The Grocery Sector – A study of Clicks vs Bricks

An Overview:

Technology has fundamentally transformed the way industries such as music, books and video operate. In the consumer-packaged goods (CPG) industry i.e the Grocery Sector, change has been more evolutionary than revolutionary. Digital is redefining what it means to “Go” shopping. Lines between the physical and digital worlds are blurring. Shoppers are growing accustomed to the benefits of digital in retail settings and are beginning to expect them in the grocery sector as well. Savvy retailers are winning by leveraging technology to enhance the shopping experience and meeting their consumers’ evolving desires.
Over the last 5 years, the Web-Market of India has changed immensely for online grocery sector start-ups. Nowadays, customers are getting increasingly comfortable buying groceries online. As a result of this, the On-Demand economy is booming in the country.

The Grocery Sector:

The start-up ecosystem has been all about convenience. With the advent of giants like Amazon, Flipkart, PayTM etc – there has been an upcoming surge for purchasing everything online. A research by Technopak stated that this industry is currently valued at US$ 455 Billion. It is expected to grow to about US$ 1 Trillion by 2020 with a growth rate of 15.13% per annum.

Graph showing market growth

Venturing a little into the past, we realize, the concept of ‘Home Delivery’ in India was always predominant. It was well within the system to have a Milkman or a Vegetable vendor come over to households for delivery. Today, owing to new-age technologies introduced by upcoming FMCG Start-ups, there has been a significant resurgence in the Home-Delivery model. Consumers are not only Picking Up their phones to place an order – but are also increasingly going Online and adapting with the changes in the industry.

State of Grocery Sector Start-Ups in India:

A study by Nielsen Global has revealed that Asia is the most popular region for Grocery sector Start-ups in the world. India being the fastest developing country, it opens avenues and brings new challenges to this sector.
The past has seen 74 Grocery sector based Start-ups in the country, out of which, 20 have shut down and 4 have undergone M&A (Mergers and Acquisitions). This brings down the percentage of Operational start-ups to 68% – a low figure for a relatively new and developing industry. Out of the Operational enterprises, the market has been dominated heavily by players like BigBasket and Swiggy. This has left rest of the Start-Ups in this sector in a state of Jeopardy.
From an investment point of view, the Grocery sector is considered as the Hot-Spot by most Venture Capitalists. A detailed chart of Stage-Wise funding in this sector is given below:

Stage-Wise funding of Grocery sector startps

About half (49%) of the investments have been in Series D rounds (Series D is the 5th round of investments in startups following the Seed stage and then A through C) . This implies that investors don’t intend to take too many chances with upcoming enterprises in this industry. It makes things difficult for new entrepreneurs.
Statistics also show that this online industry will soon capture more than 50% of the online market. The Grocery Sector is currently valued at about INR 256000 Cr.

Types of Start-Ups in this space:

Any new space that opens up in the world market, undergoes myriad innovations and ideas that help in shaping its industry.
The Grocery industry has also been tried out in two ways by the many enterprises that have attempted to lead this space. Companies like BigBasket have worked well with the Inventory based model while Swiggy has been reasonably successful with its Aggregator based model. Till date, there seems to be no definite data to formulate out which model works out the best. Both models have had good amount of success and failure – and there has been a very close ratio of companies working with each.

Grocery Models

Clicks vs Bricks:

E-Commerce is only part of the digital picture. A complete digital strategy includes interaction at all levels of the path of purchase. This includes making shopping lists, finding stores, researching products, checking and comparing prices and finally, making the payment. There touch-points occur both in, and out of stores. Consumers are increasingly using technology to simplify and improve this process. One major way it can be done well is by digital enablement in stores. This would completely change brick-and-mortar stores in a way that shoppers would be able to enjoy a personalized experience. This feature is not only nice to have, but can also increase engagement levels, basket size and shopper experience.
Retailers have a lot of room to grow when it comes to In-Store digital enablement. Some of them could possibly be Mobile Coupons, Online shopping lists, Wi-Fi availability, Self-Checkout etc. As per a survey by Nielsen Global – Mobile Coupons and Mobile shopping lists are the most cited forms of in-store digital engagement.

The reason why Brick-and-Mortar stores would still dominate in the near future is because many people consider it to be a leisure activity for the family. More than 60% people consider shopping in stores to be a fun activity. Moreover, In-Store shopping has its sensory advantages. Getting attracted towards the smell of freshly baked bread or getting visually appealed towards ripe fruits are impossible to replicate online.


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