Clash of business models as war for the grocery basket escalates

Grocery delivery
  • Alibaba-backed BigBasket and SoftBank-backed Grofers are the leading online grocers
  • New entrants Swiggy and Dunzo hope to leverage their capacity for quick delivery from offline stores

Online grocery seems like a simple enough business of delivering fruit and vegetables, staples and toiletries to homes, saving customers the hassle of going to a supermarket or kirana store. But as it turns out, it’s complicated to get a customer what he or she needs in time—and that’s why every e-tailer has evolved its own business model, each settling on one that plays to its strengths.

Alibaba-backed BigBasket and SoftBank-backed Grofers are the leading online grocers. Ecommerce giants Amazon and Walmart-owned Flipkart are in the game, while food delivery unicorn Swiggy and all-rounder Dunzo have added grocery to their repertoire. There’s even room for a small player like Satvacart that has been serving a pocket of consumers within a 5-km radius of its warehouse in Gurugram for five years. Most of its orders are fruit and vegetables, which it buys wholesale from nearby Delhi’s central mandi. Its USP is delivery within an hour.

And yet, online grocery has barely made a dent. Kirana stores still serve 95 percent of the $367 billion overall grocery market in India, with supermarkets and online grocers sharing the remaining 5 percent, according to 2018 data from Euromonitor.

Hare and tortoise

Satvacart CEO and founder Rahul Hari draws inspiration from FreshDirect, an online grocer founded in Manhattan in 1999, which focused on households within a 10-mile radius. Around the same time, California-based WebVan scaled across multiple cities with nearly $800 million from investors and an IPO. But it went bankrupt in 2001, whereas FreshDirect is New York’s leading online grocer today, ahead of formidable rivals like Walmart.

These are examples Rahul Hari has learnt from. “I figured that rapid scale in this business can lead to failure. One first needs a viable business model in the existing territory,” he says.

He watched better-funded contemporaries like LocalBanya and Peppertap take off and collapse, while Satvacart stayed grounded in Gurugram with angel funding. He hopes to turn cash positive and expand next year. But raising a series A round to scale faster won’t be easy, with so many big fish already in the pool.

One of them is Grofers, founded in Gurugram just a year before Satvacart. It has raised over $500 million.

Venture capital loves a fast-scaling, asset-light, marketplace model, connecting suppliers and buyers without holding inventory. That was the promise of Grofers in 2015 when Tiger Global and SoftBank pumped $165 million into it. But it changed tack to an inventory-led model, reading the tea leaves in time.

Now it has a twin strategy. One is to develop private labels for staples and household products which can be lower-cost alternatives to traditional FMCG brands. Amazon and BigBasket also do this.

The second strategy is to cut back on fruits and vegetables and limit its range of products to those which are more in demand, making it easier to manage inventory and delivery.

“Grofers is focused on the needs of mass market India, lowering costs through a combination of private label products, a cost-efficient supply chain and limiting our assortment,” says Abheek Anand, principal at Sequoia Capital India, the first institutional investor in the startup.

Scaling strategies

New entrants Swiggy and Dunzo hope to leverage their capacity for quick delivery from offline stores. “They can serve the top-up market of customers who want small orders fulfilled instantly,” says ecommerce pioneer K Vaitheeswaran.

Uber seems to be eyeing the top-up customer too with its reported plans to take a majority stake in Cornershop, a leading grocery delivery service in Mexico and Chile. “Whether it’s getting a ride, ordering food from your favourite restaurant, or soon, getting groceries delivered, we want Uber to be the operating system for your everyday life,” Uber CEO Dara Khosrowshahi told Mashable.

Ecommerce giant Amazon has been experimenting with grocery, the latest being its launch of Amazon Fresh in India with two-hour delivery. For Amazon as well as Walmart-owner Flipkart, the challenge is building a reliable supply chain for fruits and vegetables without a sizeable inventory of perishables. Amazon is reported to be acquiring minority stakes in the Aditya Birla Group’s More supermarket chain as well as the Future Group’s BigBazaar. Earlier, Flipkart was reported to be in talks to acquire offline grocery chain Namdhari’s Fresh.

Amidst these moves by diverse players, market leader BigBasket is sticking to its full stack model of controlling its own inventory and delivery of a full range of products, supported by backward integration with farmers for supply.

The scale of its operation, with a presence in 28 cities, also puts it in a position to defend its position. Analytics is an area the market leader is leveraging to improve everything from inventory and delivery to customer experience.

For example, a BigBasket customer gets a ‘smart basket’ with a personalised selection of products. “We’ve seen that the smart basket predicts 90 percent of what a customer buys. Those who use it spend 40 percent less time shopping than those who don’t,” says M.S.Subramanian, analytics head at BigBasket.

It’s not a trivial enhancement of customer experience to reduce the drudgery of grocery shopping. Unless of course you just love to browse.

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