The coronavirus outbreak has brought many major industries in India to a screeching halt. But the country’s online grocery delivery sector—currently valued at just around $1 billion—has been given a unique and powerful opportunity to hit the accelerator.
At 8pm on March 24, Indian prime minister Narendra Modi announced a 21-day lockdown across the country during which all shops and e-commerce portals other than those selling “essential items” would be closed. Existing customers and first-time users flocked to the country’s top two e-grocers, BigBasket and Grofers, to stock up.
Bengaluru-based BigBasket clocked twice as much traffic and revenue for the month of March, while the average basket size—value spent per customer per transaction—was around 20% higher than normal days. Meanwhile, Grofers saw an 80% surge in the number of orders on its app in mid-March—even before the lockdown was announced—and the amount spent by shoppers rose by 48%. By the second week of April, there were five times more active users on Grofers’ app than normal.
This overnight success has not happened smoothly. The companies likely to thrive after this pandemic are the ones who can use this moment to overcome obstacles that preexisted it.
An opportunity, with a side of challenges
Before lockdown, e-commerce was just a sliver of the overall grocery retail sector in India, with brick-and-mortar stores continuing to command a 95% market share.
That wasn’t for a lack of trying. Hundreds of online grocery shops have been founded in India in the last five years—most have failed to survive. In 2015, on-demand grocery startup LocalBanya shut shop after posting a Rs1 crore ($130,000) loss. PepperTap, which raised an impressive $51 million from the likes of Sequoia Capital and Snapdeal, closed in April 2016. And in June that year, Delhi-based AAGAAR.com too, shuttered for undisclosed reasons.
“While the growth percentage (of online grocery) has been high, the actual share of the market has been minuscule to have created any real impact on the ground,” says Karthik Venkateswaran, co-founder and CEO of Jumbotail, an online wholesale marketplace for food and groceries. “Considering that enormous amounts of capital have been guzzled along the way, the growth of online grocery has been very underwhelming at best.”
A series of challenges have marred e-grocers’ chances of success. For instance, the delivery of perishables and packaged items with a limited shelf life requires massive investment in cold storage and specialized delivery vans, and groceries is already a low-margin business. On the consumer side, establishing trust is tough in a country where shoppers still seek a “touch-and-feel” experience and aren’t yet open to using digital payments.
The online grocers that have survived haven’t had it easy. BigBasket, founded in 2011 and backed by Alibaba, and Grofers, founded in 2013, and backed by Tiger Global and Softbank, have huge losses on their books. Even large companies with deep pockets have struggled to get a foot in. In 2016, India’s largest homegrown e-commerce firm, Flipkart, ventured in to groceries, but pulled the plug within months. Around the same time, Ola Store, a hyperlocal grocery delivery service started by the on-demand taxi unicorn, shut shop after operating for less than a month.
A July 2018 report by Praxis Global Alliance, a Gurugram-based management consulting and market research firm, estimated that online grocery delivery companies were losing up to 30% of their gross merchandise value. “No player is currently profitable,” the report said.
Still, entrepreneurs and investors continued to find the segment attractive. A report by market research firm ReportsnReports estimated that online grocery delivery was set to grow in India to Rs1.03 lakh crore ($14.6 billion) by 2023 from Rs6,201 crore ($875 million). And that was before the coronavirus pandemic arrived.
The night everything changed
Within minutes of Modi’s speech on March 24, thousands of panicked Indians flocked to neighborhood grocery stores, emptying shelves and hoarding goods. In the days that followed, supply chains broke down, and shops struggled to stock up.
In less than a week, thousands of urban Indians were considering online grocery delivery for the first time.
“I had never shopped online until last month,” 67-year-old Delhi-based homemaker Anu Sharma told Quartz India. “But when my milkman did not show up on March 25, I downloaded both Grofers and BigBasket.” Sharma usually enjoyed browsing the aisles of supermarkets. But in the first week of lockdown, “the local grocery stores around my house were down to basic items, which were also running out fast. I knew I had to try e-commerce. It almost felt like a race to who gets to these apps faster before their stocks finish, too,” Sharma added.
During this time of crisis, India’s e-grocers have struggled to keep up with demand, as more people downloaded their apps—a pattern found in other countries around the world. But they’ve also have had to contend with unique pressures from local authorities.
Hours before the nationwide lockdown was announced, subscription-based grocery delivery service MilkBasket said it had to dump 15,000 liters of milk and 10,000 kilograms of fruits and vegetables after local authorities harassed their delivery executives for “being on the road.” On the same day, a Grofers warehouse in Faridabad, near Delhi, was closed by the police over confusion over which services were allowed to operate. It was re-opened within 24 hours after the company protested to authorities and on social media.
