Online Grocery wars in India: A PM’s view
Buying grocery including milk is a basic human need. Traditionally, this need has been served by local kirana and neighbourhod stores. However, with Covid-19 , the online players saw a jump in their demand and sales.
How does the segment look like?
Big Basket is the biggest player in online grocery in India, followed by Grofers and Amazon.
Overall market grew by about 76% in 2020 alone due to the pandemic to reach US $ 3 Bn. By 2023, this number is projected to reach $ 10 Bn, which will be 1.2% of all retail sales then.
There are three main models working in this segment:
1. Inventory based
Here the goods are stocked by the platform itself.
2. Hyperlocal
Here the goods are procured from local stores and customers may even get to choose the store.
3. Hybrid
A mixture of the two.
From a buying behavior perspective , there are two ways customers buy:
1. Stock up the groceries
2. Buy on demand
There are obvious overlaps in the two. While perishables only fall in Buy on demand category, non perishables can be Stocked Up or Bought on Demand as the case maybe.
Big Basket, Amazon Pantry focus on the Stock up mode and work on the warehouse model.
Big Basket Daily and Milk Basket focus on Buy on Demand mode and work on Hybrid model.
For the purpose of this write up, we will focus on the Buy on Demand mode of buying.
Who is the customer?
Customer groups can be looked from the lens of having the Ability and Need to buy the product.
Need can be a current need or a latent one and may become Strong in the future if the product is able to make the proposition valuable for that user group.
Currently, population of India is ~ 1380 Mn and this is growing roughly at a CAGR of ~ 1% YoY.
The SEC distribution of Indian population based on the new SEC classification is
Let’s evaluate the population with respect to the Ability and Need to Buy :
India has about 761 Mn internet users and the number is expected to reach 975 Mn by 2025, showing a CAGR of 7%.
Number of mobile internet users is nearly same as the number of internet users. Factors promoting increased usage of mobile internet are:
· Cheap data tariffs
· Decreasing handset costs
· Increasing number of young population using mobile for the first time
· Increase in disposable income of the family
As all of the internet users would be SEC D and above, we have to exclude SEC A from our earlier result to arrive at our TAM.
So our TAM is currently ~ 678 Mn, growing at a CAGR of 7%. This includes both Focus and Consider groups.
What are the pain points that make it a compelling opportunity?
SEC B: The Easy Target User group
This group has both High Ability to buy and High Need to buy groceries online. Hence, they make for an easy target for the Co.s This is where most Apps like BB Daily, Milk Basket focus on in metros and big cities.
The user is educated, with high income and less on time for doing grocery shopping.
Main pain points for this User group are:
1. How can I get the grocery delivered at my doorstep?
2. How am I sure that the grocery is fresh?
3. What about the safety from COVID-19 angle?
4. Can I get delivery on the same day?
5. Will I be able to buy meat/eggs and will they be safe to eat?
6. As I am a frequent buyer, what special rewards I get for the same?
SEC C: The Need Convincing User group
This group has High Ability to buy but Medium Need to buy groceries online . Need to buy is medium due to the availability of local grocery stores which this User group does not mind going to.
Thus they need some bit of convincing to switch from buying groceries from their neighbourhood stores to online.
These users are found in Metros but more in percentage terms in Tier 2 and 3 cities.
The user is educated, with moderate income and has spare time to do grocery shopping.
Main pain points for this User group are:
1. How to get the grocery for my household, does not have to be delivered necessarily?
2. How am I sure that the grocery is fresh?
3. What about the safety from COVID-19 angle?
4. Where can I get the lowest prices?
5. Will buying in bulk lead to discounts?
SEC D: The Aspirers User group
This group has Medium Ability to Buy and Low Need to Buy groceries online.
But they have easy access to mobile and internet. They want to climb the social ladder. Many users from this group will migrate to SEC B and C in the coming 5 years.
Hence, companies should keep an eye on this User group and consider them as they expand operations to smaller towns.
Main pain points for this User group are:
1. Am I getting the best prices for my grocery?
2. Is this what the rich people also buy?
3. How to make payment as I don’t have cards or UPI?
How are these Apps solving these pain points?
Now lets look at the metrics funnel and see what all metrics must be tracked at each stage?
Starts with the User Acquisition
For Milk basket, it starts with delivery of milk as an essential product. I was also particularly impressed with their App experience and their delivery when I first started buying from them.
For Big Basket Daily, it starts with cross pitching to existing customer base. Remember Big Basket is still the No.1 player in online grocery space in India.
For Amazon Fresh/ Pantry, it starts with an organic Amazon App search. Customers searching for the grocery products on Amazon are happy to know that Amazon is present in this segment too. Also there is a lot of word of mouth acquisition happening with Amazon.
Typical metrics the companies track at this step are
· Sign Ups
· % of customers who bought for the first time
Continues with the User Engagement
Now the users start getting push notifications, SMS, Email etc and the attempt is to get them back on the App.
Typical metrics at this stage include:
· Weekly/ Daily / monthly actives
· DAU: WAU and DAU: MAU ratios
· No. of searches
· Time on App
And the result is Revenue
The users are now starting to come back to the App frequently enough and thus they start to earn revenues. Typical metrics at this stage include:
· Avg Revenue per user/ per active user
· Gross/ Net profits
But don’t forget the Retention bit
Though you would want to acquire users continuously, it’s no fun if they churn away!
Its important to keep them hooked to your App so that you recover your acquisition costs and start to make money out of them
Typical metrics at this stage include
· Customer Acquisition Costs (CAC)
· Payback Period
· Lifetime Value (LTV)
· LTV/ CAC ratio
Future is bright for online grocery in India. But as much important as the sales is the underlying profitability. Since this is a high volume and low margin business, the unit economics are also different.
But since the overall market is so big there is space for atleast 4–5 big players to thrive comfortably and give features that make the end customer the real winner.
P.S: The above data is collected from secondary sources mentioned and the observations are personal to the author.
