Ripe for innovation
Anybody following the recent developments in online grocery segment of ecommerce in India would know that the space is poised to see some interesting innovations happening sooner or later.
The flurry of hyperlocalstartups – focused entirely on pick up and drop – that had ventured into this business operating on wafer-thin margins are now beginning to see the harsh realities of scaling up beyond metros. Grofers, Zomato et al have been forced to scale down operations after venturing probably too soon into towns that weren’t ripe enough for hyperlocal delivery firms.
What’s working and what’s not
Although a lot has been written about such developments – it is too early to dismiss the business model itself. Most of these firms tend to break even at 25 to 30 orders per day with their delivery costs per order tending downwards with increasing scale of operations. More than the business model – it’s the lack of demand in smaller towns for niche services such as these – that are to be blamed since convenience as a value proposition is an easier sell in metros than in non-metros.
The future ahead
The recent entry of established ecommerce companies like Amazon with Kirana Now and Flipkart with Nearby app – have heated up the competition and the pecking order in this space might see some changes down the line.However, it would require some serious soul-searching for the horizontal ecommerce players and it’s not a given that the incumbents will be seriously under threat from the likes of Amazon or Flipkart. Amazon’s own experiments in this space have seen limited growth in its home town of Seattle where it controls 40% of online grocery sales but does only 1.2% of total grocery sales.
So, what does the future hold for all these companies and their business models?
Which ones make the most sense to the investor community? Should they invest in a warehouse-centric model with supporting warehouses in Tier 2 cities? They can, but what about the scalability and the humongous costs of setting up distribution and warehousing. An asset-heavy model will always be a tough one to scale up.