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Prof. Haritha, Asst. Professor, ISME

E-commerce has grown in a big way in India; the user acceptance has steadily increased over the years. However, e-tailing is in a relatively nascent stage in India and is evolving in our complex society, which is transitioning from a traditional outlook to modern outlook. E-tailing is considered a subset of E-commerce, which includes the sale of product merchandise and does not include sale of services. Indian e-tailers have increased their portfolio size and have been steadily adding new categories to their catalogue in the recent few years. Hansen (2005) had mentioned that shopping for groceries online is a discontinuous innovation, as it requires a significant change in behaviour (Robertson, 1967). According to a research published by Technopak (2013), by the year 2020 India has the potential to increasing its E-tailing business by nine fold, the report further adds that 40% of India’s population would have been born after the launch of internet and Mobile Phones. With growing internet penetration, more Indian consumers are being habituated to using internet for myriad reasons. Many of the investors started seeing E-tailing in groceries as the next booming sector. According to Morgan and Stanley online food and grocery segment is set to become the fastest growing segment with a CAGR of 141 percent by 2020, thus contributing to 12.5% of the overall online sales. The biggest driver of this growth could be the fact that groceries are an indispensable part of any consumer’s day-to-day life another factor is the changing lifestyle to double income family groups. With the increasing internet penetration in India, as well as the increasing consumer acceptance of e-tailing, a rise is expected in this sector. There is a huge potential for online e-tailing in India, barely 0.1% of all sales in FMCG/Grocery is derived from online channels in India compared to >4% in China.  
Grocery E-tailing and Conventional E-tailing.
In the first phase of E-commerce in India, electronics and apparels were considered the sunshine categories, however grocery remained largely untapped. Unlike the mobiles and electronics categories, groceries is a high volume category as customers purchase these products more frequently. Even though grocery e-tailing is construed to be very challenging, one of the biggest advantage of the same is a high percentage of repeat orders. The other differentiating factor between conventional e-tailing and grocery e-tailing is that many of the grocery e-tailing portals do not cater to huge number of cities pan India unlike the regular e-tailing stores. This is because the logistics costs would be high in the case of grocery e-tailing.
Different Models of Grocery E-tailing.
Most of the e-tailers in this segment adopt any of the three models mentioned below
1.      Hyper local model – In the hyper local model, the firm does not have inventory, it procures products on-demand basis from local Kirana stores or hyper markets. This kind of business model does not require huge investment for starting the business; it makes the firm asset light. Zopnow and Grofers work on this model. One of the constraints faced by this model includes an inventory mismatch between store and application as most of the kirana stores would not have adopted to the technological systems. The kirana stores might not have enough stocks to fulfil the orders.
1.      Inventory Model – In the inventory model, firms have their own inventory of grocery products, which they procure from local mandis, farmers, FMCG companies etc. Big Basket is the only start up that currently is operating on this model. There are several advantages of this model; the risk of not able to fulfil the order can be completely removed. They are able to get higher margins because of their ability to source huge quantities. They can also start their own private labels for example Bigbasket has started Fresho for fresh produce, bakery, cut vegetables, batter cookies; BBroyal and BB Popular for staples. However, one of the biggest challenge of this kind of model is that it makes the business asset heavy, and as most of the grocery products have, a small shelf life there is a high risk of perishability of products.
2.      Hybrid model, which is a mix of hyper local and inventory model. Firms adopting such models use hyper local delivery for perishable products and stock the remaining products. Another type of Hybrid model adopted by, which consolidates all the orders it receives in a day, opts for bulk procurement and then they deliver the products at one particular time in a day. This ensures a higher order value. The CEO and founder of had mentioned that their average order value was anywhere between Rs 1,200 and 1,500.

According to an article published in livemint, the top three players in the grocery segment are mentioned below.

Source: Kalagato (2018)

