Future of Loss Making Grocery Delivery Companies

Posted on November 22, 2022

Everyone needs grocery. Starting from the local kirana store to the big super malls, grocery is everywhere.

We can continue without consuming luxury goods but grocery is a must. It is a basic necessity we cannot do without.

So it is something consumed by more than one billion people in India on a daily and recurring basis.

Therefore it is no wonder that it has attracted the attention of big brands and startups.

Prominent grocery delivery companies in India.

We mainly pickup groceries from local stores but supermalls with big grocery chains also have been thriving for quite some time!

Specially in tier one and megacities, it is a common sight of people picking up groceries in super malls.

The grocery shopping experience in super mall is neat, clean and convenient.

Some startups and a few brands are now trying to recreate the experience through mobile apps, and catch on to a billion dollar market opportunity.

The grocery delivery platforms creating some buzz at the moment are –

  1. Grofers
  2. BigBasket
  3. BigBazaar
  4. Flipkart Supermart
  5. Dmart online
  6. Spencers online
  7. Paytm Mall
  8. Reliance fresh
  9. Amazon pantry
  10. Nature’s basket

All these platforms have mobile apps that users can download and order groceries online.

How grocery delivery platforms/apps work

There are two types of grocery apps. One that mimics a brick and mortar grocery store and other is an online marketplace.
Apps following a Marketplace model have a greater reach and are better known.

The business models of grocery delivery apps are as follows –

  1. Aggregator model
  2. Single store model
  3. Hybrid model

The aggregator model

In aggregator model, inventory from multiple vendors are collected and accessed in one place, through an app. Orders from customers are made through the app online and then distributed to respective vendors.

There is a middle level broker in this model who collects the orders and then sends them to vendors. Payments are also collected by the same broken and then sent to respective vendors.

If the item is out of stock then alternatives are suggested by the broker through the app or the money is app or the money is adjusted in subsequent purchases.

The single store model

In this model, a single store creates an app and offers groceries online.

There is no middleman and all orders are fulfilled by the store. It is like going to a grocery store and picking up groceries, but the process is online.

The hybrid model

In this model a company can create an app that offers and multie vendor marketplace and also own grocery warehouse to pick the groceries from. Customer can choose where to pick the groceries from.

The delivery model

Grocery delivery is usually done by the vendor. In multi vendor platforms, the delivery process is handled by the app owner through delivery boys.

In India, multi-store grocery apps are popular that their single store counterparts. The app companies have dedicated delivery boys which are usually hired on a per hour or per order basis.

The grocery delivery can also be done in-store. Which means, the customer can schedule to pick up the delivery at a designated time, then drive/walk in and pick up the order from a specific location.

Delivery of groceries to doorstep is a process that requires careful handling of resources available to the vendor or the app owner.
Usually delivery boys are picked up on a per hour or per order basis, and the hiring is usually temporary.

Current state of grocery delivery companies.

Till now, Indis has witnessed more than 400 grocery delivery companies. After the initial promise the scenario does not look too rosy for these companies.

Many companies have already shut shops. A few are struggling to keep afloat. And none of them are profitable at this point.

The reasons are varied –

Low price per order

Indians are not ordering groceries in bulk. In USA, for example, people usually order for 15 – 20 days of the month at a time. Consequently many of the companies are profitable there. But not so in India. Average price per order hovers below Rs. 500 in most cases. It is hard to see profit with low margins per order.

High delivery cost

Delivery of orders is a big headache for the companies. Most delivery boys get paid per hour or per order. But the average price per order is very very low.

If one delivery boy is paid Rs. 20/- to 50/- per order in a Rs. 300 order, it eats into the revenue for the company. If the company pays Rs. 800/- to Rs. 1000/- per hour then the company has to fulfill more that 20 orders per hour to make any profits!

Paying lower to delivery boys increases the attrition rate, so that is not a solution. Moreover newer delivery boys need to trained to manage order like the older ones!

Unscrupulous customers

A company can offer discount as a marketing method or creating some buzz. But many customers take advantage of the discount offers.

The usualy tactic applied here works like this – a customer will register in an app, then use the discount available for signing up. Then the customer would again re-sign with another email and again avail the discount, which defeats the very purpose of the discount!

Scores of such unscrupulous customers across many regions add up and put the company finances at stress.

Uninterested users

In India, grocery shopping has traditionally been done in local kirana stores or open markets. Recently shopping malls are also coming up with grocery stores and chains for the upwardly mobile.

It is kind of a habit for most Indians to visit these stores and buy grocery in person. The shopping is the secondary function here, the primary one being networking. People love the small talk and network in these places.

It is very hard to break down that tradition and make people buy online. Online places usually dont have the networking advantage offered by an offline market!

Future trends

Despite the disadvantages of the online model and existing companies suffering losses, Reliance and TATA both are investing in the online grocery space! Why?

I think that these companies want to play the long waiting game. Online grocery is not making profit at the moment, but there is huge potentional in this space, and the two company want to be there when this potential realizes.

People can not do without groceries and it is something regularly needed, much like a subscription.

At the moment people are not buying online much, but habits can change, and with a burgeoning population and busy life becoming a norm, chances are, people will prefer to order online in near future.

On an estimate, companies can become profitable when the price per order is above Rs. 600/- . And there can be put checks and balances in order to prevent user from taking advantage.

Delivery has always been a loss making proposition, but with advances in technology, this area also can be addressed properly.

So, grocery delivery is loss making at present, but companies with deep pockets can wait and ride out the challenges with time on their side!