Business Models in Online Grocery business
More than 45 e-grocery companies in India are competing with each other for customer base. Each of them in their own way are trying to deliver best quality, and service and as quick as possible. Largely there are two types of business models in online grocery business- Inventory based and Hyper local based. Since this is quiet a new market, players are experimenting with different models of e-grocery till it hit a balance between customers taste and profitability.
Big Basket like Model- Inventory Based:
This is a costly e-grocery model since it requires setting up own warehouse, having a fleet of refrigerated trucks etc. Having an integrated e-grocery model like Big Basket has its own pros and cons. This model lets the company have more control on the quality of products delivered. Quality being one of the major challenges (Read: Challenges in Online Grocery Business in India) in this industry, by adopting this model Big Basket is actually standing out the competition. Secondly by sourcing right from the farm and the companies it is pocketing slightly greater margins.
The company operates on Hub and Spoke model. Big Basket directly purchases from the suppliers like HUL, P&G, farmers, mills and stores them in their own warehouse. Spokes are the refrigerated vans placed in different zones of the city from where the order is deliver to the customer. As a new vertical Big basket is launching Dark Stores where 1000-1500 SKUs could be stores to be transported by two wheelers.
Now just backward integration, the company has recently acquired Delyver for time-based deliveries thus it is integrating in all possible directions. Since its own staff delivers orders it executes full control on point of customer interaction
Cons of an Integrated Model:
- High working Capital required to own warehouse, fleet of refrigerated trucks and vans.
- Wastage cost- stocking perishable items is a costly affair, if not consumed in stipulated time goes wasted.
- Operation Cost- Procuring from suppliers and farmers, quality check, storage, inventory planning
On top of all the cons we have a bad example of Webvan, a US e- grocery company which was shut in 2001 soon after raising $800million from Venture Capital and IPO. The biggest reason citied for its failure is that it was ahead of its time. There was not much Internet penetration in the country at that time.
Big Basket, one of the leading companies in this sector has chosen a difficult track
Hyper local Model- wherein companies do not own their own warehouse, rather tie-ups are made with local stores for order fulfilment. This model has few variants described below.
With no inventory and warehousing costs, the average expense of the company came down by 70%. The biggest cost being that of servers. For fruits and vegetables the company has tied up with some niche players and all the discounts are passed on to the customer, as the company does not have inventory cost.
Delivery only Model- Grofers and Peppertap–
These express delivery apps have their own delivery boys and tie-ups with local merchants. They promise to deliver the order as fast as 90 minutes. Companies delivery boys source the items from these shops and delivers. Bothe the companies are in talks with the vendors to have exclusive warehouses for themselves which would be separate from the physical store. This would ensure deeper relationships with vendors and assured supply of items.
Aaramshop- No cold store, no delivery boys
This type of model does not have any warehouse (only limited number of small storage houses), nor even delivery system and delivery staff. More than an e-grocer it is a platform for small grocery stores to go online and consumers to order from the convenience of their home. As soon the customer opens the app, it fetches his location details and shows grocery stores with offers.
All the above companies have been reinventing their business models, trying and testing different ways, which suits them best. Like Big Basket starting with procuring grocery on order basis later on shifted to inventory based model. Similarly Zopnow started with inventory based, later shifted to hyper local store.
If you are planning to have an online grocery business please read : “Is it a good idea to start online grocery business in India”