Vishal Krishna, Businessword
Bangalore, September 29, 2012
is an early Monday morning and Sandhya Ram is busy preparing a
presentation. But at the back of her mind are thoughts about her
kitchen supplies, and what to cook for dinner. Sandhya needs provisions
in a hurry so she turns to a grocery retailing website —
it is convenient and the order comes right to her door. “I
am a PhD student, and a mother. My husband is a consultant. We
have no time to shop, and shopping for groceries outside takes
time and energy,” says Sandhya, who is also a teacher and
research assistant at a business school in Bangalore. Sandhya
and many others like her are just the kind of customers that online
grocery retailers plan to tap. At least 20 such businesses have
opened up in the past year, and most of them are based in Bangalore.
But there is many a slip between the cup and the lip. Online grocery retailing has not had a good run in other countries, barring the likes of Tesco and Walmart that have spent years getting their supply chains and technology right. “When it comes to start-ups, the easiest piece to create is the technology involved for a great user interface to attract the customer,” says Devangshu Dutta, CEO of retail industry consultancy Third Eyesight.
There are, however, other challenges in grocery retailing — sourcing, maintaining consistency in service and products, and keeping operational expenses in control. But there are bigger problems.
One, the business needs money to survive in the long run. The scale that many of these businesses have is limited to the top 10 major cities and their affluent populations. Two, a majority of Indian consumers is yet to experience shopping online. Of the 8-10 million Indian women working in the formal sector (according to the National Institute of Public Cooperation), it would be difficult to assume how many of them actually shop online. But the online grocery business’s survival will ultimately depend upon women as decision-makers.
This business may be easy to enter, but longevity is another ball game, and the entrants are still learning the rules.
The Right Direction?
After taking orders online the previous day, the five-member
call centre of Towness.com dispatches the packing order to the
delivery team. The next day, 20 trucks leave a 20,000-sq. ft warehouse
in Peenya, Bangalore, with cartons of jams, lentils, rice, wheat
and pickles from FMCG brands, including ‘Town Essentials’.
“I have been running a B2B business for 10 years and that
gave me enough experience to dabble in the B2C business with private
labels,” says Amar Krishnamurthy, MD of Town Essentials.
Thanks to private labels in lentils, jams and pickles, the B2C
business gives him higher margins and he also has more control
over the working capital cycle. Usually, say analysts, margins
in the online retailing business are only as high as 8 per cent,
and that too if one manages the supply chain efficiently. But
if private labels are the main business, margins can be significantly
“There is enough business within Bangalore and I am improving my website experience to get more orders,” says a confident Krishnamurthy, adding that his B2B business, which supplies to over 200 hotels and restaurants, funds the online arm and manages its delivery too. Towness.com gets about 45 orders a day. “I do my own sourcing of all the commodities, fruits and vegetables because I believe in maintaining consistent quality if the customer has to come back to shop at the website,” he says.
In another part of Bangalore, 20 Omni vans leave a mandi in Whitefield for a 6,000 sq. ft warehouse, from where Bigbasket.com takes its products to three hubs across the city and delivers groceries. “The ability to gauge demand is the key to success in this business as you do not want to end up with too much inventory,” says Hari Menon, who co-founded Bigbasket.com with Vipul Shah. Menon adds that every online grocery retailer has to operate multiple spokes supported by a large hub if this business has to succeed. Bigbasket.com has 20 trucks and claims to handle over 400 orders a day. To support large orders, it is moving to a 30,000 sq. ft warehouse that will also be its central hub. “In this business you have to meet a 100 per cent fill rate for the customer. If you do not have the product he or she likes, you have lost one customer,” says Menon. The company has raised $10 million from Ascent Capital, and is currently the only business in this segment to have external funding.