Online retailers also faced constraints in restocking essential goods like wheat, rice, pulses, salt, and sugar. Though the situation improved over time, more than half of people who have tried to place online grocery orders since the lockdown reported not being able to get the daily items they want, a survey of 8,000 respondents by community platform LocalCircles revealed.
Three weeks into the lockdown, some of these challenges continue, despite the government classifying online grocery delivery as an essential service.
E-commerce companies are finding it hard to get passes from the state governments for their delivery staff to operate during the lockdown, Sukriti Seth, an analyst at TechSci Research, told Quartz. Consequently, shipments stuck at warehouses, on transport, and even in some neighborhoods have been ballooning.
Some firms have stopped delivering to certain addresses, and timelines for deliveries have also been stretched. On April 3, Amazon Pantry, for instance, said orders will take a minimum of seven days to arrive. Attempts to place orders on BigBasket from Mumbai and Gurugram addresses were met with “All slots full. Please try again later” on April 13.
Efforts are underway to overcome these obstacles, with firms across sectors leaning on each other. Uber has announced partnerships with Flipkart, BigBasket, and Kolkata-headquartered chain Spencer’s Retail to deliver essential goods in a handful of metros. The company said it will not charge any commission on these transactions so that drivers, who usually give the company at least 25%, can keep all their earnings.
Grofers has partnered with food delivery firm Zomato, private driver service provide DriveU, and self-rental car company Zoomcar to get their delivery fleet on board. The delivery companies are also working on ways to help brands struggling to ship fast moving consumer goods, such as packaged foods and toiletries. Grofers, for instance, has started using their own trucks to pick up goods from brands who lack the transport or permission to move their products.
E-grocers are also rushing to hire delivery workers, who are tested with thermal scanners, and equipped with gloves, masks and sanitizers before heading out.
“We have been ramping up on-ground support and hiring,” Rajneesh Kumar, Flipkart’s chief corporate affairs officer, told Quartz. “We are also offering incentives to supply chain and delivery executives engaged in grocery and essentials delivery.”
Grofers is “encouraging supply chain hiring through referrals by giving bonuses to those who are referring friends and family for work,” co-founder Saurabh Kumar said. The company has already hired 2,000 people from industries which have been impacted by the current crisis such as textile, manufacturing, and services. It is planning to hire an additional 5,000 warehouse and delivery staff over the next two weeks.
Even with the ramp up in hiring, staffing remains a challenge “given the shortage of labour due to migration back to villages,” Saahil Goel, CEO and co-founder of logistics and shipping software solution provider Shiprocket, told Quartz. “Daily wage workers and riders are being added from other industries but this is far short of the requirements. Training is also a challenge during these times of lockdown.”
For the companies that were market leaders prior to the pandemic, successfully overcoming these obstacles at this moment could mean the difference between continued success, or collapse, when the lockdown ends.
Scoreboard
BigBasket has been the biggest beneficiary of the coronavirus-related spike in demand. Its app has seen consistently higher session times and open rates compared to its competitors, according to analysts.
Even before the virus outbreak, BigBasket was fulfilling 100,000 orders a day, compared to the 40,000 seen by Grofers, its closest competitor.
Aman Kumar, chief business officer of data intelligence platform Kalagato, says that the fact that customers are spending more time on BigBasket’s app browsing is a good thing—if they intend to buy. It’s not if they’re just looking, or if the lengthier browsing time is a result of several products being out of stock. “As a transaction-driven app, the objective is to reduce dwell time,” said Kumar.
BigBasket has also seen the biggest change in daily active users, according to Kalagato data. At the start of February, only 7.2% of those who had the app installed on their devices would open and engage each day. By the end of March, this rose to 15.5%.
The big challenge now is to sustain this positive momentum and make sure customers have a good enough experience to stick with online groceries when things reopen.
“The present scenario has definitely brought about a shift in the way we use technology. Those of us who’ve never bought groceries online are doing that now,” Sanjay Sethi, co-founder and CEO of online marketplace ShopClues, told Quartz. “We believe that this difficult situation will pass and when it has, it will teach us all some very important lessons.”
It won’t just be on the tech companies, though. Food and agricultural infrastructure in India is due for a massive upgrade. The country “can no longer afford to rely on archaic, manual, fragmented supply chains,” said Jumbotail’s Venkateswaran.
To grow the industry, India could follow the playbook being used by China, where 36.6% of retail sales last year were online, compared to just 1.6% in India. Alibaba’s Cainiao network, for example, “uses AI-enabled digital inventory system that links the online and offline shopping worlds” for supply chain management, Anindya Ghose, professor of technology, operations, and statistics at New York University’s Stern school of business, told Quartz.
They say it takes 21 days to form a habit. India’s lockdown will last much longer than that, and will change its budding online grocery segment like nothing before.