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Small is beautiful in the new wave of structural change that is sweeping through India’s growing food and grocery retail market, estimated to be worth $500 billion (Photo: Raj Sam/Mint)
Small is beautiful in the new wave of structural change that is sweeping through India’s growing food and grocery retail market, estimated to be worth $500 billion (Photo: Raj Sam/Mint)

The great Indian grocery gig in the sky

As startups and global giants gear up to change how Indians buy grocery, the kirana store is finally in the picture

Mumbai/New Delhi: For roughly a year, Dilip Kumar’s small ready-made garments shop near the Gurugram railway station has adopted one of the oldest tricks known to big business houses: diversification. The shop doubles up as a tiny warehouse to store groceries from online supermarket Grofers. While his father manages the storefront, 27-year-old Kumar is out knocking on doors in his new avatar as a Grofers service partner.

Kumar’s day begins as early as 6am. And he earns anywhere between 35-40 per delivery. Kumar is able to earn an additional income of around 22,000-25,000 each month. “I learnt about this opportunity from a friend. The only requirement was that we should have a shop," he added.

Kumar’s store is one of 5,000 such Grofers partners that have sprung up across 27 cities. Global e-commerce giant Amazon claims more than 18,000 stores have signed up for its “I have space" programme in India. And Reliance Retail Ltd plans to open thousands of outlets called Reliance Smart Points, essentially a network of grocery stores that will be used for last-mile delivery of food and grocery.

The small storefronts which double up as mini warehouses are touchpoints in a battle that is brewing to change how Indians buy grocery. The big bet: once you buy an everyday items through a certain channel, you can be eventually coaxed into buying everything through that channel.

While online startups like Bigbasket and Grofers are at the vanguard of the digital-led grocery push that is under way, the entrenched e-commerce giants and traditional storefront retailers aren’t far behind. In fact, the country’s leading retail firm Future Group and Amazon India announced a partnership just last month in an effort to find synergies and leverage each other’s networks.

Even retailer lobby group Confederation of All India Traders (CAIT) doesn’t want to be left behind. It has been agitating against the business practices of e-commerce giants and wants to launch an online marketplace to sell all kinds of items, including “daily goods". Sumit Agarwal, national secretary of CAIT, said: “We are currently firming up a plan."

The prize that everyone is after is a slice of the fast-expanding online grocery space. While grocery constitutes an estimated 60% of the country’s total retail market, the real motivation is its “stickiness". Grocery is bought frequently and with a high repeat rate. And the e-tailer who wins hearts and wallets in that space can easily sell other items.

“Grocery by itself is 70% of the wallet share for a household and it is around 97% unorganized. So, the volume of customers that we can bring into our (online) stores is massive," said Gaurav Jain, head (business and strategy development) at Reliance Retail. “What is also big is that the access of choice to such customers is very limited at the moment. When they come to our (online) stores, we can sell thousands of items and we are able to just point to many more options to buy."

But every online marketplace needs its last-mile delivery man— who matters a lot more in the grocery space unlike e-commerce, due to additional concerns such as “freshness". Naturally, a parallel race is on for the small retailer, the grocer and the local garment store. Ironically, the humble kirana store is back in play, in a new concerted effort to change the face of retail in India.

Suddenly, even for the multinational giants, small is beautiful. And men like Kumar have gotten increasingly entangled in a new wave of structural change that is sweeping through India’s growing food and grocery retail market, estimated to be worth $500 billion.

As per market research firm RedSeer Consulting, online food and grocery retail currently accounts for just 0.2% of the overall retail market. However, it is expected to touch $10.5 billion, or contribute 1.2% to the overall market by 2023.

Beyond those figures, however, big bets are also being placed due to past precedent. Between 2018 and 2020, India’s online food delivery map (led by Swiggy and Zomato) expanded from roughly 30 cities and towns to more than 500. Currently, online grocery has a similar small footprint, with presence in 25-30 cities. The question is: how fast will this change? And what will be the ripple effects on consumer choice as well as on how retail is organized in India?

The disruptors

Some of those ripple effects due to digitization are already showing up all along the supply chain. For example, it’s been over two years since Mungilal (42), who runs a grocery store in Bengaluru’s HSR Layout, visited a wholesale market in the city.

In 2018, a sales executive at ShopX, a business-to-business (B2B) platform that helps small retailers place orders for goods online, convinced Mungilal to sign up on the app. “He said I could buy all the items here; he showed me the app and told me I could get it at a better price. They also promised one-day delivery if ordered on time," said Mungilal.

