SUPPLY CHAIN MANAGEMENT IN THE E-GROCERY INDUSTRY A COMPREHENSIVE ANALYSIS
NALIN BANSAL PUNEET SINGH NANDA
PRIYANSHU GUPTA YASH BHARDWAJ
EVOLUTION OF E-GROCERY MARKET
E-Grocery had begun in the mid-2010s however the models were all the while advancing. Most players worked on an on-demand model (fulfilling demand through neighborhood retailers) and gave high discounts. In any case, this model before long gave way to the warehouse center model, for certain players like PepperTap leaving. The most recent 5 years have seen huge interest in the space with a lot of enormous players, including eCommerce horizontals entering this space. One more development in this space was the short-term conveyance model, presented by players like Milkbasket. Coronavirus has furnished huge tailwinds to the area with a ton of clients requesting on the web. It is normal that a huge extent of them will stick post the pandemic also. This has prompted interest from enormous players like the Jio stages, which sets the development possibilities of the channel.
•Entry of vertical players at
•Breakout years for sector
•Stabilization
small scale in chosen metro
receives majority of
models
cities
$ 500 million funding
•Strong
•Entry of horizontals and
metros
expansion
driven by growing selection,
•Low
consumer
adoption
and limited selection
for verticals
to
non-metros
of
take-up and
business in
both
smaller
cities
offers and innovative business models
industry analysis Evolving models for Grocery retailing Over a couple of years, given the size of the market opportunity and low base, Online Grocery players have taken on creative models to infiltrate the F&G market. This has brought about the Online F&G market becoming 30x in the last 7-8 years to ~USD3b in FY20. Seen in an unexpected way, the consolidated income of Online F&G players (viz. Huge Basket, Grofers, JioMart, Amazon, and Flipkart) has turned into the third-biggest Modern Retail player (~INR3b in FY20) after DMart and RRVL
Overall Market Size The Indian F&G retailing market (assessed to be 60-65% of the absolute Retail market) has seen solid premium from homegrown and worldwide players as of late. Developing at ~12% CAGR in the course of the last 8-10 years, the market has been generally overwhelmed by the conventional retail channel, which comprises 96% of the market. Coordinated retail has developed at 31% CAGR to USD24b, with simply 4% entrance, offering an enormous extension to huge Modern Retail and online players. Over the course of the following 4-5 years, Modern/Online Retail is relied upon to earn 16%/59% CAGR to USD50b/USD18b, expanding its portion to 89% of the absolute F&G market
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OPPORTUNITIES FOR THE INDUSTRY
Alternate Consumer Behavior FDI rule permitting 100% FDI in food retail for things delivered, handled or produced in India will work with the development of coordinated B&M share
Increasing Comfort with etailing Realignment of business model including combination blend, space legitimization and design solidification has prompted development of coordinated organizations
GROWTH DRIVERS
Involvement of Major Players
Investment across the whole biological system of food handling, cold stockpiling, coordination and item improvement is driving the development of coordinated B&M
Localisation of Assortments
High reception of coordinated retail designs from Tier 2+ urban communities is relied upon to blast present-day retail in India
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GROWTH DRIVERS OF MARKET Infrastructural Requirements A country with humongous population like India is lacking in the growth of the e-Grocery industry only because of lacking infrastructural support. With limited access of Indians to: Internet Facilities Multiple Payment Options Smart devices, etc. eventually resulted in a meagre worth of $0.6B in 2017 (which was ~1.5% of the food services industry back then) With a spike in the availability of such amenities, the e-grocery industry is expecting a CAGR OF 70% as compared to 10% of food services industry, signifying the driving force of infrastructural needs
In addition to infrastructure, there are other demand and supply side trends as well leading the growth of the industry
Supply-side Drivers Growth of players in the industry: With players like Flipkart, Grofers witnessing increasing profits, their brands and reach are also growing simultaneously Multiple selling channels; Brands are opting for multiple selling channels to increase the coverage and variety of products (Amazon is delivering through Amazon Now, Amazon 3P, Amazon Pantry and Flipkart is selling through Flipkart Supermart and Flipkart.com) With consistent increase in their user base; these organizations are also launching loyalty programs for consumer retention and better user-coverage Supply Chain experimentation; Brands are experimenting with their supply chain. They are launching dedicated new channels or separating fresh food from others just to improve the chain
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Demand-side Drivers Increasing consumers; with better infrastructure for online shopping and emergence of e-Grocery market, the AOV (Average Order Value) of companies is steadily increasing Increased online spending; As much as 70% of wallet of the high spenders is capped at ~70% of their total monthly spend, only the remainder is spent offline Aggressive Selling Techniques; With greater discounts, better quality and higher variety, people are induced to buy groceries online Better delivery services; with better supply chain, the companies are able to deliver the groceries in a shorter span of time making online purchase more convenient for the buyers
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Market Players Indian E-Grocery Market Players Others 20%
Grofers 13%
JioMart 4% Flipkart 11%
Bigbasket 37%
Amazon 15%
The Indian E- Grocery Market is poised to touch US $22 Bn by 2025
Application Analytics Application visits have been lower from July'20 as the economy opened up with the lifting of the cross country lockdown, however it actually stays solid. JioMart/Big Basket/Grofers appreciate higher application visits attributable to their higher prevalence and more extensive presence, while other applications earned lower visits because of lesser functional regions and specialty item contributions. Grofers/Dunzo earned the most noteworthy normal term per visit; while Dunzo/JioMart partaken in the most reduced bob rate, suggesting longer stays or more page visits on the application.
