Supply Chain Management in E-Grocery Industry

SUPPLY CHAIN MANAGEMENT IN THE E-GROCERY INDUSTRY A COMPREHENSIVE ANALYSIS

NALIN BANSAL PUNEET SINGH NANDA

PRIYANSHU GUPTA YASH BHARDWAJ

EVOLUTION OF E-GROCERY MARKET

E-Grocery had begun in the mid-2010s however the models were all the while advancing. Most players worked on an on-demand model (fulfilling demand through neighborhood retailers) and gave high discounts. In any case, this model before long gave way to the warehouse center model, for certain players like PepperTap leaving.

The most recent 5 years have seen huge interest in the space with a lot of enormous players, including eCommerce horizontals entering this space. One more development in this space was the short-term conveyance model, presented by players like Milkbasket.

Coronavirus has furnished huge tailwinds to the area with a ton of clients requesting on the web. It is normal that a huge extent of them will stick post the pandemic also. This has prompted interest from enormous players like the Jio stages, which sets the development possibilities of the channel.

•Entry of vertical players at

•Breakout years for sector

•Stabilization

small scale in chosen metro

receives majority of

models

cities

$ 500 million funding

•Strong

•Entry of horizontals and

metros

expansion

driven by growing selection,

•Low

consumer

adoption

and limited selection

for verticals

to

non-metros

of

take-up and

business in

both

smaller

cities

offers and innovative business models

industry analysis Evolving models for Grocery retailing Over a couple of years, given the size of the market opportunity and low base, Online Grocery players have taken on creative models to infiltrate the F&G market.

This has brought about the Online F&G market becoming 30x in the last 7-8 years to ~USD3b in FY20. Seen in an unexpected way, the consolidated income of Online F&G players (viz. Huge Basket, Grofers, JioMart, Amazon, and Flipkart) has turned into the third-biggest Modern Retail player (~INR3b in FY20) after DMart and RRVL

Overall Market Size The Indian F&G retailing market (assessed to be 60-65% of the absolute Retail market) has seen solid premium from homegrown and worldwide players as of late. Developing at ~12% CAGR in the course of the last 8-10 years, the market has been generally overwhelmed by the conventional retail channel, which comprises 96% of the market. Coordinated retail has developed at 31% CAGR to USD24b, with simply 4% entrance, offering an enormous extension to huge Modern Retail and online players. Over the course of the following 4-5 years, Modern/Online Retail is relied upon to earn 16%/59% CAGR to USD50b/USD18b, expanding its portion to 89% of the absolute F&G market

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OPPORTUNITIES FOR THE INDUSTRY

Alternate Consumer Behavior FDI rule permitting 100% FDI in food retail for things delivered, handled or produced in India will work with the development of coordinated B&M share

Increasing Comfort with etailing Realignment of business model including combination blend, space legitimization and design solidification has prompted development of coordinated organizations

GROWTH DRIVERS

Involvement of Major Players

Investment across the whole biological system of food handling, cold stockpiling, coordination and item improvement is driving the development of coordinated B&M

Localisation of Assortments

High reception of coordinated retail designs from Tier 2+ urban communities is relied upon to blast present-day retail in India

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GROWTH DRIVERS OF MARKET Infrastructural Requirements A country with humongous population like India is lacking in the growth of the e-Grocery industry only because of lacking infrastructural support. With limited access of Indians to: Internet Facilities Multiple Payment Options Smart devices, etc. eventually resulted in a meagre worth of $0.6B in 2017 (which was ~1.5% of the food services industry back then) With a spike in the availability of such amenities, the e-grocery industry is expecting a CAGR OF 70% as compared to 10% of food services industry, signifying the driving force of infrastructural needs

In addition to infrastructure, there are other demand and supply side trends as well leading the growth of the industry

Supply-side Drivers Growth of players in the industry: With players like Flipkart, Grofers witnessing increasing profits, their brands and reach are also growing simultaneously Multiple selling channels; Brands are opting for multiple selling channels to increase the coverage and variety of products (Amazon is delivering through Amazon Now, Amazon 3P, Amazon Pantry and Flipkart is selling through Flipkart Supermart and Flipkart.com) With consistent increase in their user base; these organizations are also launching loyalty programs for consumer retention and better user-coverage Supply Chain experimentation; Brands are experimenting with their supply chain.

