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Battle for mobile grocery shopping apps heats up in Delhi/NCR

It was surprising that online and mobile grocery shopping segment had been vacant in Delhi/NCR all this time. And now, it is interesting how many big players (deep pockets) have suddenly entered this segment with full force.

Almost every day, full page cover spreads in national dailies are devoted to how X/Y/Z is the best app that will ease all your grocery problems. Whether you had any grocery problems to begin with, well that is the million dollar question yet to be answered.

So why is the battle for online & mobile grocery shopping app heating up now?

Plenty of reasons:

1) Grocery sector has always had an image associated with it that it would be a tough nut to crack. For consumers, the core product was always available nearby in the kirana stores. Most shops already had a system for home delivery and also for maintaining an account so that payment could be made later. These small shops had their own way of keeping inventory – not to mention their habit of not using receipts for most things. With a convenient option nearby, grocery shopping apps have to cross a bigger hurdle – this is not a case of acquiring a customer once and then reaping the rewards over the lifetime, instead the customer has to motivated each time to choose the app over the nearby store.

Only after seeing the success of other online businesses, have investors and entrepreneurs started believing that the grocery business time has also come.

2) Availability of easy money. Money is flowing in the Indian startup sector as never before. The Flipkarts and Snapdeals are raising more than they want, simply because you never know when the liquidity stops. In such cases many things happen. Firstly, there are always investors who feel that they missed the bus by not investing in these giants and are willing to risk a bit more just to get a piece of the next big thing. Secondly, with continuous funding rounds and rising valuations – people see that their investments have grown manifold and have more money to invest (paper or otherwise). This is the money that is now propelling the rise of these grocery mobile startups.

3) Rise of skilled entrepreneurs. The billion dollar startups helped spawn multi-hundred million dollar startups. They solved technical & operational problems that had remained unsolvable till now. While this meant that people could use ready made solutions, it also meant that there were skilled workers who could now take a solution and then apply it to another context. This can be seen in the case of Navneet Singh, the founder of Pepper Tap – he had worked at Delhivery & then launched a logistics startup that worked with the e-commerce giants.

4) Social awareness. The situation in Delhi/NCR has now moved beyond a time where only the technology early-adopters would install and try out apps. People have come to understand what online/ mobile shopping is. They are more willing to try and they can easily navigate through most interfaces. At the same time, the supply end is also very aware of the growth prospects. In Delhi and Gurgaon, there are many wholesalers who are setting up separate shops & counters just to service the online grocery startups. This has helped people to quickly ramp up while focusing on business aspects other than inventory.

What is the model for mobile grocery apps?

Almost universally, no one is storing inventory. The e-commerce giants had already tested and proven that holding inventory at any scale is pretty much non-viable (hence the marketplace model that everyone is following). There are simply too many SKUs and the money that is usually tied up in inventory is better spent in acquiring customers. So the model is simple – for the product, have tie-ups with local stores that give you some level of input into their inventory & pricing. As soon as the order comes, the delivery/dispatch/picking team will take the product from the local store and deliver to the customer. This method is obviously not as foolproof as storing your own inventory, but it is the lowest cost option available. The money that is saved here is now better spent in acquiring new users via online/offline marketing. And, while you will definitely have some unsatisfied customers (take a look at the reviews in Google & Apple play/ app stores for a fun reading) – you will acquire more than the attrition and hopefully, grow enough to get to your next funding round. For the revenue, these startups charge a commission on sales from most stores. This is probably the only way given the price sensitivity of the market and the fact that they can’t sell above the MRP to consumers.

What has happened till now?

The startup/ VC world, for all its innovation, also suffers from a copycat mentality. Mobile grocery apps are hot and funding is there to be taken if you have the right team & right contacts – if you don’t have either of these, then you better have some astounding growth numbers to stand a chance. Since mobile apps are all the buzz these days, people had come to think that web apps are now done and dusted. There was the famous Myntra’s transition to an app only model. However, at least in grocery shopping, startups will have to service in all mediums. Pepper Tap used to only have a mobile app but now has a website. And meragrocer.com used to only have a website, but now has launched an Android app. So, going forward we will see all players servicing across all major mediums.

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Who are the main players in online grocery shopping in Delhi/ NCR?

PepperTap: Arguably the fastest grower in the space has been aggressive in fund raising as well. After Sequoia put in $1.2 million seed funding in Mar 2015, SAIF Partners put in $10 million in April. There were unconfirmed reports of another $60 million round but that does not seem to have happened till now. Founder Navneet Singh had earlier started a logistics company Nuvoex that worked with Snapdeal, Flipkart etc. No wonder then that he is getting the venture capital backing since his skills of logistics are the backbone of this business. PepperTap started in Gurgaon but is rapidly expanding to other cities.

Grofers: Grofers started as an on-demand delivery venture where they tied up with local offline merchants and allowed them to sell online via their app. However given the fact that they have raised $45 million from Tiger Global and Sequoia & then acquired the grocery delivery app, My Green Box, it is no surprise that they are also pushing heavily in this sector.

BigBasket: Bangalore based BigBasket was one of the earliest entrants in the online grocery space & also the biggest one, though it took time to come to Delhi-NCR. With today’s (Aug 12, 2015) announcement of a $50 Million funding round led by Bessemer Venture Partners, BigBasket is close to a billion dollar valuation and will be expanding fast in Tier 2 cities as well. The firm has said that it expects to end this year with a revenue run rate of $400 Million. 33% of BigBasket’s revenue comes from private labels (a high margin segment in this space). BigBasket operates its own warehouse as against working on a lean no-inventory model opted by other players.

ZopNow: Also Bangalore based, ZopNow raised a $10 million funding round in April 2015 led by Dragoneer Investment and including Accel Partners, Qual-Comm Ventures and Times Internet.  ZopNow had started on a similar model as BigBasket with its own inventory but has since moved on to working with Hypercity for the supply part.

Nature’s Basket: Godrej Group’s Nature’s Basket is the slow & steady player in this space. With the retail stores already operational, the venture acquired Mumbai based Ekstop.com to catch up with the other players. The firm would likely position itself as a high quality, speciality food players and will also use other channels such as Amazon to sell its products.

A simple search would show you dozens of small & medium players operating in Delhi-NCR now. Most of these would obviously fall by the wayside, and remaining will face increasing competition to acquire and keep customers. Though, similar to the e-commerce, players – it not likely that any one will be seeing profits for quite some time and the game will turn into who can sustain the longest.

 

 

 

 

 

 

 

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