Virtual Grocer

Selling groceries and other daily-use products online can open up a sales avenue for retailers at little extra cost.
Pritam P Hans        Print Edition: August 2013

Groceries sell irrespective of the state of the economy. You can stop going to the cinema and restaurants, but there's no way you can live without toothpaste, soap and, well, vegetables. Caught in the city's fast pace, tedious commuting and long working hours, many consumers don't have the time to buy groceries or would like to avoid the chore.

Buyers are now quite comfortable ordering apparel, shoes, electronics, among others, online. With improving comfort with online payments, selling groceries online has become relatively easy.

RETAIL OPPORTUNITY

With a large customer base and increasing penetration of Internet connectivity (partly through smartphones) and growing popularity of online shopping, some entrepreneurs have seen the potential in creating e-stores for groceries. If you understand the retail market, a bit of creative thinking and excellent customer service can help you build a great business.

AaramShop.com, EkStop.com, BigBasket.com, AtMyDoorSteps.com, MyGrahak.com, ZopNow.com, Omart.in, LocalBanya.com, RationHut.com and SeaToHome.com are some of the online stores retailing groceries. Most of the existing etailers offer their service in metros and major urban centres.

"The spending on grocery and daily essentials is the largest and most consistent share of the wallet for any household. However, it is still out of the ambit of online shopping and, therefore, represents a huge opportunity," says Vijay Singh, chief executive and managing director of AaramShop.com, a network of neighbourhood retailers based in New Delhi. AaramShop.com currently operates in 30 Indian cities with more than 3,000 partner retailers.

FISHING IDEAS

While most entrepreneurs are exploring the grocery segment, Priya Solomon is selling a variety of fresh sea fish through her online store-SeaToHome.com. A Delhi-based journalist-entrepreneur, Solomon started the venture along with her brother-in-law Mathew Joseph, a Kochi-based seafood exporter.

"Fish might look fresh in the local markets in Delhi, but it is often treated with some chemical (as a preservative)," says Solomon.

SeaToHome.com started out catering to buyers who want fresh fish without chemical preservatives and long storage periods.

COSTS SO LITTLE
The cost of owning a domain (Rs 1,000) and hosting (Rs 5,000-Rs 10,000) an online store is negligible when compared with the investment in its physical infrastructure.

With the existing fish export business, the task was a lot easier for entrepreneur duo. "We already had a robust back-end, including the purchase system and the processing plant. We had to invest in a new office, marketing, distribution vehicles and staff in all the cities," says Solomon.

Integrating the online portal, SeatoHome.com, with the processing plant was outsourced to a technology platform. When a quantity of a fish arrives, it is updated on their website and is available for purchase. The portal caters to buyers in Delhi, Bengaluru, Kochi, Thiruvananthapuram and Coimbatore.

SeaToHome.com sources fish from fishermen along the coasts in Kerala, Tamil Nadu and Karnataka. As they cast their net in the morning and are back by afternoon with their catch, it ensures that the fish is fresh.

"We do not buy from trawlers as the fish is frozen right after it is caught and they return after several days or even weeks," says Solomon. SeaToHome.com packs fish in ice-filled thermocol boxes and dispatches it to customer destinations via air.

"If you place an order before 3 PM, it is booked on the earliest flight for Delhi early the next day. We try to deliver by afternoon or evening at customers' homes," says Solomon. The minimum purchase order for Delhi is Rs 1,000, while it's Rs 500 for the other destinations. You can also order beef and duck when available.

FREQUENT BUYERS

Grocery e-tailing is challenging, but it also has the advantage of high percentage of repeat orders. All you need to do is impress a customer with the first order. Once a customer is satisfied, you can have one more regular in your clientele.

"We are seeing a massive response. Almost 90% of our customers are repeating orders every seven days," says Solomon of SeaToHome.com. A growing list of loyal customers means a steady growth in business. If you have lots of households procuring all of their groceries through an e-store, it's a decent volume of sales.

Though such stores get customers throughout the month, weekends are relatively busier. "On Fridays and Saturdays, we see an increase in the number of orders. It is highest in the first weekend of the month," says Singh of AaramShop.com.

It's a similar story with SeaToHome.com. "On weekends, we do far more business than other days. We average 40-50 orders on weekdays," says Solomon.

CREATIVE NETWORKS

Given the nature of the business, online grocers are in a different league from other e-retailers. Most grocery e-stores cater to a specific city or certain areas due to the logisitic constraints.

A book or mobile phone can be easily shipped to distant locations across the country from a central warehouse, but delivering a 10kg sack of rice or 5kg pack of sugar to a different city is not commercially viable.

