Are you an e-commerce startup, wondering whether it will be profitable for you to enter the e-grocery market? Or, are you a mid-sized retailer wondering if there’re any significant growth prospects for the e-grocery market in India?
Good news, this article is tailor-made for you.
This article will tell you the exact statistics of e-grocery market size and sales in India.
Which is the only industry that has not suffered a significant loss during the COVID-19 pandemic? The grocery industry. Why? Because it is an essential business.
Why do you think Zomato, the food giant, is planning to acquire Grofers? Because people don’t need to order fancy restaurant food during the pandemic. They need their basic daal-chawal so that they can sustain themselves during the lockdown.
Zomato is not the only one that made this move. Zomato’s decision came soon after Tata Digital decided to take over BigBasket. Amazon, too, extended its Amazon Fresh e-grocery service to 4 more states in November, 2020. Swiggy decided to start its own e-grocery delivery service as well.
What do these acquisitions and expansions by companies that didn’t have anything to do with e-grocery show you?
It shows you that e-grocery is the future.
The e-grocery market in India was valued at $2.9 billion in 2020. Experts predict that the compound annual growth rate (CAGR) from 2021 to 2028 will be 37.1%. This means, the valuation can reach a Gross Merchandise Value (GMV) of $24 billion by 2025.
So, should you dip your toes into the e-grocery business after all? What factors do you have to keep in mind before entering the e-grocery business in India?
Keep reading to find out the answers to your questions.
How Has The E-Grocery Business Fared Since Its Inception?
Contrary to popular belief, e-grocery is not really the new kid in town. BigBasket, the first e-grocery store, was founded way back in 2011. It’s founders were V S Sudhakar, Vipul Parekh, Hari Menon, and V S Ramesh. These were the very people who pioneered the idea of the first online retail store, Fabmart.com, in 1999.
Several other players came into play soon after. Grofers, a formidable competitor of BigBasket, was founded in 2014. Nature’s Basket acquired the online e-grocery store Ekstop.com in 2015.
As you can see from the graph above, the e-grocery market saw a steady growth rate of 11% from 2016 to 2019. This should answer a very important question of yours, which is:
Will The E-Grocery Market Suffer A Loss After COVID-19 Lockdowns Are Lifted?
In other words: Is the pandemic the sole reason for the boom in the e-grocery industry?
The e-grocery market was already growing steadily before the pandemic. The pandemic simply sped up this process and gave people more reasons to go digital.
The slowing of the growth rate that you see from 2019 to 2020 was a consequence of the pandemic. People were still uncertain of what regulations to follow and what to be scared of. The growth rate escalated after the governments fixed the pandemic regulations.
Take a look at this graph which charts how the e-grocery market in India fared in 2020.
The drop in February was simply because of the stock-ups of the January sales. Also, the supply chain was disrupted during this time. But see how the graph rises sharply after that. This rise was also due to the entry of Jiomart into the e-grocery market. The dip towards the end was due to the festive sales by the horizontal businesses like Amazon and Flipkart. This caused oscillations in the overall data.
But look at the overall trend. The $0.17 billion of January 2020 rose to $0.37 billion in December 2020. That’s almost 2x times the growth.
So, you understand- the e-grocery business is doing well. Very well indeed. However, if all the big players have already occupied the market, that’s not good news for you.
As a start-up, you have ask:
Is The E-Grocery Market Already Saturated? What Growth Prospects Do I Have As a Startup?
To answer your first question- No. The e-grocery market might be doing well but it has a LOT of space to grow.
Let’s take a look at the grocery market of India in general. Grocery occupies 66.5% of the total retail spending in India. What does this mean in terms of money? It means that experts valued the grocery industry of India at $600 billion in 2019.
We buy a LOT of groceries. A whole lot. Which is why India’s grocery retail is higher than that of UK and the US, and even China.
Not just higher; considerably higher.
Within this enormous market, how much does the organised Buying and Merchandising Segment occupy? Only 5%. And how much has the e-grocery market penetrated the total grocery space in India? Less than 1%.
