flipkart, Reliance JioMart, Amazon India and Swiggy rushing to enter the space, leading to a sharp spurt in business in recent months not only in the metros but in Tier 2 cities and beyond.

The total size of the e-grocery market in the country is expected to grow from $1.9 billion in 2019 to $3 billion by year end, according to a new report from consulting firm RedSeer and online grocery firm, BigBasket.

With the market charting an annual growth rate (CAGR) of 57%, the online grocery business is expected to reach $18.2 billion by 2024.

From a macro perspective though, this will still be 2.3% of the overall grocery market in the country. At present, online grocery contributes to 0.3% of the overall grocery sales in India, RedSeer said in a new report.

At the start of the lockdown, almost every food delivery and e-commerce firm pivoted to delivering groceries, as restrictions on delivery of non-essentials prevailed.

With customers left with no option, but to look at digital channels for home essentials, gross merchandise volume (GMV) for the online grocery segment in the country grew by 73%, between January to June.

While firms like Zomato have slowly restored focus towards their core business, foodtech unicorn Swiggy and e-commerce majors like Flipkart and Amazon India have doubled down on the online grocery category.

With the entry of Reliance-backed JioMart, adoption of e-grocery in the country is expected to grow only further.

Within e-grocery, categories such as fresh food, staples, and FMCG goods have also seen a sharp increase in gross merchandise value (GMV), with several FMCG firms directly tying with online delivery firms to diversify distribution. The GMV of fresh food has grown by 144% in the first six months of this year, while staples and FMCG have grown by 85% and 62% respectively.

"Grofers continues to witness high demand, with volumes stabilising at 30% higher than pre-covid levels. There has also been a 40% increase in basket size as compared to the pre-covid era.We have witnessed an increase of 54% in orders in smaller cities like Indore, Agra, Panipat, etc,” said Saurabh Kumar, co-founder, Grofers, an online grocery delivery startup.

Grofers has acquired 18 lakh new customers since the lockdown. Over 70% of the customers who came in the first month of the pandemic are still shopping on the platform.

Around 64% of its total user base is first-time online grocery shoppers, while 20% are first time online shoppers.

BigBasket also saw new customers on its delivery platform increase by 84% between January and July. The startup also claimed the retention rate of customers grew 50% during the period, Mint recently reported.

Demand for ordering groceries online was so sharp during the pandemic that even large firms like BigBasket struggled to keep pace, given the supply chain challeges due to the restrictions.

“With the surge in demand for e-grocery during the lockdown, players will have to solve for retention now. We see almost 30% of demand waning off from Tier 1 cities, while for metros, the affinity towards e-grocery is unlikely to change. But we will know the full picture only in the next three months,” said Abhijit Routray, senior consultant at RedSeer.

E-grocery in recent months has also seen the return of express deliveries, with Walmart-owned Flipkart launching Flipkart Quick, its 90-minute hyperlocal delivery service in Bengaluru, and Swiggy launching Instamart, its 45-minute grocery delivery service.

“Express deliveries were tried by Grofers and BigBasket earlier, however it continues to be a tough segment, owing to the lack of inventory and quality issues, which leads to customer dissatisfaction. As the service makes a comeback, it makes sense for Swiggy or other e-commerce firms to enter this service, for full utilisation of their delivery fleet,” added Routray.

Routray added that Grofers and BigBasket also might look at getting into express deliveries as a segment in mature markets like metros, as e-grocery continues to be a positive margin business.

E-commerce firm Paytm Mall is also planning to start same-day hyperlocal deliveries in groceries, electronics (including smartphones) and wellness products to diversify its offerings to customers.