India's hyperlocal grocery delivery start-up s gobbled USD 290 million in funding in 2015 as enthusiastic investors bet on outsized market share gains in what still remains a highly unorganized space. And despite the sheer money power, online grocers will encounter fierce competition from the ubiquitous kirana stores and will also have to grapple with customer inertia on the road to their ambitious targets, says the Kotak report.
BigBasket, Grofers, Zopnow, Peppertap, and Godrej’s Nature's Basket are some of the reputed players in the online grocery market. The report estimates the size of opportunity for organised--online and offline--grocery retailers at Rs 3.4 lakh crore (roughly USD 51 billion), based on the requirements in urban metropolitan areas. And that is still a less than a fifth of the Rs 19.9 lakh crore grocery market, which accounts for close to half of total retail consumption
According to media reports, BigBasket, which has Shah Rukh as its brand ambassador, hopes to end FY16 with revenues of USD 400 million and FY17 with revenues of USD 1 billion. Kotak believes such rapid growth in revenues is hard to achieve “primarily as customers in smaller towns may not easily shift from their local retailer, and building localized offerings (incorporating local tastes and preferences) may take time.”
And the progress made by online retailers over the years testifies to the difficulty of this space. Despite urbanization trends and higher consumption seen for a few years now, organized grocery retail is a mere 2 percent of the total. This implies that local grocery stores still control a whopping 98 percent of the grocery retail market,” says the Kotak report.
Last year, a report by broking firm UBS said that valuation upsides for the e-commerce sector in general would depend on the success of e-grocers since it is the biggest segment in retail. "This is a difficult segment and global precedents are not that encouraging," the UBS report had said.
Already, there have been some casualties in India as well. Localbanya.com, which said last October it was “temporarily suspending operations” is yet to resume operations. Also, Grofers shut operations in Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik, Rajkot, and Visakhapatnam in January this year, citing poor customer response.