Online Grocery Delivery 2.0: The Rise of Quick Commerce
Grocery is the largest consumer segment in India, estimated to be accounting over 60% of the country’s total retail market. India’s grocery retail market has been primarily dominated by neighborhood family-run Kirana stores, which make up 75%-78% of the total consumer goods sales.
However, increased smartphone adoption, expanding internet penetration, heightened digital awareness, growing tech-savvy young population, and the rise of digital payment alternatives have been reshaping the dynamics of the Indian grocery market.
Digitization has increased a sense of convenience, providing customers the flexibility to purchase items with just a click/tap and have them delivered at their home rather than visiting a brick-and-mortar store to pick up the same.
The Boom of Online Grocery Channels in India
The COVID-19 pandemic acted as a catalyst in changing consumer behaviour and leading to a rapid transition from offline grocery stores to online mediums. Fast, safe, and contactless delivery, sealed food, safe handling and packaging, online discounts, etc., helped online grocery brands to garner trust from online grocery consumers and shift their purchasing behaviour. India online grocery market registered a CAGR of 27.88% from 2017 to 2021, and the market value is expected to reach USD6.40 billion by 2022.
Currently, the Indian grocery retail segment has become a hyper-competitive space with the pandemic-related surge in demand, growing omnichannel presence of offline retailers, and the arrival of big players. The online grocery market has seen a wealth of venture capital as multiple market players are launching their e-commerce businesses.
With around 560 million internet subscribers and 450 million smartphone users, the e-commerce players are projected to register growth at a rapid rate. Thus, the new players in the rapidly growing industry are coming up with innovative offerings and sharp value propositions to add millions of new users. Currently, the grocery e-commerce segment is composed of five types of players.
Grocery e-commerce specialists such as BigBasket and BlinkIt (previously known as Grofers) account for the majority of the market share in the Indian online grocery market. They offer a variety of products to a wide base of regular customers and have a strong focus on customer satisfaction. Other e-commerce players like Amazon, Flipkart, Swiggy, Zomato, Shopclues, Perpule, and Paytm Mall are heavily investing in developing their platforms for building grocery capabilities.
Additionally, micro delivery companies such as Country Delight, Milk Basket, Licious, Fresh to Home, etc., are focusing on selected categories and offering limited assortment to their loyal base of customers. Some leading offline grocery retail chains have introduced their private labels at affordable prices to attract customers, considering that consumers usually stick to an affordable brand or one of their likings. For instance, D-mart has a good retention rate, and it has grown much faster than its competitors.
Big Basket-Leader in India Online Grocery Market
India’s first online grocery store, Big Basket, has achieved sustained growth in the last ten years, which managed to enter the unicorn club in 2019. Despite aggressive competition in the segment, Big Basket has maintained its leadership position, capturing a large portion of the India online grocery market.
BigBasket had gross sales of USD1.1 billion in March FY2021 and USD1.7 billion in March FY2022. Being the early mover, Big Basket captured the top layer of customers who were willing to spend more for convenience, and thus it gained the upper hand over its rivals. The startup company relied on superior customer experience to grow sustainably and retain customers rather than providing discounts to maintain the retention rate of loyal customers.
Big Basket sells grains, pulses, as well as fruits and vegetables under its own brands on the online platform and Kirana stores, retail chains, hotels, and restaurants, which is contributing significantly to the company’s profit margins.
Big Basket has created a hybrid of warehouses and dark stores to fulfil the same-day orders and make express deliveries, and the sourcing of products is done domestically as well as locally. The start-up has a gamut of offerings ranging from delivery within three to four hours, daily deliveries for daily produce, vending machine, and next-day delivery.
Currently, Big Basket processes 20,000 orders per day and has partnered with 1800 local grocery stores across India. In 2021, Tata acquired a majority stake to introduce the quick-delivery service with USD1.2 billion investment to take the quick-delivery service model to the next level as it is hotting up with well-capitalized companies like Swiggy. BigBasket operates in around 30 cities across India, but the company has plans to expand its user base beyond metros to Tier III and IV towns.
New Players Marking Entry in India Online Grocery Market
- Zomato Buys 9.3% Stake in Blinkit
Leading online food aggregator in India, Zomato has planned to re-enter the online grocery segment. The online food delivery platform had entered the grocery delivery segment in 2020 to meet the rising demands, but the company stepped out in 2021 to focus on its core market, food delivery. However, Zomato will be launching its online grocery application soon after strengthening its network in the grocery delivery business.