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DIFFERENT TYPES OF CONSUMER PROFILES Convenience Seekers These consumers are young working class married couples residing in metros and mini metros looking for convenience of delivery at the doorstep Demographics:Age - 30 – 35 years Income > 20LPA
City – Metro High AOV(1500+)
Driving force – Wide variety of products available at the same place is the primary driver to shift online. They also seek promotions and discounts, although not the driving factor, on the portals they use. They buy majority of the packaged food, home and personal care online, however still prefer to buy fresh and dairy items from offline channels
Young Enthusiasts Consumers in this segment are young bachelors living in small groups of 2-4, working in the corporate sector. Demographics:Age - 22 – 30 years Income 15 – 30 LPA
City – Metro Low AOV (<600)
Driving force – Their main driver to purchase grocery online is lack of time from daily schedules. Timely delivery is very important to them, and therefore they stick to a platform with high delivery adherence as well as express delivery options. Flexible payment options is also important because of the tech-savvy nature, where household members use different payment methods such as credit card, cash or UPI payments. These consumers buy most of their grocery needs from online channel, and use online mostly for buying fresh items.
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DIFFERENT TYPES OF CONSUMER PROFILES Urban Mothers This segment comprises mostly urban females, who order groceries for the entire family Demographics:Age – 35+ years Income >12 LPA
City – Metro Medium AOV (Rs. 800 - 1200)
Driving force – They buy most of their grocery needs online including fresh and dairy items from online and use online channels for refilling stockouts. Wide assortment adds to the sticking to online platforms because they tend to try newer brands and niche categories such as organic staples which are not readily available on online channels
Budding Shoppers These are shoppers who earlier used to purchase mostly from Local Kirana but have adopted organized B&M and online in the last 1-2 years with increasing penetration of the latter in tier 1 cities Demographics:Age 30 – 40 years Income > 20 LPA
City – Tier 1 Medium AOV (Rs. 800 – 1.2K)
Driving force – These consumers have shifted a significant portion of their monthly grocery purchase to online channel in lesser span of time. However, they are averse to buying fresh products online due to lack of trust in freshness of such items, which they prefer to buy from o ine stores.
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PURCHASE BEHAVIOUR Urban Mothers tend to have a decently high frequency of purchase. Also, they tend to purchase a variety of items, which drives up the sizes of their baskets. This makes them one of the leading consumer cohorts in eGrocery. On the opposite side, there are Budding Shoppers, who are trying out the channel and still depend on the local kirana for their needs. They purchase smaller, lower value items infrequently, and they are likely to increase this as they start trusting the platforms. The Convenience Seekers order infrequently, but in bulk. Young Enthusiasts are the ones who order small ticket items like breakfast items and vegetables but order frequently. The players must look to increasing their wallet share of these customers through appropriate offerings/ incentivization.
