The e-grocery bandwagon: Small grocery startups that braved pandemic now have to compete with big chains

However, despite an explosion of small players betting big on demands of the community and supplementing ways to sell fresh produce based on shorter supply chains, prompt home deliveries, innovation or premium price points, the struggle to compete with big chains remains.

Noida-based gallerist Sunaina Magan was caught unawares by the continuing lockdown and uncertain business landscape when she ventured into an e-grocery startup, Vorg, in May last year. At a time when factors surrounding health and safety were supreme and there was hardly any supply of dairy or fresh produce, Magan started catering to fresh and fast supplies of 200-odd families in her multi-storied apartment in Noida.

Started as a community brand, Vorg emerged as a winner out of a necessity. “The lockdown was a time to call for unprecedented collaboration to ensure a solid supply chain of essential services to pregnant women, elderly people and ‘home alone’ adults residing in my society. All families were dependent on milk supplies from the farthest Mother Dairy booth but there was no way we could get out. Convenience, safe and prompt home deliveries were an instant option. Plus, we could offer personalised diet options (keto or diabetes) for people consulting their nutritionists to follow a strict diet regime, which no other retailer could do,” says Magan.

From supplying A2 cow milk and fresh baked breads in Delhi/NCR last year, today Vorg has 345 products in e-grocery which include vegetables, fruits, date palm jaggery, handmade jams and condiments which are supplied to places like Varanasi, Pune, Mumbai, Datia in Madhya Pradesh, Bengaluru and Chennai. Vorg’s business grew three times in the past one year after Magan made an investment of Rs 15 lakh.

Vorg is among the luckier group of startups catering to small setups and finding scalability in niche markets. However, despite an explosion of small players betting big on demands of the community and supplementing ways to sell fresh produce based on shorter supply chains, prompt home deliveries, innovation or premium price points, the struggle to compete with big chains remains.

Diversity, premium and digitisation

As per RedSeer Consulting, the year 2020 accelerated digital adoption in many ways in which the biggest beneficiaries have been e-grocers. The essential-centric e-grocery market grew at a lightning pace of over 70% in 2020 and is expected to keep up with the healthy rate and grow eight times in size in the next five years.

While the fresh e-grocery sector is huge, it is largely dominated by the unorganised market of general stores, kirana shops, small and big players. The RedSeer report states that kirana stores thrive on their solid ability to provide convenient and localised service to consumers, primarily in tier 2+ cities that account for almost 80% of the grocery spend in India. Of the 11 million total kiranas in India, over 8 million are present in tier 2+ cities.

Given the choice, the consumer is open to order online, from neighbourhood or kirana stores interchangeably, and get the best deals. Also, buying and consumption patterns constantly change with social culture for services that make life easier.

Take for instance, Roshni Singh, 37, who used to visit malls and stores like Big Bazaar for groceries before the pandemic. The pandemic changed her outlook to shop for groceries online. “We now buy online and transact digitally. Sometimes, we buy from our neighbourhood kirana store, and they take online payment. I can call my vegetable vendors for home delivery of exotic vegetables, and they also do digital transactions,” says the Gurugram-based mother of two.

Customers now look for great deals and get converted by different choices. With no dearth of offers for consumers, there is a willingness to pay a premium for superior products which are among a growth driver.

Take for instance, Gurugram-based milk delivery startup Country Delight that promises to deliver at the doorstep within 24-48 hours of milking.

Country Delight forayed into vegetables and fruits in August this year and caters to big-population pockets where accessibility of fresh produce is poorer compared to tier 2 or 3 cities. Catering to over 1.8 lakh families with annual household income of Rs 7-8 lakh, their customers don’t mind paying extra on quality products. “A major chunk of urban population consumes quality chemical-free milk and once they relish the taste they don’t compromise on quality,” says co-founder Chakradhar Gade.

Despite the market in small towns, Country Delight targets top cities. “We do not want to target a city which has a population of 5-10 lakh unless it is close to a large city. Else, we have to set up a very efficient supply chain from a consumer point of view. The unit economics in big cities is sustainable,” he says, adding that the growth of the brand since 2015 has been 2.5 times year-on-year.

