Earlier this year, an online grocer bagged around USD 10 million from a private equity firm in its first round of institutional funding for expansion.
Even as early as 2010 PE & VC firms would have shied away from investments of this nature in this domain, however the scene has changed rapidly. Despite the positive investment mood of the PE firms, Are online groceries a good bet ? wIll online grocery click in a big way ?
A leading Indian online grocery servicing bangalore claims to have 10,000 orders per month with an average order size of about Rs 1,200. A decent start I must say. However, this can be a case of initial hype and heavy discount doled out to the customers. To remain sustainable and more importantly profitable in the long term company cannot continue with these aggressive methods. Online grocery as a business model has failed repeatedly over the years, in almost all the countries. As a matter of fact when I had started off my entrepreneurial journey I had brief stint with online grocery.
In my opinion online grocery isn’t a viable model due to these pressing issues
a) Grocery shopping is usually done by the women, it is seen that women prefer to go to grocery stores browse the aisles and plan the purchase.
b) Shopping for fresh vegetables & fruits is almost impossible, the traditional approach of touch, smell and feel is negated which for me simply doesn’t make any sense.
c) With products like meat, fish etc customers want to see the cut they are getting. Most can figure out the freshness by looking at the color and the odour. Now how can you replicate that online ?
d) Delivery time of 1-2 can be a major put off. The perception of the customer would be - I have been delivered old stock or something on those lines. So unless and until deliveries can be fulfilled in less than 24 hours it might get tough to gain mass traction.
e) Online grocers let customers create a list of items to be purchased on a recurring basis. But that is just not how most people shop. People like to try new things based on the current prices, lifestyle and their changing appetites.
f) The biggest reason of all ( atleast in India ) - Shoppers typically purchase ‘FRESH’ ingredients for their meals the day they prepare them. At my home we buy fresh vegetables on a daily basis, guess most families do the same.
Shoppers and their preferences are not the only challenges for online grocer, the bigger challenges lies inside.
Handling groceries is a logistical nightmare, even the delivery bike would need a ice box to prevent fresh food stuff from going bad, this would substantially increase the costs. Access to best quality grocery is again a problem area, building a supply chain model which can match traditional retail/grocery is a herculean effort, poor back end model can lead service failures which in turn ruin the reputation in no time. Technology is also a major hindrance for online grocers since there is no way to replicate ‘ touch and smell ‘. Unlike online retail where multiple views of lets say a T-shirt would give the shopper a fair idea about how it is actually going to look, same cannot be said about fruits and vegetables.
Despite the ominous signs few bravehearts have decided to take a deep plunge, my best wishes to these online grocers. I will be keenly watching this space and despite my pessimism at this point of time, I hope this segment can surprise us.