Challenges Faced by Grocery E-tailers
Online grocery retailing is a high asset, and capital-intensive business, mainly due to the requirement of Cold Storage. Other difficulties that investors noticed in Grocery e-tailing was wafer thin margins and perishability of products. Another challenge faced by online grocery stores is the credit a trustworthy and loyal customer can avail from a local kirana store. This trend can be seen in the rural areas.
Several start-ups cropped up in the year 2015. According to data shared by Traxcn (2017), 302 start-ups cropped in the area of online grocery business in the year 2015. All this was happening as several of the large offline retail business groups were struggling to bring in more footfalls to their stores , so many of the investors started seeing online grocery as one of the lucrative alternative.
Many of the online grocery stores like Peppertap and Localbanya have bit the dust. The CEO and founder of Peppertap had mentioned that they were operating on a negative margin per delivery. Grofers had to downsize its business; it had to shut operations in nine cities owing to poor demand. Most of the grocery e-tailers have been buying customers by providing huge discounts, and it is not just the customers, but also the local retailers who are gaining advantage from these huge discounts. The year 2016 was one of the difficult years for Grocery E-tailing, online grocery business was considered a distressed sector lacking business models with positive unit economics. According to many investors, it is very hard to make money in the Grocery E-tailing segment; companies like Big Basket that had launched their own private labels were also struggling to be profitable. Flipkart, which had started its nearby App in the year 2015, had to shut down the business due to poor demand and tight margins.
Future of Grocery E-tailing
All the big E commerce players will be planning to invest substantial amount of money in their Grocery segment as it provides high volumes of orders and repeat purchases. The Tata Group is also planning to enter the online grocery segment, currently Tata group runs three formats under Star banner – Daily, Market and Hyper, however they are planning to shut down the smaller format of Stardaily and serve these areas through online segment.
In order to build a strong supply chain system and to match the demands, companies can try to build relationship with the producers. For example, Bigbasket has their “Farmer Connect Program” that connects them to a host of farmers. According to Hosanagar (2018) a professor at Wharton, BigBasket has one of the most efficient ventilation system, thermal protection systems, warehouse layouts and product classification. Other e-tailers planning to launch groceries can take a cue from BigBasket’s initiatives. Prior to the announcement of Merger of Flipkart and Walmart, Flipkart had announced the launch of its indigenous range of consumables and FMCG products under its “Billion” Private label. After the failure of its App nearby in the year 2015, Flipkart again made a soft launch of its Grocery Marketplace “SuperMart” for the Flipkart employees, which requires a minimum order value of Rs 500 and a free delivery on orders above Rs 1000. Flipkart is also trying to build a dedicated supply chain for its grocery category under SuperMart. In order to increase the demand among consumers it has started interesting initiatives like “open-box delivery” to verify products before acceptance and “door step returns”. Now with Walmart investing a significant amount in Flipkart, Flipkart can directly procure grocery and consumer goods from Walmart wholesale stores. Flipkart will be facing stiff competition from Amazon and Bigbasket. Bigbasket has become a strong contender with Ali Baba investing 196$ MN in Bigbasket. Online grocery business is also looking at a few consolidations, it was reported that the Tata Group was in talks to acquire the on-demand grocery delivery platform GrocerMax. Few months after the investment of Alibaba’s investment in BigBasket, Paytm Mall is in the process of integrating Bigbasket on its platform and mobile app. Amazon India had started its household item delivery and grocery ‘Amazon Pantry’. Amazon pantry allows its customers to fill a box with maximum capacity of 15 Kg of items from cooking essentials, personal hygiene, household supplies, and pets, snacks and beverages , haircare and skincare baby products. Amazon had launched another service called, Amazon Kirana now, which mainly delivers perishable items within two to four hours. Amazon’s strategy of separating the delivery of perishable and non-perishable items can re
duce the investments in heavy assets like cold storage and can help in quicker customer acquisition.
In order to address the issue of perishability in grocery e-tailing , Liu et al (2008) had suggested that information collected by RFID(Radio Frequency Identification)-based traceability system for perishable products and cold chain monitoring can be collected and applied to predict the demand for time sensitive food products based on their residual shelf life and change the price accordingly. This type of real time tracking of product quality and shelf life prediction would reduce the spoilage and help in segregation of contaminated items (Kumari et al., 2015).
Grocery e-tailing is in its infancy stage; however, it has been estimated to be a high growth category. Food and grocery forms 50 percent of the overall retail basket in India. It’s not just the share of grocery e-tailing but also the fact that groceries have a high repeat rate can prove to be very advantageous to any e-tailer, any e-tailer able to capture a customer’s attention in groceries will be able to lure the same customers into other categories as well. Typically, customers who purchase online groceries are the most profitable customers, these are the customers who prefer convenience to price and mostly these are dual income households.  Despite all the challenges being faced by grocery e-tailers, online grocery shopping is here to stay. Growth in grocery e-tailing will push the offline grocery e-tailers to redefine their logistics network.
Kumari, L., Narsaiah, K., Grewal, M.K. and Anurag, R.K. (2015), Application of RFID in agri-food sector, Trends in Food Science & Technology, Vol. 43 No. 2, pp. 144-161.
Liu, X., Tang, O. and Huang, P. (2008), Dynamic pricing and ordering decision for the perishable food of the supermarket using RFID technology, Asia Pacific Journal of Marketing and Logistics,Vol. 20 No. 1, pp. 7-22.
Robertson, T.S. (1967), “The process of innovation and the diffusion of innovation”, Journal of Marketing, Vol. 31 No. 1, pp. 14-19.