Similarly, high-quality fruits and premium pricing offered by fruit brand Superplum is not only bridging the gap between the farms and consumers by digitising the fresh fruit industry, but also sourcing and delivering pesticide-free fruits in a fully traceable supply chain right from the origin, packing and quality, and making it available in more than 320 fruit stores in Delhi-NCR and Bengaluru.

“Consumers buy a range of fruits online from a website or Amazon, see what fresh, clean, good quality fruits are in stock in the neighbourhood stores or retailers like Spar, Metro, Big Bazaar by just scanning QR code of of Superplum on fruit packaging to find out where fruits have come from, how safe they are to eat and how they were transported,” says Noida-based Shobhit Gupta, CEO of Superplum.

Key competitors

The challenges of fresh produce arise out of a lack of farm infrastructure, modern supply chain and cold chain transport that leads to 25-30% food wastage and overall low quality. For this purpose, temperature-controlled warehouses like the one introduced by Superplum can reduce wastage and generate demand for locally produced products. In the past one year, Gupta has seen an appetite for imported fruits like kiwi, pears and cherries in cities like Ludhiana, Indore, Jalandhar, Amritsar, and Mangalore, but feels there’s a lot needed to improve local distribution and cold chain. “Lack of storage and logistics between cities like Delhi and Jalandhar is an opportunity but the market in small towns is better as supply has limited distribution. The areas surrounding Delhi/NCR can service multiple towns as there is decent spending power in small towns,” says Gupta.

Even if small towns have the potential, there is a need to encourage e-commerce which has still not penetrated deeply. “We need to make a shift of habit. More than 50% of India’s urban population lives in top cities. Only 8% of the population uses e-commerce, whereas 60% uses smartphones and are on various apps. But the core issue is usability and lack of trust—not for money, but for product quality, return policy, timely delivery, etc,” says Ankit Dahiya, co-founder of e-grocery startup Rozana that was launched in June this year in Lucknow, Barabanki and Delhi-Noida.

Some business models have been favourable for consumers and farmers, largely because the yield is healthy, affordable and farmers gain advantage. Some key steps that Punjab Agri Export Corporation (PAGREXCO), a nodal agency for marketing and post-harvest of horticulture produce in Punjab, has taken have allowed them to compete as a global exporter of the Punjab kinnow to Russia and the UK.

PAGREXCO, which is the biggest aggregator of fruits brands like Punjab kinnow, uses a post-harvest technology that uses edible fruit waxing from Spain and volume metric grading (to determine post-harvest packaging standards) to extend the fruit’s shelf life to 60 days.

Additionally, the agency started Punjab Agro’s Five Rivers in July 2020, a home delivery service of fresh produce which is currently a testing model for Chandigarh, Mohali and Panchkula tri-city. “If capsicum is available for Rs 25 per kg in the market, at Punjab Agro’s Five Rivers, it will cost `20, delivered fresh from the farm in maximum six-eight hours. The business model is favourable for farmers as they don’t face marketing challenges and is aimed to bolster the state’s economy and introduce fresh and local food products,” says Chandigarh-based Ranbir Singh, general manager of PAGREXCO.

Meanwhile, India’s meat market is expected to become $80-85 billion by 2024 and is up for disruption by branded players, reports RedSeer Consulting. The meat and seafood industry is highly unorganised with more than 95% of the produce being unbranded or offering an unpleasant buying experience, but the pandemic changed all that.

“The pandemic has urged more consumers to shift from local butchery shops to brands as it provides different channels of procuring meat and provide transparency, traceability in the meat you eat,” says Narendra Pasuparthy, chief farmer, founder & CEO, Nandu’s, a hyperlocal and omni-channel meat brand available online, and through delivery apps like Swiggy, Zomato and Dunzo, and 50 state-of-the-art retail stores in Bengaluru. Launching in Hyderabad and Chennai by early next year, Nandu’s aims to set up 600 outlets, including tier 2 cities, by 2025.

“Given that cold chain management is a critical component in meat handling, all trucks carrying processed chicken from the factory to the retail outlets are powered by IoT and GPS devices to monitor temperature of the produce,” says Pasuparthy.

Safe and hygienic meat created in bio-secure farms ensure zero external contamination and this is maintained through quality checks and certification. Licious, a tech-first direct to consumer animal protein brand, witnessed an unprecedented growth of over 500% last year followed by the continuing momentum at present.

