Flipkart Takes A Shot At Online Grocery With Supermarket, Likely To Invest $264 Mn In It

Indian ecommerce unicorn Flipkart, amid its plans to go public in the next few years, has finally made its official foray into the online grocery business, pegged to be a $3-5 Bn market by FY 2021-22.

Flipkart Supermart, its online grocery arm, is currently operational in all major pin codes of Bengaluru with plans to expand to five to six major cities by the end of 2018.

As Inc42 reported earlier, Flipkart is likely to expand its online grocery operations first to Hyderabad, followed by Chennai, Mumbai, Delhi-NCR, and Pune.

Manish Kumar, head of groceries at Flipkart, said, “Grocery shopping is a mundane chore in any home, despite its outsized impact on a household’s budget. And it remains an unsolved ecommerce market, despite its importance to consumers and to the economy. With Flipkart Supermart we have solved for problems of assured quality, savings, and convenience to create an unmatched offering. We’re now taking it wider and plan to expand our reach and scale rapidly over the coming months.”

An ET report also suggested that Flipkart is looking to invest $264 Mn in Supermart in the next three to four years. However, Inc42 could not confirm this report with Flipkart’s communication team.

The announcement came soon after the Competition Commission of India (CCI) announced its approval to the $16 Bn Walmart-Flipkart deal.

Online Grocery: A Tough Model To Crack In India

In the past, we have observed that many online grocery startups often fail in India and are forced to shut shop. In 2016, Inc42’s feature story ‘Why It’s Not Sufficient To Bring Bazaar To The Door’ highlighted that out of 74 hyperlocal grocery startups, 20 shut down operations completely between January 2014-August 2016.

Shadowfax, Peppertap (B2C business), Local Banya, TownRush, Paytm Zip, Ola Store, Flipkart’s Nearby — a number of startups were forced to roll back their grocery operations in 2016. Even deep-pocketed companies such as Grofers and BigBasket were forced to roll back their operations in a number of cities.

As a Flipkart spokesperson stated in an email interaction with Inc42, e-tail is just 0.5% of the total grocery market in India, which is pegged at $400 Bn, or 70% of all retail at present.

While the minuscule penetration of online grocery marks the scope for future growth in the domain, it is also reflective of the need for innovation in a category that has a high potential to generate repeat business and ensure customer retention.

As Vikram Upadhyaya, chief mentor and accelerator evangelist at GHV (an investor in online grocery startup Lazylad), said in an earlier interaction with Inc42, startups were innovating mostly to improve their gross merchandise value (GMV) in order to raise the next round of funding. They were ignoring transformation at a supply chain level, product experience level, or return on investment (RoI) improvement for sellers.

“The customer wants instant gratification, one-click ordering with no fuss, and flawless and timely delivery. Trying to acquire customers by giving discounts is suicidal and has created a race to the bottom amongst startups,” he added.

Well, times have changed and companies in the online grocery space in India have now started shifting their focus from simply increasing their GMV to transforming their operations in other areas.

Flipkart Supermart: Taking On BigBasket & Grofers

A report by Kalagato said that as of March 2017, BigBasket held about 35% of the market share in the online grocery segment in India, closely followed by Grofers at 31.5% and Amazon at 31.2%.

Flipkart, which is backed by Walmart and boasts additional network support from the US retailer, may yet face a bloodbath as the online grocery market in India is not as immature as it was a few years ago.

Let’s talk about Flipkart first. Here is a brief timeline of the events linked to Flipkart’s recent entry in the online grocery business:

• April 2017: Flipkart first announced its intention to take its second bet on the online grocery segment
• November 2017: Started a pilot for Supermart in Bengaluru with a minimum order amount of $7.72 (INR 500) and free delivery of orders above $15.45 (INR 1000)
• November 2017: Experimented with options such as ‘open-box delivery’ to verify products before acceptance and ‘doorstep returns’
• March 2018: Flipkart was said to be in the process of launching an indigenous range of consumables and fast-moving consumer goods (FMCG) under its Billion private label
• July 2018: Groceries are expected to contribute $1 Bn to Flipkart’s target of achieving a GMV of $17.6 Bn by 2020-21, say media sources
• August 2018: Grocery transactions already form 25-30% of Flipkart’s overall number of transactions in Bengaluru after the soft launch of Supermarket in November last year
• August 2018: Flipkart sets up a dedicated fulfilment centre for groceries spread across 150K square feet in Bengaluru and currently has 10,000 stock keeping units (SKUs)
• August 2018: Flipkart has also launched ‘Flipkart Supermart Select’, a private label in the staples category as it looks to expand this to other food and non-food offerings as well

The events listed above clearly highlight that, unlike its Flipkart Nearby — its grocery delivery app which was shut down less than five months after its launch — this time, Flipkart has come up with a complete strategy to sink its roots deeper into the online grocery segment.

While the time of small sized, me-too players has passed, the new online grocery market in India is all about giants with big pockets and foreign investments, including existing players such as Grofers, BigBasket, and Amazon Pantry.

In 2018, Grofers bagged a $62 Mn investment from SoftBank and BigBasket raised a massive $300 Mn Series E funding round led by Chinese conglomerate Alibaba.

Grofers is chasing big targets and focusing on important elements. Grofers, which closed FY 2018 with INR 950 Cr in sales, is chasing a revenue target of INR 2500 Cr. It plans to roll out of more than 500 SKUs for FY 2019. Here’s what it is has done/is doing to meet this target.

• Betting on an efficient delivery mechanism
• Concentrating its energy on private labels — Budget and Popular G-Brands
• Dropped fresh products from its menu last month
• Expanded its private labels to offer 250 food and non-food products to its consumers

BigBasket seems to have a needlepoint view of its unit economics. It recorded close to $33 Mn (INR 230 Cr) in gross monthly sales, with an annual exit rate of around $435.8 Mn (INR 3K Cr) in March 2018.

With plans to touch a $1 Bn gross sales run rate by the end of FY19, BigBasket is aiming at slashing its burn rates and ensuring that its growth does not come at the expense of operational profitability. Here’s a look at BigBasket’s offerings:

• Offers 20K products from over 1K brands in 26 cities, including Bengaluru, Hyderabad, Mumbai, Pune, Chennai, and Delhi
• Offers express delivery of orders within 60 to 120 minutes
• Plans to introduce a slew of new initiatives, including an afternoon delivery slot, besides increasing the number of deliveries per person
• Has been piloting its new offline service with a separate app known as BB Instant
• Has also launched its membership programme BB Star, at INR 299 for six months

Apart from these, Amazon Pantry, Amazon Prime Now, and the Google-backed Dunzo are some of the other big players making their way into the online grocery segment in India. Then there are micro-delivery players like Milkbasket, Daily Ninja,  ZopNow, Satvacart, and Godrej Nature’s Basket, which are bagging a significant share of online grocery shoppers.

According to analysts, online grocery, which is a low margin business with price fluctuations occurring on daily basis, is a tough market to crack in India. Also, with offline sabziwalas and nearby kirana stores still dominating the grocery business in India, particularly in Tier 2 and Tier 3 cites, the game becomes even tougher for online grocery players.

While discounting can’t be a viable approach for online grocery platforms in the long term in India, innovations in supply chain, customer experience, logistics, etc, could be the key to cracking this market.

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