How To Tame Investments In Grocery Startups

A fresh news that have broken the Internet this business year was the shutting down of PepperTap. The app, which has grunted thousands of customers, is now swaying its ultimate demise. And this shutdown have arched a local question on a global level that how profitable is it to invest in grocery startup and what will be the merits and limitations if one decides to do so. If we look at the statistics of PepperTap then we would see that it had risen over $51 million in risk capital from blue chip investors including Sequoia Capital, SAIF Partners and ecommerce major Snapdeal. It can be estimated that there may be a certain lack of demand and the poor economy must have forced them to take a step back from the market.

An Idea that changed Grocery Shopping

In the present world, we all are so much encrusted in our lives that we don’t have any spare time to buy things which we need regularly and that’s when someone had a eureka moment – an idea that changed the whole stereotypical definition of grocery shopping. This idea didn’t get as much appreciation it expected, as everyone wants to buy fresh products from markets and that became a major reason for the demise of online grocery startups.

The Survival of the fittest

With the ascend of smartphones, an obvious factor starts ruling the market and that is the increase of mobile shopping. Over the years we have seen companies like Amazon, Flipkart, Jabong reaching their highest level of popularity because of their marketing tactics and that became one of the main reasons for their success. In the grocery space there were several competitors in the market but with time they all started to decline and the few which survived have now expanded their branches all over the country. Some of the recent ventures who have done noticeably well in this field are ZopNow, Localbanya, Bigbasket, Grofers, PepperTap, Jugnoo, etc. and now as they have placed their foot firmly in the market they are planning to go more deep. For example, if we look at Bigbasket then we’d see that the company, formed in 2011, has raised $85.8 Mn of which $50 Mn was raised in August 2015 and now they aim to reach the $400 Mn mark by March 2016.

Behoof Circling Grocery Startups

These statistics are so well decorated that any investor would happily invest his money in them and that can be one of the reasons why we see companies like Paytm and ICICI investing in Jugnoo and Bigbasket. The present audience is seeking for more profits and hence, they go for these shopping outlets. Comfort and discount are the two biggest reasons why people order groceries online. Another reason would be the satisfaction customer receives while browsing the things he wants as there are many categories and sub categories or you can directly search your item.

The Flaws and Fears in Investing in a Startup

The profit that a company make on these grocery products is a mere 20% and within that small amount it has to manage every single thing. It is very difficult to maintain a site and then there are the cost of logistics, packaging, labelling, branding, etc. The problems increase where their operation cost ascends due to high maintenance and manpower cost, so the quantity became low and quantum grew high. When there are low risks in the market, there’s a certain increase in the number of investors and they’re more comfortable with taking higher risks.

For new startups this is a more stable economic model and thus improves organisational efficiency but for other startups, which have poor unit economics, their model is dependent on rapid cash burn to acquire users and tip gross margins in their favour. Risk in the capital markets are very high and these online grocery ventures partially rely on the same cash burn models where they use VC money to avail good discounts to the customers. This similar strategy is used by Flipkart and Snapdeal and using cash burn models have become a major reason in the devaluation of these ventures, while on the other side, giants like Big Bazaar and others focus on buying goods in bulk and provide discounts. That’s one of the reasons why these outlets have climbed the ladder of success in a very short period of time.
All these things should be kept in mind while investing in any grocery shopping venture because the market tends to carry a lot of risks, but in these risks you might find the biggest of profits.

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