K Ganesh, 50, the Energizer Bunny of Indian entrepreneurship, is either angry, annoyed or sarcastic. I can’t tell.
“VCs [venture capitalists] have a herd mentality. They don’t mind funding the sixth baby products site or the eighth [discount] deals site. But one of the reasons we got into this business is because it isn’t ‘VC-able’. It means two pony-tailed youngsters out of college can’t enter it. It’s our competitive barrier to entry!” he says.
Ganesh, a 25-year veteran of funding, building, scaling and selling technology businesses, has a near-uncanny ability to spot and ride a trend before it becomes mainstream. His past ventures offer a concise view of how the Indian technology story evolved: Hardware maintenance in the 1990s, BPO in 2000, analytics in 2004 and online tutoring from 2005.
“But this is the toughest and yet most exciting of all my ventures,” he says, with his characteristic half-smirk, half-smile that can be maddeningly hard to read.
The business Ganesh is referring to is BigBasket.com, an online grocer he funded and incubated just a few months back in December 2011. Just three months later he roped in $10 million in funding from private equity firm Ascent Capital.
“No VC can write a ‘Series A’ cheque of that size. And we were clear this isn’t a $2 million or $3 million investment business,” he says.
He is right, VCs don’t like this business.
There’s a reason for their scepticism: Selling groceries online is a bruising, penny-pinching business that has bled entrepreneurs and investors for over a decade and a half.
“My own personal belief is that this is a very complex business where margins will always be under pressure. Hence the amount of investment required to reach scale will be significant,” says Kanwal Singh, co-founder of Helion Venture Partners, generally one of the most gung-ho investors in Indian e-commerce but a marked sceptic on groceries.
But that isn’t preventing a bunch of Indian startups from trying.
www.kirana.com?
Connaught Place, bang in the heart of Delhi, isn’t normally the kind of place where you’d expect an online grocer to set up shop. Real estate is prohibitively expensive, traffic and parking can be maddening and it’s far away from Gurgaon’s dense and rich urban jungle.
Yet, that is where Aaramshop, one of the fastest growing online grocers currently is headquartered.
It can afford to do so because, unlike most of its peers, it has no need for large warehouses, call centres to take orders, engineers or logistics staff. It has just 12 employees.
Yet, it home delivers grocery orders in over 25 cities.
In comparison, BigBasket, that serves just Bangalore city, has over 120 employees, three distribution hubs and 25 delivery vans.
Aaramshop’s secret: It does not source, stock or deliver any or the products ordered by customers. Instead, it acts as the internet face for any neighbourhood grocery store (kiranas) that signs up with it.
“We believe e-commerce in its traditional form will not work with FMCGs [fast moving consumer goods] and groceries. Because unlike other categories, the margins available to retailers here range from 6-8 percent, which makes stocking and logistics of groceries and perishable products a near impossible task,” says Vijay Singh, 42, Aaramshop’s founder and CEO.
Customers who log in to Aaramshop must select the kirana store nearest to them before ordering any products. Within seconds, Aaramshop relays the order via SMS and email to the kirana. And within hours the kirana delivers the order, with the customer paying in cash. The average order size a kirana gets through Aaramshop is around Rs 570, says Singh, compared to Rs 100 when customers were directly calling them up.
“The fundamental advantage of the kirana is their proximity and huge amount of trust with consumers. Besides, the view most of us have of the kirana store manned by an old gentleman wearing a banian is no longer true. Having seen the Subhiksha model, there is huge interest in them to change. Counters have changed, aisles have come in and most owners use high-end smartphones and Facebook,” says Singh.
Subhiksha was, of course, the discount supermarket chain that rose dramatically to 1,600 outlets across India in just over a decade, before spectacularly flaming out in early 2009. Its twin value propositions of deep discounts on groceries and FMCG products together with local neighbourhood availability were fairly successful with Indian consumers.
The other impossible task is for any startup to match the extensive, deep and low-cost distribution network put in place over the decades by large and small FMCG companies in India: 7.8 million outlets retail groceries across India, of which grocers alone account for nearly 60 percent.
“The FMCG industry has a distribution system that can service the nearest kirana store [meaning, they can get their products to even the smallest kiranas]. Till that exists, any new startup’s ability to compete from, say 20 kilometres away, will remain in question,” says Damodar Mall, the head of Future Group’s food business.
Currently BigBasket stocks most provisions (which it cleans and packages under its own brand) while most fruits and vegetables are sourced twice daily from wholesale mandis or Safal, and FMCGs from Metro Cash & Carry. It claims to be shipping nearly 400 orders a day with an average order ranging between Rs 1,000-1,100.
(This story appears in the 22 June, 2012 issue of Forbes India. To visit our Archives, click here.)