Zomato’s announcement for the new app launch comes after Tata Digital bought a majority stake in Big Basket. The company had also invested USD100 million, acquiring a nearly 10% stake in Grofers during the IPO announcement in 2020. The deal is aimed at better competition against rivals like Swiggy and Big Basket. Zomato already provides fresh and high-quality supplies such as vegetables, fruits, groceries, spices, etc., to restaurants under the initiative called HyperPure.
- Swiggy Invests USD700 Million in Instamart
India’s top food delivery service platform, Swiggy, has invested around USD700 million in its express grocery delivery segment, Instamart. The move by Swiggy is to strengthen its hold in the quick commerce in the world’s second-largest market. Instamart fulfills the daily needs of fruits, vegetables, bread, eggs, drinks, and other cooking necessities of consumers.
In 2020, Swiggy had launched Instamart in two Indian cities, which is now available in 18 cities and clocks million orders per week. Instamart is set to reach an annual gross merchandise value run rate of USD1 billion in the next three quarters at its present development trajectory.
- Zepto’s Quick Rise in Express Online Delivery Segment
Mumbai-based startup, Zepto (formerly known as Kiranakart) promises to deliver groceries within 10 minutes. The startup is emerging as a tough competitor to well-established Indian grocery delivery market leaders like Big Basket and Blinkit. The company has managed to double its valuation to USD570 million from USD225 million in just two months, securing investments from Y Combinators and Nexus Venture Partners.
Reducing the express grocery delivery time from 15-20 minutes to under 15 minutes, Zepto aced the same-day grocery delivery model. The company has been opening stores every 4 hours and currently managing 4 million orders every day in major cities like Mumbai, Delhi, Gurugram, Hyderabad, and Pune.
- Flipkart Quick Reduces Grocery Delivery Time from 90 minutes to 45 minutes
Amidst the quick commerce chaos, Walmart-owned Flipkart has decided to take a sane route, making its grocery delivery time cut by half to become a more relevant player in the segment. Flipkart Quick has been making delivery of groceries within 90 minutes since the pandemic rolled out, but it has reduced the time to 45 minutes in several cities such as Bengaluru, Mangalore, Hyderabad, Delhi-NCR, Nagpur, Pune, Lucknow, Kolkata, and Chennai.
With longer delivery times than Instamart and Zepto, Flipkart Quick aims to offer a much wider range of products, which could prove to be a differentiator. Flipkart currently operates in 14 cities and aims to expand to more than 200 cities by the end of 2022.
Challenges
The quick delivery service model is expected to be successful in locations with a high concentration of people who are willing to pay more for urgent and critical last-minute needs. However, it is highly unlikely that express online delivery stores could replace Kirana stores in their niche micro business. Although India is the third-largest grocery market in the world, the penetration of online groceries is less than 1%.
Q-commerce is expected to disrupt the under-penetration in groceries, developing a strong habit among customers on the back of convenience. As customers continue to make purchases through online channels in the post-pandemic era, quick commerce will continue to grow at an exponential rate. Quick commerce is going to be the next game-changer for e-commerce. India’s quick commerce is anticipated to grow 10-15 times and become a USD5 billion market by 2025.
According to TechSci Research report on “India Online Grocery Market By Product Category (Packaged Food & Beverages, Personal Care, Household Products, Fruits & Vegetables, & Others {Pet Care, Baby Care, etc.}), By Platform (Mobile Application & Desktop Website), By Region, Competition, Forecast & Opportunities, FY2017-FY2027”, India online grocery market is anticipated to grow at a CAGR of 33% during the forecast period. The factors attributing to the growth are rising personal disposable income and the rise of quick e-commerce. Besides, the rapidly growing working population and entry of offline grocery chains into online are driving the growth of India online grocery market.
According to another TechSci Research report on “UAE Online Grocery Delivery Market By Product Category (Fresh Foods, Household Products, Packaged Foods & Beverages, Personal Care, Baby Care, Beauty & Health) By Platform (Mobile Application & Desktop Website) By Mode of Payment (Pre Delivery Online Payment, Card on Delivery and Cash on Delivery), By Region, Company Forecast & Opportunities, 2027”, UAE online grocery delivery market is anticipated to register double-digit growth during the forecast period. The growth can be attributed to the rising internet penetration and added convenience of online grocery delivery market players.
