The market conditions soon after the lockdown allowed newer grocery apps to come into the market, while existing ecommerce and retail discovery players stepped in to fulfill the demand
Despite the high potential opportunity in online grocery, it still remains a low-margin business even in the face of high demand, while scaling up in the lockdown has proven more expensive
While the consumer preference for low-touch delivery models has led to higher average order values and cheaper acquisition costs, India's biggest grocery apps have likely hit their growth ceiling during the lockdown boom
As Willy Kruh, global chair, consumer & retail business at KPMG International says, “Very few retailers get their online grocery model right, but when they do, it can be very successful.”“As high is the opportunity in online grocery, so are the risks of being a low margin business. A few things going wrong can make a player burn a lot of money,” says Blume Ventures’ Arpit Agarwal.Can the new players and the legacy retail giants create a long-lasting impact or will these new efforts fizzle out in the long run as sustainability and scale come into question?“The overall market size is increasing, which is net positive. Existing players are busy hiring/ training staff, building infrastructure and signing up new partners. Plus we expect, the market share of existing players will increase as they are in the best position to capitalize on this opportunity while offline retailers have to play catch up and build capabilities,” added Innoven’s Sharma.“Adding tech and catering to merchants takes time and with so many options available to the user, they will derive their choices based on the service that gives them quality products at the fastest turnaround time,” said a Dunzo spokesperson.“A lot of time people think that this is a business where a lot of capital is required and anybody who has capital can win this game. However, getting the business and the metrics right is the core in this business. Scale comes automatically thereafter,” Satvacart’s Hari said.“If online shopping grows to 5%, this is a 25% increase for the online sector, but it is only a 1% decrease for everywhere else. So the growth in online commerce does not indicate that offline commerce has declined,” he added.
Online grocery is a tough nut to crack. Extremely low margins and struggles to maintain scale amid changing consumer trends, environmental factors and the greater degree of difficulty when it comes to fulfilment — it’s pretty much a challenge at every step.