The truth behind why online grocery start ups are failing

Believe it or not, online grocery shopping is a fad. In a country where department stores are still booming and people working with MNCs considering grocery shopping as their dose of weekend fun, online grocery isn’t something that Indians are really very serious about, unlike cab aggregators and movie ticket booking apps.

Indians are jugaad-friendly. In a market crowded with online grocery apps, people tend to download apps, get their first order at maximum discount by using coupons and then simply uninstall the app from the device. They would install other apps for their next use. Unlike cab aggregation, app based grocery shopping is never a necessity to urban Indians. In each lane and bylane of any Indian city and suburb there is a grocery store selling the basic needs of bread, rice, pulses, milk and eggs.

The online boom of grocery shopping started in the US some 15 years back and faded out by early 2000. One of the giants in the market Webvan that started in San Francisco met the same fate as their expenses got out of limit.

In last few months, there have been numerous deaths of online grocery providers. Peppertap that raised USD 51 Million shut down after one and a half year of operation citing similar reason.

Prem Kumar, Founder and CEO, SnapBizz has a point to make. “The consumer behaviour in the grocery online space is fairly different from other consumer goods spaces. The driving forces are merchandise and convenience, while the pillars are technology, merchandise and fulfilment.”

“Since the grocery industry runs on a tight value chain, establishing unit metrics and profitability becomes a challenge,” Kumar said.
There are two basic models in online grocery- a full service model and hyper local model. Full service models are the ones where they control the end to end value chain and deliver a good customer experience. The hyper local model depends on getting goods from local retailer and delivering it. The unit metrics does not stack up in this model.

“The retailer has to pay 5 to 6%, when he hardly makes 8 to 10 % margin. In spite of doing this, the online grocers do not deliver the same customer experience as delivered by the retailer. Hence, the business model may look attractive in the beginning, but unable to sustain and fold,” Kumar added.

We analyse what could have gone wrong with the online grocery start ups and here are the probable reasons.

Marketing siphons a lot of money
Big Basket has Shah Rukh Khan as the brand ambassador. Then other online grocery brands like Grofers and ZopNow invest heavily on marketing, right from digital advertisements to billboards. This is again a hug expense. Firstly marginal profit and then monstrous expenses take a toll on the profit.

Many retailers walk with the cherry of the cake
Well, if Grofers or Big Basket is giving some benefit to the end consumers, often the small retailers start ordering milk, bread and cold drinks as these are the products where they make nominal profit. So as a result, the retailers re-re-selling the products.

Marginal profits
It’s a known fact in India that groceries aren’t profitable like gadgets. Selling 5 kg of sugar may give the retailer Rs 100 profit. It’s that tough. And then delivering the product at doorstep would result in more expenses. Before shutting down Peppertap, CEO Navneet Singh admitted that they were operating in negative margins per delivery, confirms a report by business website.

Users look for better offers
Many users tend to buy through apps only when they get discounts. This isn’t something that the buyers are to be blamed for. Indian market has always been price sensitive and this ought to happen.

Price sensitivity
Indian consumers are quite money minded and sensitive to prices. It’s not they are misers but they love savings, When you buy at department stores you get to scrutinize various brands, quality and of course the prices. But online grocers don’t give the user the luxury to select.

Inventory mismanagement


While Big Basket is spending a lot in inventory and Grofers is letting you choose stores. Having an inventory is always the best option provided you have that much cash in hand. What happens when a customer refuses orders? Sellers aren’t taking it back. If you have an inventory and if the item isn’t perishable, you can still keep it in stock for next order.

Last mile glitch
The warehouse is super responsive and the pick up is superfast, but then the delivery guys slip and the whole smoothness are hampered. Generally the delivery guys get Rs 300 per day for working from 9 in the morning till 10 at night. No work results in no pay. You don’t really expect a 10 inch wide smile at 9PM carrying your 10 Kg of monthly grocery item.

Moreover unlike Gurgaon, Greater Noida where the real estate boom has given rise to skyscrapers, it’s not everywhere in India where an address is easy to locate and deliver. Naturally the delivery get delayed.

Arsh Singh, COO at Tookan suggests that routing optimization, real-time tracking, keeping customer notified make the grocery delivery management a lot better.