Don’t just think about this in terms of numbers. Ask yourself this: Besides cities like Bangalore, Chennai, Pune and Mumbai- how many cities really depend on e-groceries?
The e-grocery market is highly limited to the metro and Tier I cities. Yes, Amazon Pantry has expanded to over 300+ cities in 2020. But the e-grocery market is yet to penetrate the Tier II and Tier III cities. The offline grocery market is still their only viable option.
I’m not saying the e-grocery market is doing badly. Based on the stats I’ve provided above, you can see that it has an immense growth rate. But it still has a lot more space to grow.
And that is exactly why the e-grocery market is extremely profitable for startups. Just try figuring out exactly how you can reach out to the Tier II and III cities. These untapped markets are golden opportunities for you.
Where’s the Scope to Expand?
According to the RedSeer report, out of 154 million online transacting households in 2020:
- 22 million people were aware of e-groceries but were afraid to try it out. They had negative perceptions about the e-grocery market.
- 35 million were aware of e-groceries but were too habituated with sabzi mandis to make a shift.
- 24 million were not aware of the e-grocery market and were not willing to try it out either. They planned to stick to the offline grocery market in India.
While these stats seem depressing, these households are not lost cases. You can win them back by offering them something unique.
For example, when BigBasket was founded, the intention was to reach out to the cream of the society only. This meant targeting the people who didn’t mind spending a lot more for quality-assured products. However, this approach can only work in the metro-cities.
How Do You Penetrate the Tier II and III Cities?
You have to cater to price-sensitive customers like Grofers and Jiomart do. And, not only this. You need to modify your payment options as well.
It is true that during the pandemic, online transactions became the preferred mode of payment. Especially because it ensured that you didn’t have to go to high-risk places like banks and ATMs. In fact, people made 63.8% of e-grocery payments in 2020 through online transactions.
The Tier II and III cities too have started adapting to the needs of the time. But to appeal to these spaces, you cannot do without a COD option. Why? Because people here do not inherently trust your quality. Besides offering COD, you might even have to provide easy returns and cashback.
Do you stand to make a loss? Yes, initially you do. But if you can really penetrate these untapped markets then you stand to gain a lot as well.
Before we get any further, let us see which factors have an influence over the e-grocery market.
Factors Responsible For The E-Grocery Market Boom in India:
- Change in Consumer Base
Chances are your father tried to teach you how to tell a rotten brinjal from a fresh one. But you never learnt. Chances are your mother taught you to bargain. But again, you suck at that too.
The consumer base has undergone a sea change in the last decade or so. The new working professionals are young, busy and tired. But they do have a lot of expendable income and are tech-savvy.
What is the inevitable result of this combination? Ordering online. Shoes, clothes, gym equipment and even brinjals. You’d think not being able to tell rotten brinjals from fresh ones would land them into trouble. Well, not with quality-assured products from Grofers or BigBasket.
You have no idea how much an onion should cost and hence, cannot bargain? Well, e-groceries come at fixed prices.
All you have to worry about is how to cook the meals. And even that is not an issue anymore because the e-grocery market has extended to include pre-cooked meals as well. If you’re a startup, the “Ready to Eat” food industry is something that you should really look into. Flipkart and BidBasket already sell these pre-cooked meals.
- Lockdowns, WFH and Sanitization Woes
Families that would have never made the shift to e-grocery shopping, were forced to do so during the pandemic. There were multiple reasons for this shift.
Before, young working professionals could still stop by the sabzi mandi on their way back from the office. Now with everyone working from home, going out to buy groceries becomes a gargantuan task. Especially because these sabzi mandis only have the permit to remain open for a few hours during the morning. Also, you have to come back home and sanitize not only yourself but also the entirety of the produce.
This is extremely unfeasible. With e-groceries, you can be almost certain that the warehouse workers and the transporters are diligently following the rules.
Then we come to the topic of senior citizens. This is the group that would have never made the shift to digital without the pandemic. But most of these people had comorbidities and were not allowed to venture out into the crowded bazaars.
Stuck between a rock and a hard place, they HAD to become tech-savvy. And for the ones who didn’t learn, their children from other cities ordered their groceries for them. Either way, the number of participating households increased.