They are launching dedicated new channels or separating fresh food from others just to improve the chain

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Demand-side Drivers Increasing consumers; with better infrastructure for online shopping and emergence of e-Grocery market, the AOV (Average Order Value) of companies is steadily increasing Increased online spending; As much as 70% of wallet of the high spenders is capped at ~70% of their total monthly spend, only the remainder is spent offline Aggressive Selling Techniques; With greater discounts, better quality and higher variety, people are induced to buy groceries online Better delivery services; with better supply chain, the companies are able to deliver the groceries in a shorter span of time making online purchase more convenient for the buyers

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Market Players Indian E-Grocery Market Players Others 20%

Grofers 13%

JioMart 4% Flipkart 11%

Bigbasket 37%

Amazon 15%

The Indian E- Grocery Market is poised to touch US $22 Bn by 2025

Application Analytics Application visits have been lower from July'20 as the economy opened up with the lifting of the cross country lockdown, however it actually stays solid. JioMart/Big Basket/Grofers appreciate higher application visits attributable to their higher prevalence and more extensive presence, while other applications earned lower visits because of lesser functional regions and specialty item contributions.

Grofers/Dunzo earned the most noteworthy normal term per visit; while Dunzo/JioMart partaken in the most reduced bob rate, suggesting longer stays or more page visits on the application.

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DIFFERENT TYPES OF CONSUMER PROFILES Convenience Seekers These consumers are young working class married couples residing in metros and mini metros looking for convenience of delivery at the doorstep Demographics:Age - 30 – 35 years Income > 20LPA

City – Metro High AOV(1500+)

Driving force – Wide variety of products available at the same place is the primary driver to shift online.

They also seek promotions and discounts, although not the driving factor, on the portals they use.

They buy majority of the packaged food, home and personal care online, however still prefer to buy fresh and dairy items from offline channels

Young Enthusiasts Consumers in this segment are young bachelors living in small groups of 2-4, working in the corporate sector.

Demographics:Age - 22 – 30 years Income 15 – 30 LPA

City – Metro Low AOV (<600)

Driving force – Their main driver to purchase grocery online is lack of time from daily schedules.

Timely delivery is very important to them, and therefore they stick to a platform with high delivery adherence as well as express delivery options.

Flexible payment options is also important because of the tech-savvy nature, where household members use different payment methods such as credit card, cash or UPI payments.

These consumers buy most of their grocery needs from online channel, and use online mostly for buying fresh items.

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DIFFERENT TYPES OF CONSUMER PROFILES Urban Mothers This segment comprises mostly urban females, who order groceries for the entire family Demographics:Age – 35+ years Income >12 LPA

City – Metro Medium AOV (Rs. 800 - 1200)

Driving force – They buy most of their grocery needs online including fresh and dairy items from online and use online channels for refilling stockouts.

Wide assortment adds to the sticking to online platforms because they tend to try newer brands and niche categories such as organic staples which are not readily available on online channels

Budding Shoppers These are shoppers who earlier used to purchase mostly from Local Kirana but have adopted organized B&M and online in the last 1-2 years with increasing penetration of the latter in tier 1 cities Demographics:Age 30 – 40 years Income > 20 LPA

City – Tier 1 Medium AOV (Rs. 800 – 1.2K)

Driving force – These consumers have shifted a significant portion of their monthly grocery purchase to online channel in lesser span of time.

However, they are averse to buying fresh products online due to lack of trust in freshness of such items, which they prefer to buy from o ine stores.

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PURCHASE BEHAVIOUR Urban Mothers tend to have a decently high frequency of purchase. Also, they tend to purchase a variety of items, which drives up the sizes of their baskets. This makes them one of the leading consumer cohorts in eGrocery.

On the opposite side, there are Budding Shoppers, who are trying out the channel and still depend on the local kirana for their needs. They purchase smaller, lower value items infrequently, and they are likely to increase this as they start trusting the platforms.

The Convenience Seekers order infrequently, but in bulk.

Young Enthusiasts are the ones who order small ticket items like breakfast items and vegetables but order frequently. The players must look to increasing their wallet share of these customers through appropriate offerings/ incentivization.

Size of Consumer Segment in 2019 Convenience Seeker

Budding Shopper

Size of Consumer Segment in 2020 Young Enthusiasts

Urban Mothers

Online AOV (INR)

1,500

1,150

800 0.0

3.0 Frequency of online purchase per month

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6.0

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COVID IMPACT Growth in e-Grocery segments prior to and during COVID-19 75% Snacks and Branded Food

50%

Beverages Personal Care Products

25% 0%

Home Utilities

Growth during pre COVID

Growth during COVID

The COVID-19 led nationwide lockdown provided a much needed boost to Online Grocery sales. It did to e-grocers what demonetization did for online payment platforms.