The primary motive to shop online is convenience... and not discounts. However, convenience should come along with quality assurance.
on May 3, 2016I guess shipping is costly, but can be achieved through Indian Post. I will suggest seller to go with flipkart.com or buyonkart.com who are planning to introduce grocery or else go with amazon.com or bigbasket.com
on Apr 25, 2015It will work out when it have 1. Quality 2. Home delivery 3. Delivery Time 4. It should be from local
on Feb 13, 2014Today\'s online grocers need to think beyond discounted products and home delivery as the only value proposition to consumers. Only that way they can attempt to generate additional revenue streams to mitigate the challenge of low margin and high delivery cost for grocery items. In this connection I found one of the grocery portals launced in Kolkata named Salt n Soap (http://www.saltnsoap.com) pretty innovative. They are providing personalised shopping assistance, open analytics for smart purchase and social shopping experience.
on Feb 11, 2013I will be in favor of avoiding online groceries while buying green veggies, but you can definitely order grains like jaggery, rice, dal etc to online groceries, specially from them who is offering organically generated foods.
on Nov 6, 2012We people in India still say a \"no-no\" to tinned food products. Getting adapted slowly to the tinned and frozen products. Also, in case of business related to FMCG needs patience to expect break-even. Do remember this is not a fancy internet market. Ventures start expecting profits in short time (don\'t assume literally) which is not possible in FMCG space. In west all that people consider is the quality (of course the brand matters but so do the quality). The e-grocery makes a profit by creating their own/local brand (dairy products, rice, snacks - you name it). We Indians (please don\'t take this in a wrong sense) go after the brand by belief. And with regard to Entrepreneurs in this arena, think the Indian style. Factors like severed Infrastructure, multiple brands, low margins needs to be dealt with an Idea the Indian way. Now, coming to Aaramshop, I feel that Aaramshop won\'t be a successful one in long term. 1. Prices for the same products vary across states (on account of taxes, etc.). Hence no sure shot towards the MRP 2. Since the site serves as a gateway for shops across states, not all the local best selling brands (brands best selling atleast in one particular state) are listed on the site. If in case, the local best selling brands gets listed, then the customer has too many brands to choose from and will not be sure if the chosen brand is available in his city/state. 3. E-commerce is all about convenience. I would prefer shopping all my FMCG needs (including vegetables and fruits) all at one stop which is quite not possible with aaram\'s concept. I feel that e-grocery in India has a very huge potential. Its just about time.
on Oct 30, 2012As an FMCG marketer I believe the ecom story is not viable and hence found this story very good. All the \"ecom\" players spend time trying to drive our prices down and ask for discounts which are unviable for business. To that extent the aaramshop model seems to make a lot of sense as we also have a last mile presence and its important to enable that presence on the web - which is what they seem to be doing to great effect. The rest are VC dependent and I know VCs are running away from inventory based models - so good luck.
on Oct 27, 2012Now Pune have their online grocery store with a team of high experience in offline grocery network,merchandising,operations and marketing skills. You can shop for your online grocery and daily essentials at www.punexpress.com
on Oct 12, 2012Good to see innovation in the space. I have tracked this space for a long time as a profession and have come to the conclusion that eCommerce in its traditional form would not work for international groceries brands (as the margins are too low) or fresh items (as the cost of logistics of perishables over shadows the returns). The viable options is to focus on private labels, where the margins are better. I quite like the aaramshop model, and a hybrid / aggregation model might have a far better chance of breaking out.
on Jul 24, 2012Good to read but it is very difficult to make money on selling groceries online. I agree that there is a huge potential in the market but are people ready to buy it at premium the answer may be no. it is long game and difficult to get early break even. I was also writing to get something on similar line capturing all the online grocery stores. http://www.retailopia.com/2012/04/list-of-online-grocery-shopping.html
on Jul 13, 2012Congratulations on putting together a comprehensive article and highlighting the challenges of the sector and the innovative takes on addressing the challenges.
on Jun 24, 2012Good article. It has been reported that e-commerce is a serious threat to modern retail in western countries. Given that Indian market skips a step in the growth curve in many areas (we barely launched pagers before quickly moving on to mobile) this is quite a possibility. However the article does not address a key behaviour of Indian consumer, which is treating shopping as a family outing and entertainment.
on Jun 23, 2012Don\'t agree with your over the top conclusion of \"key behaviour\" - if that were true and written in stone then there is never going to be hope for anything which is ecommerce :-) The consumer\'s lifestyle undergoes a constant evolution and it is fair to say that consumer would like the convenience of ecommerce of grocery.
on Jun 26, 2012I have started a company by the name buybazaar.com based out of chennai. We have combined sales of electronics and books combined with groceries... we are trying to achieve delivery of products within 4 hours of placing an order... we are confident that a combined approach will deliver the sustainability to make this work
on Jun 21, 2012Check out http://shopveg.in, a start up by few of my friends with very superior, intelligent and user friendly UI/interface. They are limited to Mumbai though. You should have done a story on good ones not the most famous with money bags. PS. I checked out one of your reviewed products website and it turned out to be below average with even their FAQ broken.
on Jun 17, 2012Nice analysis of the sector. I for one believe that a format which is custom built for Indian conditions would have a better chance of survival. The toughest part of this business is same day delivery (which is what we are used to in India). I see that as a big challenge for operators like Big Basket (25 vans already for 400 orders) - it is like re-creating DHL. I like the route choose by Aaram Shop - seems more real and scalable. 12 people 25 cities with a huge network of local retailers.
on Jun 17, 2012Selling grocery, like vegetable, can be a tricky online business. The freshness and promptness would be critical, unlike apparels where the items are not of immediate need. Its a brave move by the Aaramshop and BigBasket. Aaramshop\'s model seems more feasible and workable in the long run. There\'s no doubt that every product/service will get commoditized and ecommerced in the near future. Only two questions linger: a) Till when Venture Capitalists will fund these loss-making start-ups? b) No ecommerce portal has gone profitable. How long can the gestation phase be? There\'s a reason to be sceptical and hopeful both in such a scenario.
on Jun 16, 2012Yes we also started a online grocery store in ahmedabad http://www.mykharidi.com
on Jun 16, 2012