"The grocery category is not suited for traditional e-commerce ventures. While there have been a number of attempts in the past decade and a half, almost all have failed. The issues are related to low retailer margins, complex and expensive supply chain, ubiquitous presence of brick-and-mortar grocery stores and the prevailing consumer behaviour," says Singh.

FREE SOFTWARE
There are several open source content management systems, such as Magento (community edition), Presta Shop, Cube Cart, OS Commerce and Zen Cart, available.

Perishable products are also a challenge for online retailers. Vegetables, dairy and meat products cannot be stored for long. So many e-tailers stick to packaged food items. However, there are a few retailers that sell perishable products by procuring it only after an order is placed. A small establishment selling fresh vegetables in a New Delhi locality is doing exactly the same- accepting orders over the phone for delivery the next day after getting it from the wholesale market.

Online retailing in India has gained success only with a robust offline operation. With grocery retail, the offline component is more ingrained. E-grocers have set up systems to accept orders over the phone, which in itself can be an independent business model.

You will also have to break away from the online medium to advertise your e-grocery business. Buyers still relate groceries with local store and malls. So, not many consumers search for online grocery stores. You would have to educate prospective customers about the opportunity and benefits of ordering groceries online.

If you wish to become successful as an online grocer, you will also require a strong understanding of the retail supply chain-from procuring the goods and delivering it to customers on time. You will also need a robust offline local network that can fulfill the orders.

In the traditional format of the delivery network, you will follow the 'hub-and-spoke' model. All goods would be procured and stocked in a warehouse, which then supplies to the hubs for the last-mile delivery. As each warehouse would be able to cater to the demand from only a certain area, you would have to invest in creating independent establishments for each city that you want to operate in. In addition, you would have to forge tie-ups with local suppliers for many items in each location.


GAUGING COMPETITION

Many e-groceries have come up, but the segment is far from saturated. Most of such ventures are catering to a few metros and many cities are yet to have such e-stores. The potential market size also ensures that there would be room for multiple players, even within cities.

Though big retailers are yet to enter the segment, there is some competition from local grocery stores that provide home-delivery services. However, smart logistics and vendor tie-ups can help e-stores gain customer favour by offering them a price advantage.

Local grocery stores can also be turned into business partners, as done by AaramShop.com. It has roped in local stores to procure the groceries to be delivered, while focusing on creating the technology platform and the online interface.

"We have created a hybrid model. When a consumer shops on AaramShop.com, she gets to choose a retailer in her neighbourhood that she wants to order from. The order goes to the retailer, who delivers the order and collects cash on delivery. This ensures that the order moves from the web to the consumers' doorstep within 45 minutes, without the need to re-invent the supply chain and with no additional costs," says Singh.

IMPROVING MARGINS

Given the low operating margin in the segment and the challenge of offering better deals, it is important for online retailers to optimise their supply network.

The simplest way to increase the margin is to purchase in bulk by going higher up the supply chain and eliminating as many intermediaries between manufacturers and the retailer as you can. Staple grains, for instance, will be cheaper when procured directly from a mill rather than the local market. Going further up the chain, buying directly from farmers would mean even lower prices.

Going the private-label way is another strategy being used by many existing e-grocery stores. Staples such as rice, pulses and spices are procured from the market and processed in-house (or by their suppliers).

WISE RISKS

Online groceries offer ample opportunities, but not without risks. Many online stores have been shuttered after operating for a few months to a few years.

MORE FREE SOFTWARE
Stock Manager Advance, available at CodeCanyon.net, is an app that helps you manage your stock with a built-in inventory system.

Taking cue from the ventures that have shut down due to lack of funds or customers, being local and less ambitious can help online grocers remain viable.

One cannot wish to have the world as its customer base for groceries because their site can be accessed globally. A frenzy to expand across multiple cities might put undue strain on finances. One should focus on exhausting the potential of one location before targeting new ones.

SeaToHome.com, for instance, is in no rush to expand despite the temptation of seizing investment offers from venture capitalists.

"For now, we are running the business on our own resources as it is picking up better than we had expected. We are currently engaged in discussions about a very exciting phase-two plan. Once it is firmed up, we might look at external funding," says Solomon.

If you have the desire to become a local online retailer, groceries and daily consumption goods could offer you some great business opportunities. You can even invent online markets for exotic products or food items that cannot be bought locally.

"Be sure of your core competence and play on it. The business will take time to break even. So, have enough cash reserves and plenty of patience. Customers can be very demanding, so be willing to deal with them," says Solomon.

Analyse the market, chart out your plan of action and be frugal with your venture. With the right business model, success might not be far away.

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