Online grocery delivery -- pivot, shut down or new line of business?

About two weeks ago, in an interview with TechCircle, BigBasket co-founder and CEO Hari Menon, while appreciative of recent attempts by myriad consumer internet companies to test drive the online grocery business, predicted that as soon as the nationwide lockdown lifted, “they’ll (the recent entrants) start doing what they’re good at…”

Almost on cue, on Friday, several media outlets reported that Zomato, the Gurugram based restaurant listings and food delivery platform and one of the first to jump on to the online grocery bandwagon, was scaling back the barely two-month-old business to focus on its core operations.

In response to specific queries from TechCircle on the status of the grocery delivery business, a Zomato spokesperson said, “As the country opens up basis Unlock 1.0 relaxations, we are going to spend a large proportion of our time making our food delivery service the safest, and the most loved one in town.”

Like Zomato, the lockdown, on account of the Covid-19 pandemic, saw online consumer-facing businesses and those providing technology solutions for supply chains, logistics and payments scrambling to deliver groceries and essential supplies. The value proposition was doorstep delivery without the hassle of stepping out. These players, along with offline kirana stores and modern retail outlets, struggled to maintain supply and ensure availability of groceries and fresh produce. 

Read: The classic hyperlocal model is back in a new grocery avatar. Will it work?

As the lockdown comes to an end, several have started to scale down their grocery and essentials delivery businesses. Mukesh Bansal founded health and fitness platform Cure.fit is another notable example.

Cure.fit did not respond to specific queries at the time of publishing this report.

The grocery delivery vertical isn’t easy to execute due to low margins, according to industry experts. 

“Of the 8-10% margin of a retailer, asking them to share 7-8% isn’t a money-making proposition. It barely covers the costs of delivery with no room for profit,” the head of a supply chain company told TechCircle, on the condition of anonymity. 

This is especially true for companies such as Zomato and Cure.fit, which have been fulfilling orders by picking up products from stores and using their own fleet to deliver, even as each delivery costs between Rs 40 and Rs 60, he added.

In the case of apartment management software provider ApnaComplex, demand came in from resident welfare associations during the lockdown, prompting a tie up with firms such as Metro Cash & Carry, ITC and Ninjacart. As the lockdown lifted, this changed. 

“When we launched fresh vegetable delivery, we got an order of nearly two tonnes of vegetables from a single society in a single day. As the situation improved, we scaled down some of these partnerships,” Amit Tyagi, COO of ApnaComplex, said.

The ‘lottery moment’ for online grocery

Given the presence of heavyweights such as Amazon, Jio and Flipkart -- provided it manages to get its food retail  license -- the sector offers little opportunity to scale for players such as Swiggy and Zomato, Satish Meena, senior forecast analyst at Forrester Research, said.

“The revenues for larger companies have been hit due to business dropping sharply. As a result, new entrants do not have the runway to offer discounts on par with the larger companies. Also the model of picking from stores and delivering to customers hasn’t worked for any player,” he said, referring to the Flipkart and Ola forays into the business through Nearby and Ola Stores respectively, a few years ago.

The national lockdown, BigBasket’s Menon said in the TechCircle interview, could well be a “lottery moment” for the online grocery delivery space. He went on to add that for a business that involves both digital and physical touch points, it is not easy to scale at short notice.

An opportunity

Delving into online grocery delivery without first securing a supply chain and warehousing system can only take you so far, Ashish Kumar, co-founder at Sauce.vc-backed Near.Store, said. 

The company, which started as a plug-and-play platform for offline stores to have an online presence, pivoted to a model where it aggregated orders from and delivered to housing societies directly through fast moving consumer goods (FMCG) brand tie ups. 

“Initially, when kirana stores and distributors shut shop or did not have staff to deliver, brands realised the need to have alternative channels for distribution. The brands continue to work with us and we deliver to the housing societies as well as kirana stores,” he said.

Business acceleration

The willingness of brands to scale and fast-forward these associations have also helped companies accelerate their plans of getting into the consumer-facing grocery delivery space. 

The lockdown has provided a testing ground for the grocery delivery business that security and community management solution MyGate has been planning to launch for a while, according to Abhishek Kumar, COO of the Tiger Global-backed company, said. 

“We are aggregating demand at the society level and working directly with suppliers, including farmers or national players, to bring efficiencies in the delivery process and cost. These suppliers will deliver to the society and MyGate takes care of last quarter mile delivery,” Kumar said in an email to TechCircle.

Ecommerce logistics software provider Shiprocket will also launch a new version of its business-to-business (B2B) hyperlocal delivery app by July. The app was first launched during the lockdown.

“As of now, hyperlocal delivery is less than 10% of our business and on the app, we tied up with pharmacies mostly to deliver Covid-19 essentials to their customers. As consumer behaviour changes, we will see them ordering from stores they would have gone to and the B2B app will serve these stores for deliveries,” Akshay Ghulati, chief business officer at Shiprocket, said. 

Similarly, the crisis accelerated Nexus Venture Partners-backed B2B grocery delivery firm Jumbotail’s plan of setting up J24 stores in residential complexes in partnership with kirana stores. In these co-branded stores, Jumbotail manages inventory, delivery of stock to the store and billing services. 

Facebook-backed social commerce platform Meesho has also been operating Meesho Mandi since April to sell staples, grocery as well as organic and speciality goods through its assisted commerce model. The platform laid off close to 800 employees in April to rationalise costs.

With new formats and models cropping up, the final tally on pure play online grocery delivery may only have a few players.