Size of Consumer Segment in 2019 Convenience Seeker
Budding Shopper
Size of Consumer Segment in 2020 Young Enthusiasts
Urban Mothers
Online AOV (INR)
1,500
1,150
800 0.0
3.0 Frequency of online purchase per month
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6.0
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COVID IMPACT Growth in e-Grocery segments prior to and during COVID-19 75% Snacks and Branded Food
50%
Beverages Personal Care Products
25% 0%
Home Utilities
Growth during pre COVID
Growth during COVID
The COVID-19 led nationwide lockdown provided a much needed boost to Online Grocery sales. It did to e-grocers what demonetization did for online payment platforms. During the peak of COVID-19 in 2QCY20, panic led stocking by first-time shoppers drove AOVs
Average daily orders (INR) on Big Basket/Grofers 2,000 1,500 1,000 Big Basket
500 0
Grofers
Pre Covid
During COVID
During COVID-19, Big Basket/Grofers witnessed 4x/3x daily orders of preCOVID times at 300k/190k. AOV saw a 15%/25% jump to INR1,500/INR1,820.
Daily order trend (k) on Big Basket/Grofers 300 200 Big Basket
100 0
Grofers
Pre Covid
During COVID
Players saw higher customer retention, which shifted the base upwards in average daily orders for Big Basket/Grofers to 220k/150k.
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SUPPLY CHAIN MODELS Inventory-led model Since the inventory is sourced, procured, and stored by the player, this model requires a higher initial investment. However, it offers a better margin potential as players are buying inventory themselves. Players can offer a wider product range, with stringent quality checks, to attract customers and reduce delivery timelines. However, the perishable nature of products and higher SKUs limit viability of this model. Currently, most players like Big Basket, Grofers, DMart Ready, and JioMart utilize this model.
Hyperlocal model Hyperlocal model is being utilized by new entrants such as Dunzo and Swiggy. JioMart is planning to utilize this model to increase its reach in smaller towns. The player partners with local stores to offer last-mile delivery from these stores and outlets. This allows it to maintain a capex light model as players are not required to purchase inventory. The model enjoys higher customer confidence as they know from where the products are being sourced. However, it offers lower margin and quality checks, with product offerings limited by local availability.
Hybrid model Hybrid model offers features of both inventory and a hyperlocal model as players purchase inventory and store it locally in dark stores, and provide lastmile delivery. This offers better inventory control, higher margin, stringent quality checks, and reduced delivery timelines. This allows e-grocer’s to stock products as per local taste and provides a trust factor for customers. e-Grocery players like Flipkart and Big Basket are opening dark stores to leverage this model. Many offline players are also linking their brick and mortar stores with inventory online, which could offer a huge growth potential via this omnichannel.
Particulars Inventory storage
Inventory-led Inventory heavy model involves outright purchase of inventory
Hyperlocal Inventory light model as it provides only infrastructure and logistic support
Hybrid Model The hybrid model combines features of inventory and hyperlocal model
Capital Requirement
Capital Intensive
Capital Light
SKUs
High
Low
Moderate
Lead Time
High
Low
Moderate
Margin Potential
High
Low
Moderate
Quality Checks
High
Low
Moderate
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Moderate Capital
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KEY CHALLENGES Despite of sustainability of business model, the egrocery market faces some key challenges which are mentioned as follows: Inadequate infrastructure, fragmented and long supply chain resulting in delays and food wastage Storage and transportation costs are significantly high Maintenance and operational costs for perishables are high and require significant investment in storage and infrastructure Low profit margins Select online retailers lack quality control of products Despite convenience and safety advantages, most consumers prefer to shop in person in a physical store High tariffs for consumer-oriented goods and ingredients.
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PRIVATE LABELS: THE EMERGING SEGMENT In accordance with the technique
undiscovered
followed by disconnected retailers,
Regardless of contending with the set
online basic food item players are
up brands, eGrocery players gain piece
foraying into the private labels, which
of the pie by creating one of a kind
should go about as the following
items
large development driver. According
benefit,
to industry reports, half of rehash
guaranteeing
Income portion of private marks for eGrocery stages have expanded to relied upon to reach 45% in CY22E. Private labels helps e-Grocery players through various ways It permits them to possess the whole
eventual
and
outcomes
accordingly
sourcing,
conveyance
further
to
item
so
dietary
on,
quality.
while In
a
provincial
inclination,
which
are
regularly disregarded by public brands
Improving customer retention rate: The unique brand positioning further develops client tenacity. This, alongside
Owning the Entire Supply Chain:
assembling,
and
cost,
given its restricted market size.