But Licious has a different approach. “We want to grow deeper into a few cities, win the trust of customers and consolidate our position rather than focus on expansion. We are looking to expand into more tier I and tier II cities,” says Gurugram-based Abhay Hanjura, co-founder, Licious, whose current revenue run-rate is Rs 1,000 crore annually.

Direct sourcing and wider presence lead to reasonable pricing of products at a mass market level. FreshToHome has antibiotic-free fish, meat and poultry sourced from 150 harbours across 1,500 fishermen and farmers and can reach the end consumer within 24-36 hours. “We don’t use any artificial storing or preserving techniques except ice to store fish or chilled temperature for meats. We don’t need to use preservatives because we are able to deliver from source (fishermen / farmers) to consumers in a short time gap,” says Bengaluru-based Shan Kadavil, CEO and co-founder, FreshToHome.

Big players have bigger chances

There is competition and adoption of market strategies among players who have the bandwidth and intentions to expand in the e-grocery space. Amazon, BigBasket, Flipkart, Reliance JioMart and Swiggy have already found an opportunity in the pandemic in tier 1 and 2 cities with express deliveries, massive discounts, special offers to large sellers and cross-selling, among many ways to target the buyer. Their deep positioning and hyper aggressive nature have left no room for smaller players.

At the same time, if the customer demands value for money and wants more for less, strategies like discounting, price-cutting or cashback have helped drive sales. This has made Amazon, Flipkart, Big Bazaar and Reliance Retail organise big day sales more frequently than other brands.

From $1.9 billion in GMV (gross merchandise value) in 2019, the e-grocery market leapfrogged to $3.3 billion in 2020, according to RedSeer. The e-grocery sector grew 73% in the period of lockdown. Most notably, fresh vegetables and fruits have seen 144% growth, while FMCG products grew 150%, the report said in 2021. By 2025, the e-grocery market is estimated to be valued at over $24 billion.

Grofers acquired as many as 18 lakh new customers since the lockdown in 2020 and has managed to retain more than 70% of consumers who bought groceries in the first month of the pandemic.

BigBasket has continued to offer express deliveries in India—within 60 minutes of placing the order is available for about 2,000 products; delivery within 4 hours of placing the order is available for 5,000 products.

The sustainable model of the brand has consistently grown in the area of e-grocery and delivery of fresh produce by 50x in the last seven years. “During the last 12 months of the pandemic, we have more than doubled the sales. Our experience and strategic expertise have ensured that the delivery of e-groceries and fresh produce continues to be a sustainable, profitable as well as highly scalable model of business,” says Seshu Kumar Tirumala, national head, buying and merchandising, BigBasket.

The entry of Jio with an expansive pan-India distribution network means a potentially vast market spanning tier 2 cities and beyond is waiting to be tapped. JioMart is capitalising on the company’s 11,806 outlets across 7,000 strong chain of retail stores across 7,000 towns in the country and partnering with kiranas to shore up its customer base.

A Goldman Sachs 2020 report states grocery as a large category for two or more players to co-exist over time. As of 2019, Bigbasket and Grofers accounted for more than 80% of the online grocery market, but as Mukesh Ambani continues to forge his retail empire with JioMart, his Reliance Industries is expected to capture half of India’s online grocery market.

In April, Flipkart added over 8 lakh square feet of space through five new fulfilment centres. With the current grocery fulfilment centre network spread across Delhi, Mumbai, Bangalore, Chennai and Hyderabad, among other cities, Flipkart serves close to 64,000 orders a day. It also expanded its hyperlocal service Flipkart Quick to six new cities—Delhi, Gurgaon, Ghaziabad, Noida, Hyderabad and Pune.

The pandemic has urged more consumers to shift from local butchery shops to brands as it provides different channels of procuring meat and provide transparency, traceability in the meat you eat

— Narendra Pasuparthy, chief farmer, founder & CEO, Nandu’s

We don’t use any artificial storing or preserving techniques except ice to store fish or chilled temperature for meats. We don’t need to use preservatives because we are able to deliver from source to consumers in a short time gap

— Shan Kadavil, CEO and co-founder, FreshToHome

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