Guest Column: The rise and rise of the online grocery industry

With a steady growth, the $500mn grocery industry in India has finally found its rhythm. The industry witnessed a growth of about 30% q-o-q with Grofers projected to grow at 50% q-o-q, till the end of Q4 2017. In line with the strong growth, we expect the market to grow to a consolidated Gross Merchandise Value (GMV) of $2bn by 2019). 

2016 saw the start of consolidation in the online grocery sector - only those organizations sustained who provided real value to their customers. This trend continued in 2017 with online grocery nearly doubling in size over 2016. The benefit of convenience took a backseat in 2017 with new entrants coming with their own models and existing players evolving to differentiated offerings that appealed to a wider set of users.

As the industry bloomed and more players – both local and global – entered the fray, every player aimed to create its own differentiated space. While most focused on the convenience or quick delivery, we decided to focus on providing the best value-for-money to our customers. 

The Discerning Consumer

As more consumers move towards the online grocery, various interesting insights have emerged from the category and our business: 

• Spirited Women Shoppers:
  • While the internet and broader e-commerce industry is skewed towards men with 75% male shoppers, the e-grocery industry has a near equal split with 45% women shoppers. Even the install to order ratio is skewed towards women shoppers with a 2:1 ratio
  • The retention rate is much higher for women as they tend to be more loyal to the platform. This is further highlighted and supported by the men who buy groceries online. In their own words, “they are usually only the transactors on the app whereas the decision maker happens to be the woman of the house”. The woman usually makes the purchase decision, the man makes the payment
  • Almost 40% of new users are women on Grofers application, good sign for our industry. They are the final decision makers of what to buy to where to buy from
• Value Oriented Consumers:
  • In plenty of categories, consumers are brand agnostic. We have observed that value matters more than brand loyalty in many categories. This was reinforced by our decision to onboard lesser-known local and regional brands that provided more value for money to our consumers even in categories such as staples
  • Private brands are not only good for business; they are a hit with consumers too. We have also seen great traction with our private labels for all categories that we have invested in
• Planned Purchase
  • Online grocery shoppers follow a pattern similar to offline for orders in a month. Cart sizes are higher in the first 10 days of the month with a 25% increase in AOV (Average Order Value). Even volumes are higher with a 40% difference between the first two weeks of any month. Just proves that Indians prefer to plan every month for groceries

Evolving Regulatory Policies 

Demonetization gave a much needed thrust to the online grocery industry in the country. With not enough cash in hand, online grocery emerged as a viable option for a large section of consumers, who were comfortable with cash purchases for their daily needs.

Not only did customer acquisition increase rapidly during this time, the industry also saw a rise in the value of orders. At Grofers, we saw a 25% increase in orders in the month after demonetization with a further 35% jump in the order size. Furthermore, acquisition rose by 48% during this period.

The demonetization drive also provided the online players an opportunity to take new initiatives and encourage consumers towards online grocery shopping. We, in fact, delivered cash to our customers’ homes as well.

The DIPP approval on FDI in food retail came through in 2017 would go a long way in promoting the grocery retail business in India. Trading of food products would allow Grofers, and other leading players, to reduce wastage and create a direct line from farmers in the food supply chain.

At Grofers, we work with a lot of farmers and people in the agriculture sector and I think investments in supply chain technologies, cold storage facilities will not only increase their economic potential, but also help in reducing waste and inefficiencies in the food ecosystem.

Outlook for 2018

2018 is expected to be a breakout year for the industry with the convenience benefit fading away and the value benefit coming to the fore. This would be the time where online grocery industry starts to seriously compete and make a dent in the offline grocery pie with better value offerings and a loyal customer base.

Online grocery would no longer remain a novelty but become mainstream in 2018. Moreover, online grocery, in the years to come, would be the next level growth category that brings offline shoppers into the overall online industry as such.

As for the expectations from the government, we share an optimistic outlook from the policy makers, especially after the DIPP approval. Greater ease of doing business, having government involvement in setting up basic digital infrastructure are some of the amendments we are hoping for. These will serve as a base on which everyone can build upon as well as better electricity and internet access to the millions of Indians moving up the economic ladder.

(The Author is Prashant Verma, Head Marketing, Grofers.)

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