40% in CY19 v/s 32% in CY16 and are
from
taste,
on
foster private label items dependent on
ascribed to private label deals.
chain
dependent
portion.
different market like India, players
buys on e-Grocery stages could be
supply
market
of
clients,
developing
stock/production network the board.
better client support, prompts rehash buys on the stage and guarantees reasonable development. Improved Margins This empowers e-merchants to create better margin as it eliminates gobetween margins and spillages in the
Penetrating
into
the
Untapped
Market: By
utilizing
worth chain. Private labels offer 1.5-2x margin over marked items. In basic
experiences
from
food item retailing, the margin on in-
information accumulated on their
house items lies in the 10-14% territory
internet based stage, these players
v/s 7-10% on marked items.
foster items with appeal for the
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THE INDUSTRY IN THE COMING DECADE With large corporations such as
Need for an Omni-Channel:
Reliance Industries Limited (RIL),
With limited growth of the online
Walmart-owned Flipkart, and Amazon
platforms
are betting billions of dollars on
covered, it is not possible for these
India’s e-grocery market, India's oldest
giants to establish a pure e-Commerce
conglomerate TATA Group has also
platform
joined the industry with the majority
population with it.
acquisition of BigBasket.
As the e-Grocery business in India is
in
terns
and
cover
of
population
the
majority
now a a play for mature players who
In the post-COVID world, with
can deploy capital and scale the
immense acceleration to online
business
shopping, presence of these
companies don’t mind shelling out
behemoths makes the Indian e-
money for online assets that will give
Grocery industry ready to grow rapidly
them some edge over competition and
in the coming months.
capabilities.
With an expected CAGR of 70% in the
Signals towards such channel:
coming decade, the industry is
With Reliance merging Reliance Retail
expected to surpass the $7B mark in
and
2022 and reach $24B by 2025,
integrated platform JioMart, its rivals
marking India's 3% contribution in the
are also expected to follow them on a
global e-groceries market. But
similar path in the years to come and
considering gigantic Indian
after TATA's arrival in the picture, the
population, the industry worth $24B
chances are even higher for an omni-
would account for less than 5% of the
channel network which is going to
total groceries market in the country,
expand the e-Groceries market even
signifying the prevalent dominance of
further.
RIL’s
fast.
digital
Therefore,
services
large
into
an
unorganized sector (Local or Kirana stores) in the times to come and
With this turning to reality. The time
implying the need and opportunity for
may be ripe for the next disruption in
an omni-channel.
India’s online grocery business
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CONCLUSION The Way Forward
The USD600b Indian Food and Grocery
Online Grocery players have adopted
(F&G) retailing market has generally
innovative models to penetrate the
seen limited (a mere 1%) penetration
F&G market. This has resulted in the
from e-commerce players in India. This
Online F&G market becoming 30x in
is in line with worldwide markets, which
the last 7-8 years to ~USD3b in FY20.
additionally
Seen differently, the combined revenue
ecommerce
have
single-digit
commitment
mere
of Online F&G players (viz. Large Basket,
6%/8%/4%). The e-commerce market in
Grofers, JioMart, Amazon, and Flipkart)
generally other retail categories like
has become the third largest Modern
Consumer Durables, Mobile Phones, and
Retail player (~INR3b in FY20) after
even
has
DMart and RRVL. The same is expected
developed exponentially. Over the most
to develop by 59% CAGR over CY19-24E
recent couple of years, given the scale of
to USD18B.
Fashion
and
(a
Lifestyle
the market opportunity and low base,
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Appendix 1. https://inc42.com/buzz/online-grocery-growing-at-57-cagr-to-clock-3-bn-ingmv-this-year/ 2. https://projectstoday.com/News/Stellar-Value-Chain-to-infuse-Rs-200-cr-in-egrocery-supply-chain 3. https://www.linkedin.com/pulse/e-grocery-challenge-chance-mukesh-singh 4. https://www.linkedin.com/pulse/post-covid-view-indian-e-grocery-spacecontinues-fast-bhattacharya 5. http://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName? fileName=COVID19%20Accelerates%20the%20Growth%20of%20India%27s%2 0Online%20Grocery%20Market_Mumbai_India_05-17-2021.pdf 6. https://tejas.iimb.ac.in/articles/OnlineGrocery_Tejas_mar17.pdf 7. http://www.motilaloswal.com/site/rreports/637586596663262698.pdf 8. https://agriallis.com/wp-content/uploads/2020/06/CONSUMER-BEHAVIOURFOR-E-GROCERY-SHOPPING-IN-INDIA-AN-OVERVIEW.pdf 9. https://www.fortuneindia.com/enterprise/whats-cooking-in-indias-e-grocerymarket/105623
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