Teji Mandi Explains: Online grocery business expands during pandemic

Average Indians are fairly familiar with the idea of e-commerce by now. E-platforms have managed to gain trust and acceptance among consumers over the years.

Electronic and home appliances segments made rapid strides online over the years in India. But, when it came to grocery and food times, neighbourhood Kirana stores always remained the first preference for consumers.

Historically, e-grocery always faced tough competition with standalone stores and offline retail brands. They have managed to grow at 30x in the last 7-8 years to reach USD3b. Despite that, their market share remained in the single digits.

However, their acceptance among consumers has increased during the pandemic. As per a Motilal Oswal report, out of the 15.4 crore online transacting households in India, ~13 crores are already using e-grocery platforms. It expects this space to grow over 59% CAGR to USD 18bn by 2024.

The Next Phase

The average volume of online grocers went 2x up during 2020 under the impact of lockdown. However, sustaining it will be the next big challenge as curbs have eased across several states.

Moreover, online presence is rapidly increasing beyond the tier-II cities where online grocers could still face challenges from kirana stores. They would also need to develop the necessary supply network in those places to sustain their business.

Profitability Challenge

The e-grocery market segment has also been hampered by the lower profit margins, as a large part of shoppers are price sensitive. And they continue to prefer discounts over premium products. Logistics cost, and complex inventory management, make it further difficult to achieve sustainable profits.

These players are focusing on targeting bulk purchases and efficient inventory management to improve their profitability. They would also need to push high-margin products to reduce their cost per order and maintain profitability at the same time.