Amazon, Flipkart, Reliance and the Tatas are vying for dominance in e-grocery and e-pharma. Who will lead?
Reliance, Flipkart and Amazon India have all launched kirana-led deliveries over the past year. Flipkart has also invested in fresh produce supply chain Ninjacart and logistics firm Shadowfax
Rashmi Chawla, 59, a resident of Hauz Khas in New Delhi, isn’t new to the Indian e-commerce phenomenon. Before the onset of the pandemic, Chawla used to buy almost 60% of her home essentials from online grocery platforms like BigBasket, relying on a nearby supermarket for the rest of her needs.
The pandemic, however, has shifted the pie dramatically—95% now comes in via the online route. Even her daily behaviour has changed. “Earlier, I used to make shopping lists but now I keep adding items to my online ‘basket’. Online grocery is just more convenient," said Chawla.
The shift is present, although less palpable, even in small-town India. Take the case of Pooja Shetty, 28, whose pandemic-induced return to her native town of Brahmavar, a taluk in Karnataka’s Udupi district, induced her family to try out e-grocery. The e-tailing experience is far from perfect though. “There is no concept of next-day delivery or online fresh groceries in smaller towns," Shetty says. Yet, 40% of the family’s monthly purchases (especially longer shelf-life items) have moved online.
For both the Chawlas and the Shettys, the ramp-up in online purchases was driven by one category that has acted as a hook—groceries. For many others who ventured into the world of e-commerce for the first time in 2020, there was yet other such “need-based" category—medicines.
In 2021, management consultancy Redseer predicts, about 40 million Indians will shop online for the first time ever—almost double the number of new customers who came online in 2020. A pitched battle is on to acquire these new customers via hooks like grocery and e-pharma and retain them as regular customers, who may then go on to buy other high-value goods. Currently, e-grocery accounts for a minuscule 0.6% of the country’s overall retail pie (about 8.6% of overall online retail). E-pharmacy, on the other hand, contributes about 4-5% of the overall medicine buys in the country by value, industry estimates show.
Compared to the other dominant e-retail categories such as mobile phones, electronics and fashion—where the online share in overall retail value stands at 54%, 36% and 12%, respectively—the battle for the medicine and grocery market might seem a bit perplexing. The grocery retail market also happens to be dogged by wafer-thin margins of 15-20%, which can hardly cover the logistics and inventory management cost, shows research done by financial services firm Motilal Oswal. To top it all, of the overall addressable user base in e-grocery, about 65% of the households, are price sensitive and value-seeking buyers.
So, why have these sectors become the most sought-after ground for disruption in India for both traditional conglomerates like Tata and Reliance, as well as the e-commerce giants like Flipkart and Amazon?
The opportunity cost
According to Rohan Agarwal, associate partner at Redseer, online penetration of mobile and electronics has reached its threshold, making e-grocery the biggest growth lever for large conglomerates and horizontal e-commerce players.
“Today, e-grocery has a large addressable market, coupled with very low penetration. Further, grocery as a segment continues to be high-frequency in nature—much higher than electronics, fashion and mobile phones. It gets customers to the platform more frequently, which helps in building better retail-customer relationships and (also) cross sell other items," Agrawal said.
Earlier this year, Tata Sons bought a majority 64% stake in India’s largest e-grocer, BigBasket. Sources close to the matter told Mint that the Tatas shelled out over $1 billion. Additionally, the conglomerate made a commitment to invest an additional $219 million. Parallelly, billionaire Mukesh Ambani-led Reliance Industries Ltd (RIL) has been making its foray into the e-grocery space via JioMart, with particular focus on smaller tier-2 and tier-3 towns. Smaller towns are expected to account for about 55% of the addressable market, making the first mover tag a particularly valuable asset in the months ahead. “Need-based online retail, including daily essentials and medicines, is a big boys club now," said Ankur Bisen, senior vice-president, retail and consumer, Technopak. “These are inflation-proof segments, meaning, demand for these categories will never fall through even as prices rise."
The nature of the Indian consumer is also driving some of these moves. In terms of basket share, the average spending on grocery in India is almost double (70%) that of developed markets like the UK, US and China, where groceries contribute to 30-40% of overall retail spends, according to estimates. The factors driving the e-pharmacy pivot is also similar. “The (current) penetration is low and the headroom for growth is high. Further, just like e-grocery, online pharmacy also sees a high repeat purchase behaviour. For instance, the chronically ill user base today drives most of the repeat behaviour and contributes to 70% of sales for e-pharmacies," says RedSeer’s engagement manager Kushal Bhatnagar.
Reliance vs Tata
During its 44th annual general meeting held in June, RIL made heads turn when chairman Mukesh Ambani stated that JioMart had registered over 6.5 lakh peak orders in a single day, clocking 80% in repeat rates for the one-year-old platform.