During the peak of COVID-19 in 2QCY20, panic led stocking by first-time shoppers drove AOVs

Average daily orders (INR) on Big Basket/Grofers 2,000 1,500 1,000 Big Basket

500 0

Grofers

Pre Covid

During COVID

During COVID-19, Big Basket/Grofers witnessed 4x/3x daily orders of preCOVID times at 300k/190k. AOV saw a 15%/25% jump to INR1,500/INR1,820.

Daily order trend (k) on Big Basket/Grofers 300 200 Big Basket

100 0

Grofers

Pre Covid

During COVID

Players saw higher customer retention, which shifted the base upwards in average daily orders for Big Basket/Grofers to 220k/150k.

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SUPPLY CHAIN MODELS Inventory-led model Since the inventory is sourced, procured, and stored by the player, this model requires a higher initial investment. However, it offers a better margin potential as players are buying inventory themselves. Players can offer a wider product range, with stringent quality checks, to attract customers and reduce delivery timelines. However, the perishable nature of products and higher SKUs limit viability of this model. Currently, most players like Big Basket, Grofers, DMart Ready, and JioMart utilize this model.

Hyperlocal model Hyperlocal model is being utilized by new entrants such as Dunzo and Swiggy. JioMart is planning to utilize this model to increase its reach in smaller towns. The player partners with local stores to offer last-mile delivery from these stores and outlets. This allows it to maintain a capex light model as players are not required to purchase inventory. The model enjoys higher customer confidence as they know from where the products are being sourced. However, it offers lower margin and quality checks, with product offerings limited by local availability.

Hybrid model Hybrid model offers features of both inventory and a hyperlocal model as players purchase inventory and store it locally in dark stores, and provide lastmile delivery. This offers better inventory control, higher margin, stringent quality checks, and reduced delivery timelines. This allows e-grocer’s to stock products as per local taste and provides a trust factor for customers. e-Grocery players like Flipkart and Big Basket are opening dark stores to leverage this model. Many offline players are also linking their brick and mortar stores with inventory online, which could offer a huge growth potential via this omnichannel.

Particulars Inventory storage

Inventory-led Inventory heavy model involves outright purchase of inventory

Hyperlocal Inventory light model as it provides only infrastructure and logistic support

Hybrid Model The hybrid model combines features of inventory and hyperlocal model

Capital Requirement

Capital Intensive

Capital Light

SKUs

High

Low

Moderate

Lead Time

High

Low

Moderate

Margin Potential

High

Low

Moderate

Quality Checks

High

Low

Moderate

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Moderate Capital

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KEY CHALLENGES Despite of sustainability of business model, the egrocery market faces some key challenges which are mentioned as follows: Inadequate infrastructure, fragmented and long supply chain resulting in delays and food wastage Storage and transportation costs are significantly high Maintenance and operational costs for perishables are high and require significant investment in storage and infrastructure Low profit margins Select online retailers lack quality control of products Despite convenience and safety advantages, most consumers prefer to shop in person in a physical store High tariffs for consumer-oriented goods and ingredients.

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PRIVATE LABELS: THE EMERGING SEGMENT In accordance with the technique

undiscovered

followed by disconnected retailers,

Regardless of contending with the set

online basic food item players are

up brands, eGrocery players gain piece

foraying into the private labels, which

of the pie by creating one of a kind

should go about as the following

items

large development driver. According

benefit,

to industry reports, half of rehash

guaranteeing

Income portion of private marks for eGrocery stages have expanded to relied upon to reach 45% in CY22E. Private labels helps e-Grocery players through various ways It permits them to possess the whole

eventual

and

outcomes

accordingly

sourcing,

conveyance

further

to

item

so

dietary

on,

quality.

while In

a

provincial

inclination,

which

are

regularly disregarded by public brands

Improving customer retention rate: The unique brand positioning further develops client tenacity. This, alongside

Owning the Entire Supply Chain:

assembling,

and

cost,

given its restricted market size.

40% in CY19 v/s 32% in CY16 and are

from

taste,

on

foster private label items dependent on

ascribed to private label deals.

chain

dependent

portion.

different market like India, players

buys on e-Grocery stages could be

supply

market

of

clients,

developing

stock/production network the board.

better client support, prompts rehash buys on the stage and guarantees reasonable development.

