Competition in e-grocery heats up with Tata’s entry

The entry of conglomerates such as Tata Sons Ltd and Reliance Retail Ltd and e-commerce majors sharpening focus on India’s burgeoning e-grocery sector is creating a multi-player field catering to different customer segments with unique business models beyond the large cities.

The nationwide lockdown and the associated tailwinds led the gross merchandise value of the e-grocery segment to grow to $3.3 billion in 2020, according to research consultancy RedSeer, which expects the sector to touch $24 billion by 2025.

This led the consumer base to get democratized by moving into smaller towns and spreading across diverse income groups and product categories including fresh fruits and vegetables while online channels scaled up. Even on the offline retail front, many organized retailers ventured online, either on their own such as Reliance Jiomart or through partnerships.

Tata Digital Ltd buying a majority stake in the country’s largest e-grocer BigBasket allows the conglomerate not just a quicker entry into the online grocery business, but also opens up newer avenues, including an omnichannel strategy and allows deeper expansion beyond the metros.

“The competition in the space is heating up as traditional conglomerates enter this extremely sticky segment. This move will bring in greater synergies from existing supply chains and help their omni-channel strategy approach. Scale is crucial for companies to succeed. Execution and expansion of their strategies into these growth areas will indicate where they stand on the foot-ladder,” said Ankur Pahwa, partner and national leader, e-commerce and consumer internet sector, EY India.

The e-grocery sector is large enough to accommodate multiple firms with unique propositions, unlike e-commerce, food delivery and urban mobility, which have seen the emergence of duopolies, said analysts.

“This is just the start for online grocery. The opportunity is sizable and we expect multiple large winners here catering to varying customer segments such as convenience vs. value/ metro, Tier 1 vs. Tier 2+, and use-cases, such as stock-up vs. top-up vs. on-demand,” said Rohan Agarwal, director, RedSeer.

“It’s an exciting space to watch out for with the large offline retailers intensifying the already competitive space of multiple online models such as horizontal e-e-tailers, grocery verticals, hyperlocal and social commerce,” Agarwal said.

Tata’s entry into the e-grocery battlefield comes at a time when both Amazon India and Walmart-owned Flipkart have said that online grocery will be a key growth frontier this year. Other than the business-to-consumer (B2C) focus, Flipkart Wholesale has launched a grocery service leveraging Walmart India’s cash-and-carry business network.

Despite BigBasket’s large market share, its focus on the top cities and customers who are willing to pay a premium, key factors for e-grocery firms looking to expand their footprint will be the larger value-focused masses beyond the current top-10 city play and integration with kirana stores.

“Grocery is 67-70% in the overall consumption basket and with e-grocery, we have just scratched the surface. There is so much opportunity that all the top players can build on their unique appeal, focus on different clusters and are likely to grow faster with Tier 2, 3 expansion,” said Ankur Bisen, senior vice-president, retail and consumer, Technopak Advisors.