During the COVID lockdown, people also started stockpiling the basics like daal, chawal, cooking oil etc. Online stores did put a limit on the number of items you could put in the cart. But you could make repeated purchases or buy in bulk amounts. If you tried doing this in the offline way, this would mean carrying 20 kgs of produce back home.
Staples were not the only grocery items which saw an increase in demand during the pandemic. Startups like Milkbasket and Supr Daily shot up because of their daily supply chain of dairy products and perishables.
- Internet Penetration (Declining Data Tariffs and Cheaper Smartphones)
Why did Fabmart.com fail in the early 2000s? Because internet penetration in India was negligible. Now, however, the situation is almost unrecognizable.
400 million people in India are active internet users. Within this population, 300 million avail online services. What does this mean in terms of households? 154 million transacting households were accounted for in 2020.
Within this number, 23 million households have made one e-grocery purchase. 41 million know about e-groceries and are willing to give it a try in the future. And there are an additional 9 million who were ready to try e-groceries on being informed about its benefits.
The existing internet penetration rate is also supposed to grow in the future. Data pack tariffs are decreasing and mobile phones are becoming cheaper. Want to tap into the Tier II and III market? Just ensure that your e-grocery website can run perfectly on a cell-phone on low data.
With the increase in internet penetration, the penetration of e-grocery into the overall grocery market can become 3%.
- Government Impetus Towards Digital India
Our PM, Narenda Modi, has been pushing for Digital India for a while. Ever since the demonetization debacle of 2016, Finance Minister Arun Jaitley has been saying “Go Digital.”
But this obviously wasn’t easy. Unless you live in Mumbai or Bangalore, chances are- your vegetable vendor is not going to accept PayTM. However, people have been forced to change their habits since the pandemic.
Local vendors have realised that people simply won’t buy from them if they have to pay cash. But this still doesn’t mean all local vendors have been able to shift to PayTM or Gpay.
So, naturally it is the consumer base which has shifted. In fact, a lot of e-grocery startups started partnering up with PayTM or Gpay to offer discounts. Very recently, I was informed about the DigiBank and BigBasket partnership. A DigiBank debit card allows you to get a Rs. 4.8k discount p.a. by shopping from BigBasket.
This is how the e-grocery startups have used the “Go Digital” impetus to their advantage.
- Health Consciousness
Health consciousness, and not just in terms of COVID-19 resistance, has become a predominant trend now.
Utkarsh Sharma is the founder of Vedic Greens, a grocery startup that has its headquarters in Greater Noida. He started this startup during the pandemic itself. What gives him an edge over his competitors? He caters to health-conscious people who won’t get the products that they require, elsewhere.
The selection is small, including cold pressed oils, cold-pressed atta and cold-pressed juices only. However, Sharma must have done extensive market research before he began this business. Vedik Greens has seen an 8-10x incremental growth in revenue every month since its inception.
People who want organic vegetables or gluten-free flour will always buy their groceries online. This is why you should consider making health-conscious people your core audience. It’s a small but growing consumer base which can prove to be loyal.
- Curiosity About Global Cuisines
No one can deny that Zomato completely changed the food scene in India. One of the changes was introducing the lay man to dozens of international cuisines.
But people not only wanted to eat Thai cuisines from restaurants. They wanted to cook Thai green curry at home as well. But, as they soon found out- local markets did not have ingredients like lemongrass or thai basil or galangal. This is where the idea of exotic grocery shopping came from.
Not just this, e-groceries have also branched out to meat and fish for the very same reason. FreshToHome and Licious were two e-grocery stores that realised that there was a hole that they needed to plug. Even though 80% of the Indians were non-vegetarians, there were no e-grocery stores that supplied meat or fish. The supply chain was obviously harder to create because meat could not be stashed away in warehouses indefinitely.
Also, people had an aversion to buying packaged meat or fish. However, the pandemic helped businesses like FreshToHome and Licious to bloom. Delivery men could transport every other grocery item the doorstep. But people were still being forced to go to the bazaars for the non-veg section. By delivering fresh meat and even exotic seafood to people’s doorsteps, FreshToHome and Licious emerged as successes.