The result: no more weekly trips to the wholesale market, which is 15 kilometres away. “I save about 200 on travel," he added. In terms of the price of goods, the savings are only incremental—for every 1,000 spent at the wholesale market, Mungilal said the savings totalled 80, while with ShopX, they are 85.

But as big money flows into the grocery pipeline, it is the traditional model of distribution and sales that may get upended first, much before any changes become visible to the consumer.

“Grocery is a low-margin business. To be profitable in grocery, one needs to have very strong logistics and also supply chain," said Vishnu Vardhan, senior research analyst at market research firm Euromonitor International. And digital will be a key part of the disruption, he said. “While offline is highly penetrated, there is a huge opportunity to tap into online. At present, most people want to have a first-mover advantage in the online market."

The current wave of digitization has only given a new fillip to old dreams. There have been enough murmurs of radical change in retail ever since the early-2000s, which saw the launch of Western-style hyper and supermarkets in India (Future Group opened its first Big Bazaar in 2001).

With foreign direct investment in multi-brand retail (which would have allowed giants like Walmart to open physical stores) becoming a political hot potato in the early part of this decade, hopes were already beginning to be pinned on the online route. But given India’s inherent weaknesses in cold storage and logistics, grocery was a particularly difficult nut to crack. Future Group’s e-commerce venture Big Bazaar Direct, for example, had to be shuttered in 2016, three years after launch due to soaring costs.

What is different this time, perhaps, is that multiple entities with deep pockets are in the fray, at a time when internet access has rapidly expanded. The “focus on the kirana store" pivot is another key change from past attempts.

Last year, India’s richest man Mukesh Ambani made a quiet entry into the country’s grocery market with the soft launch of its new venture named JioMart. Apart from the Amazon-Future Group partnership, there is also the Walmart-backed Farmer Mart.

Walmart’s focus on grocery retailing in India has firmed up after it acquired Flipkart, said a person familiar with the retailer’s plans. “In line with the country’s FDI policy, we’re in the process of applying for the appropriate licence. We’ve secured all internal approvals already," said a Flipkart spokesperson.

Case for unique models

Amit Sharma, co-founder, and CEO of ShopX, said he is firmly of the belief that the dominant model which will emerge in India will be small-format modern trade. “India finds itself at a unique time and history. This means our retail trajectory is bound to be different from (the) Western trajectory," he said.

“What will work in India is a local model built for India," said Ankur Bisen, senior vice president (retail) at consulting firm Technopak Advisors.

According to experts, retailers currently earn a margin of around 8-23% on selling perishables and 8-10% on other grocery items. Any new way of doing business would need to find a way to match or better those terms, without passing on additional costs to households.

“You cannot bleed on delivery. That is why online players need partnerships with the physical retail stores or a good procurement system," said Vardhan of Euromonitor.

Huge challenges

But despite the air of anticipation about an impending transformation, expansion beyond the top 30 cities will come with a long list of risks and challenges. Grocery has particularly unique pain points, like perishability and delivery-time pressures.

That is why, for at least a while, the big focus will remain on metros. “We focus on what we call motorcycle families...those families which own a motorcycle but don’t have a car," said Albinder Dhindsa, co-founder of Grofers. “We are there in tier III-IV cities as well, but choosing which city we go to is more a function of how we are expanding the supplier, distributor and merchant base."

But despite these obvious challenges, Vipul Parekh, co-founder of Bigbasket, says companies will inevitably play the long-term game, given the growing number of online customers. “Online grocery is growing six times faster than the physical market," he said. Bigbasket claims to have about two million customers across 26 cities currently.

As a result, the online grocery segment has even begun talking about profitability. Dhindsa claims 70% of Grofers’ locations are profitable and he expects to break-even at the overall company-level by the end of the year.

But questions will remain about whether the business can become sustainable or compete with the well-entrenched kirana/wholesale distributor ecosystem.

Ultimately, it comes down to whether India is ready to replace its relationship with a local kirana in favour of an invisible face, said Arindham Banerjee, a professor of marketing at the Indian Institute of Management Ahmedabad.

While a little bit of competition from new entrants is always good, unless quality is standardized, there is going to be a lot of angst, particularly with fresh produce, he said. “India is nothing but a strong network of people, whereas, America is all about standardised processes. You’re trying to import an American model into India. It may work, but the evolution is going to be slow," added Banerjee.

Kalpana Pathak in Mumbai contributed to this story.

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