RIL’s biggest announcement, however, was its integration with its investor WhatsApp (owned by Facebook), allowing users to place JioMart orders via the messaging app, which will subsequently be fulfilled by local kiranas. Reliance has already held early trials in Maharashtra’s Navi Mumbai and Thane districts to test the WhatsApp-led commerce model.
JioMart’s early-success has been predominantly driven by its omni-channel approach, as it migrates offline customers of Reliance Retail stores towards its digital channel. RIL data shows that 90% of the deliveries (on JioMart) are fulfilled by its growing network of 12,711 stores, including Reliance Fresh, Smart and Trends.
“Reliance wants to become the everything store, but each category (grocery, apparel, medicines, electronics) has its own supply chains, specificity, motivator and occasions of purchase for the customer. So, how do you manage those and nudge customers to one platform?" wondered an analyst at a consulting firm, who spoke on condition of anonymity. “Reliance could be spreading itself thin by entering different categories all at once. The question is whether it wants to be a market leader in some categories or just have an e-commerce share in all of them," he added,
Particularly problematic for Reliance is its limited digital delivery experience. It will inevitably have to play catch-up with more established rivals—BigBasket, Grofers, Flipkart and Amazon— that have taken close to a decade to build their online play. The answer that the Tatas have come up with is ‘buy and build’, which explains the string of acquisitions. “The Tatas might have an edge over Reliance in terms of the superior digital and delivery experience of BigBasket, but they will still need to build the massive supply chain infrastructure of Reliance Retail," said a second analyst who also requested anonymity. “The larger question for the Tata ‘super-app’ strategy continues to be how well they manage to integrate these (diverse) offerings." “The Tatas are already late-entrants and to bring different organizations to pace with one vision and platform is going to be an arduous task," the analyst added.
Both Reliance and Tata Digital didn’t respond to Mint’s queries.
The kirana unlock
As the e-grocery industry continues to be plagued by complex supply chains and thin margins, e-commerce has inevitably turned to partner with their biggest rival— the kiranas. The kirana-strategy has several benefits such as enabling an expansion of the segment’s delivery network to remote corners, saving infrastructure cost, and reducing the delivery time, especially in larger cities. Having delivery hubs near customers, through kiranas or partners, is key to the launch of express deliveries for perishable goods such as fruits and vegetables.
Reliance, Flipkart and Amazon India have all launched kirana-led deliveries over the past year.
Flipkart is also leveraging its investments in fresh produce supply chain Ninjacart and logistics firm Shadowfax to set up sourcing hubs closer to customer deliveries and build hyperlocal delivery strength for the margin-starved e-grocery business. “Ninjacart has direct access to farmers and has close to 200 collection points across the country," said Smrithi Ravichandran, who was recently appointed as the vice-president and head of grocery operations at Flipkart. “We have worked with Ninjacart to ensure that the harvest-to-sale time is as narrow as possible through demand planning. In line with this, we will also be opening 200 dark stores (outlets used only for deliveries) around the country by 2021-end."
However, with the pandemic, kiranas have been overwhelmed with online players approaching them in droves, said Redseer’s Agrawal. Low risk appetite and patchy digital penetration adds to the challenge of bringing kiranas from tier-2 cities on board, he adds. “As per a recent survey, kiranas are frustrated by digital players selling them products. The real value-add for the kirana is essentially the margins they can make on the products they sell. That is the starting point…after which other services such as credit, and (other) digital products can be enabled," said Agrawal.
A wholesale arm allows e-retailers to understand regional demand better and improve stocking operations at hyperlocal delivery hubs, besides offering them white spaces in popular grocery categories. Flipkart’s Ravichandran says that the firm’s private label already contributes to 20% of the overall staples bought through its e-grocery business.
As the big four—Amazon, Flipkart, Reliance and Tata—fine tune their strategies and approaches in the months ahead, the most important player that may ultimately determine the eventual leader is a fifth entity: the Union government. On 21 June, the Union consumer affairs ministry proposed a set of controversial amendments to the Consumer Protection (E-commerce) Rules to address complaints against the “unfair trade" of e-tailers. The proposed amendments, which are still being discussed, included tightening the rules on ‘flash sales’ and a proposed ban on the sale of goods by related parties in the marketplace.
The ministry has also proposed to tighten the rules on ‘private labels’ by discouraging the use of brand entity for the promotion and sale of such goods. For now, e-commerce players are pushing for an active dialogue with the government.
“In the short-term at least, the government will be dictating Amazon and Flipkart’s strategies in the country as it prepares to finalize consumer protection and data privacy rules, along with the final policy that will guide e-commerce in the country," said the second analyst quoted above. This will also offer an opportunity to other players who wish to contest the need-based retail space. “A large part of retail in India is driven by households that earn less than ₹5 lakh per annum. Owing to their high-value seeking behaviour, existing online models aren’t necessarily finetuned for this segment," said Redseer’s Agarwal. “We will perhaps see newer models like social or community-led commerce emerging now."
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