Improved Margins This empowers e-merchants to create better margin as it eliminates gobetween margins and spillages in the

Penetrating

into

the

Untapped

Market: By

utilizing

worth chain. Private labels offer 1.5-2x margin over marked items. In basic

experiences

from

food item retailing, the margin on in-

information accumulated on their

house items lies in the 10-14% territory

internet based stage, these players

v/s 7-10% on marked items.

foster items with appeal for the

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THE INDUSTRY IN THE COMING DECADE With large corporations such as

Need for an Omni-Channel:

Reliance Industries Limited (RIL),

With limited growth of the online

Walmart-owned Flipkart, and Amazon

platforms

are betting billions of dollars on

covered, it is not possible for these

India’s e-grocery market, India's oldest

giants to establish a pure e-Commerce

conglomerate TATA Group has also

platform

joined the industry with the majority

population with it.

acquisition of BigBasket.

As the e-Grocery business in India is

in

terns

and

cover

of

population

the

majority

now a a play for mature players who

In the post-COVID world, with

can deploy capital and scale the

immense acceleration to online

business

shopping, presence of these

companies don’t mind shelling out

behemoths makes the Indian e-

money for online assets that will give

Grocery industry ready to grow rapidly

them some edge over competition and

in the coming months.

capabilities.

With an expected CAGR of 70% in the

Signals towards such channel:

coming decade, the industry is

With Reliance merging Reliance Retail

expected to surpass the $7B mark in

and

2022 and reach $24B by 2025,

integrated platform JioMart, its rivals

marking India's 3% contribution in the

are also expected to follow them on a

global e-groceries market. But

similar path in the years to come and

considering gigantic Indian

after TATA's arrival in the picture, the

population, the industry worth $24B

chances are even higher for an omni-

would account for less than 5% of the

channel network which is going to

total groceries market in the country,

expand the e-Groceries market even

signifying the prevalent dominance of

further.

RIL’s

fast.

digital

Therefore,

services

large

into

an

unorganized sector (Local or Kirana stores) in the times to come and

With this turning to reality. The time

implying the need and opportunity for

may be ripe for the next disruption in

an omni-channel.

India’s online grocery business

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CONCLUSION The Way Forward

The USD600b Indian Food and Grocery

Online Grocery players have adopted

(F&G) retailing market has generally

innovative models to penetrate the

seen limited (a mere 1%) penetration

F&G market. This has resulted in the

from e-commerce players in India. This

Online F&G market becoming 30x in

is in line with worldwide markets, which

the last 7-8 years to ~USD3b in FY20.

additionally

Seen differently, the combined revenue

ecommerce

have

single-digit

commitment

mere

of Online F&G players (viz. Large Basket,

6%/8%/4%). The e-commerce market in

Grofers, JioMart, Amazon, and Flipkart)

generally other retail categories like

has become the third largest Modern

Consumer Durables, Mobile Phones, and

Retail player (~INR3b in FY20) after

even

has

DMart and RRVL. The same is expected

developed exponentially. Over the most

to develop by 59% CAGR over CY19-24E

recent couple of years, given the scale of

to USD18B.

Fashion

and

(a

Lifestyle

the market opportunity and low base,

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Appendix 1. https://inc42.com/buzz/online-grocery-growing-at-57-cagr-to-clock-3-bn-ingmv-this-year/ 2. https://projectstoday.com/News/Stellar-Value-Chain-to-infuse-Rs-200-cr-in-egrocery-supply-chain 3. https://www.linkedin.com/pulse/e-grocery-challenge-chance-mukesh-singh 4. https://www.linkedin.com/pulse/post-covid-view-indian-e-grocery-spacecontinues-fast-bhattacharya 5. http://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName? fileName=COVID19%20Accelerates%20the%20Growth%20of%20India%27s%2 0Online%20Grocery%20Market_Mumbai_India_05-17-2021.pdf 6. https://tejas.iimb.ac.in/articles/OnlineGrocery_Tejas_mar17.pdf 7. http://www.motilaloswal.com/site/rreports/637586596663262698.pdf 8. https://agriallis.com/wp-content/uploads/2020/06/CONSUMER-BEHAVIOURFOR-E-GROCERY-SHOPPING-IN-INDIA-AN-OVERVIEW.pdf 9. https://www.fortuneindia.com/enterprise/whats-cooking-in-indias-e-grocerymarket/105623

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