Online grocery to become a $10.5 billion industry by 2023

Online grocery delivery service in India has had a checkered trend so far. But with the onset of Covid-19 non-metro consumers slowly warming up to demand online grocery delivery and online home utilities, things begin to change. Here are the trending facts that will define the sector moving forward.

The journey of online grocery in India has been a magic-carpet sort of stuff.

The game starts in 2011, with first movers?ZopNow?and?BigBasket?offering consumers home delivering everything from fresh vegetables to utilities. Then people identified the?explosive growth?of 2014 and 2015, followed by the ‘funding winter’?in 2016 and 2017. After 2018 onwards, there has been constant acceleration in the sector of online grocery delivery and home utilities.?

Even Flipkart?attempted to deal in the segment in early 2016 with?grocery app Nearby,?but could not carry till the end of the same year. Evidently, dealing in 'food and grocery' isn’t an easy project to set up.

In its?‘infancy phase’, India's grocery delivery service??grew to $0.05 billion between 2011 and 2014. This business multiplied to a whopping 110 percent CAGR to reach $1 billion between 2014 and 2018

It is reported that in this roller-coaster journey, many new business models have evolved, and many themes have been approved and declined. But the nascent industry still strives.?

Online food and grocery retail penetration was?only at 0.2 percent in 2018. Although, data had predicted it to?grow at an impressive 55 percent CAGR?for the next five years while the limits crossed by dint of the recent pandemic.

Industry insiders claim that leaving upheavals, grocery delivery in the country is on for some solid growth and expansion, together with some consolidation.?

Growth projections and drivers?

Basketor estimates that grocery delivery service will account for 1.2 percent?of India’s overall food and grocery market by 2023.?

Shagufta, Founder, Basketor Consulting,?says,?“The?share of modern retail segment will soar from 3.5 percent now to 6.7 percent by the end of 2023, and online grocery delivery will witness 55 percent growth?leading to a sizeable $10.5 billion market?by that time.”

Certainly, this is more than 10X growth from the current $1 billion.

?The coming five year period is likely to induce moderation and rationalization for grocery delivery players amidst all the growth. Multiplication will be driven by three factors primarily:?wide assortment?offered by e-grocers,?grocery delivery service?speed?and express delivery options, including quality of products, together with niche brands across categories.?

Add to that, an overall?increase in the trust and comfort with online shopping, triggered by the revolution in electronics and fashion verticals.?

Shagufta, Founder and CEO, Basketor,?says,“The online grocery delivery segment has been one of the fastest growing e-commerce industries in India and will keep on flourishing in both metro and non-metro cities in the coming years.”?

Varying biz models: wide versus deep

Online grocery delivery is no more just a big-city phenomenon.?For instance, BigBasket now reaches 26 cities, of which?16 are in Tier II locations. Basketor also reaches in Tier II locations around Faridabad.??

“Tier II sums up about 30 percent of our revenue at present,” Shagufta states “In three years, we anticipate to double up, and reach at a?50:50 split between metros and small towns,” she added.

In contrast to?BigBasket’s strategy of going wide, hyperlocal grocery delivery of e-grocer?Basketor has a penetration in-limited-cities. And, this model, it says, has earned a notable dividends in the recent years.

“We are focused on the growing II tier cities. We operate in the top 7 cities, averaging 10,000 orders per day,”?Shagufta, founder of Basketor,?claims. “We have fast networks in these cities that helps us source inventory direct from farmers and reach the end customer in all catchment areas,” he adds.?

In short, BigBasket and Basketor represent the contrasting grocery delivery models?dealing across India. Basketor sells only about 1,500 items no perishables.?

“That is our strategic differentiator, and the?contribution of fresh produce has remained constant?in every city where we represent,” Shagufta says, adding, “It reflects that consumer behaviour in this category is almost coequal.”

Category Behavior?

Online grocery delivery platforms help the creation of?niche sub-categories?as well as the evolution of premium brands.

There is an increase in the?demand for Safola, cereal bars, and muesli.?“It marks the rise of the premium consumer segment. 'Safola and Cereal Bars' reflects the?highest growth rate of around 45 percent,” Basketor reveals.

‘Breakfast Cereals’?is the second largest sub-category, marked by a number of niche brands like RiteBite and Yoga Bar.?Even ‘Cookies and Namkeen’?is driven by high growth and popularity of niche brands like Britannia and Haldiram, the report states.

The categories where?online purchase runs smooth?include beverages, staples, cereals, branded edibles, and home utilities particularly toilet soaps, detergents and floor cleaners.

?The ‘budding’ shopper beyond metros

In recent past years, a certain consumer segment of?non-metro cities?has switched to grocery delivery service faster than others.

These new shoppers who used to purchase from local?kiranas?stores but now have?shifted a significant portion around 35 percent of their monthly edibles and grocery needs?to online channels.?These customers make one to two orders monthly with an average ticket size of Rs 1000 to Rs 1,500.?

The wide variety of goods and the non-availability of brands in local Kiranas?due to the?under-penetration of present retail?and attractive offers have induced these consumers to turn to e-grocery sites like Basketor and Blinkit.

Retention rate of these customers is high, according to industry analysis. “However, sometimes they are?dither to buying fresh products?online due to a lack of reliability in the quality of such products which they prefer to buy offline,” Basketor states.?Moreover about 30-40 percent for their grocery needs still go to local?shops, mostly for?immediate, need-based purchases?like dairy products and fresh veggies.

Shagufta further states “We want to expand to a limit where all deliveries can be done within three hours,”. “But,?delivering fresh produce and perishables is our biggest challenge?right now. We’re working towards solving it,” he adds.?