Which Are The Most Profitable Segments of The E-Grocery Market in India?
Staples. That is- rice, pulses, flour, and cooking oil.
This accounts for the highest revenue share at 33.9% in 2020.
The graph below will give you a clear idea of how the products are ranked (this graph focuses on South India):
The demand for staples is supposed to rise the most. But, there’s a good scope in the breakfast and dairy market too. People are also making a slow shift to slightly more global breakfasts like cereals. So, this might affect the future trends as well. Fresh produce comes third.
With regards to the leading markets- South India occupies 34.6% of the revenue shares. This is because of cities like Bangalore and Chennai in particular which have a tech-savvy, young working crowd.
West India is the second-fastest growing region. The CGAR here is 37.3%. This is mostly because of cities like Mumbai and Pune.
Who Are the Top Players In The E-Grocery Market in India?
There are two large categories within the e-grocery top players:
They are named according to the direction in which they grow. Horizontals grow by acquiring companies at the same point as them in the supply chain. Verticals grow by acquiring companies at a point before or after them in the supply chain.
Thus, Amazon and Flipkart are horizontals while BigBasket and Grofers are verticals.
This graph shows you the market shares of the major verticals and horizontals in the e-grocery business in India.
As you can see, the verticals are still the uncontested winners despite the aggressive moves by the horizontals.
Why do you need to know how these acquisitions work? Because chances are, you’ll need to partner up with another retailer to cover a larger area. This is exactly the plan that Utkarsh Sharma of Vedik Greens has for expansion.
What popular strategies are these top e-grocery companies using?
The competition is growing tough really fast. Most of the horizontals are adopting the same strategies as the verticals. These strategies include- same-day delivery, flexible return policies, cashbacks, and free delivery. These strategies are essential to grow the trust or consumers in the Tier II and III cities.
E-grocery is going to occupy 25% of India’s organized grocery market in the next few years. The e-grocery market in India has grown at a pace of 70% over the past one year. According to the RedSeer report, the e-grocery market will grow 8 times its present size in the next five years.
So, to answer your question: Yes, there’s a huge scope for e-commerce grocery startups post 2021.
This industry is highly competitive but not saturated. So, if you start an e-grocery business now there are a lot of untapped markets that you can conquer.
Do you think RedSeer’s prophecies will prove to be true? Let us know in the comments below!
Frequently Asked Questions
The e-grocery market in India was valued at $2.9 billion in 2020. Experts predict that the compound annual growth rate (CAGR) from 2021 to 2028 will be 37.1%. This means, the valuation can reach $24 billion by 2025.
Yes, the e-grocery market in India has grown at a pace of 70% in just the last year (from 2020 to 2021). According to RedSeer, it will grow 8 times its present size in the next 5 years. By 2025, its valuation can reach reach $24 billion.
No. The pandemic has aided the e-grocery market, definitely. But it was growing steadily even before that. The e-grocery market saw a steady growth rate of 11% from 2016 to 2019. The e-grocery market has grown because of increased internet penetration in the country. Internet penetration will only rise in the following years.
Yes, there is a huge scope of expansion. The e-grocery market of India might seem saturated but it is not. Only the metro cities and the Tier 1 cities have e-grocery facilities. The Tier 2 and Tier 3 cities are almost completely untapped in terms of e-grocery markets.
The top e-grocery verticals are Big Basket and Grofers. The top e-grocery horizontals are Flipkart and Amazon. There are also various other e-grocery stores which specialize in particular products. Licious and FreshtoHome deliver fresh meat and fishes. Milkbasket specializes in delivering dairy to your doorstep every morning.
Staples like rice, pulses and cooking oil occupy the top spot. Fresh vegetables and fruits are one of the main contenders. Breakfast items are also occupying a large spot gradually.
By offering cash on delivery as a payment method. Also, easy returns, cashback, free delivery and same-day-delivery are great options. Unless you offer COD and cashbacks, reaching out to the Tier 2 and Tier 3 cities will be difficult.