2015-04-25

Kitchen click

Kunal Doley

Online grocery start-ups make hay while the investor sun shines on the forward-looking sector.

THE SUPER-hot online grocery business is getting hotter. In just the past couple of weeks, three start-ups have caught the fancy of investors—while Bengaluru-based ZopNow, which sources products from supermarket chain HyperCity, raised $10 million (around R63 crore) from Dragoneer Investment Group, Accel Partners, Qual-Comm Ventures and Times Internet, Grofers, another hyper-local grocery delivery service, raised $35 million (around R223 crore) funding from Sequoia Capital and Tiger Global recently.

The latest to join the bandwagon is PepperTap, a Gurgaon-based start-up that uses the hyper-local model. It announced that it has mopped up $10 million (around R63 crore) funding from SAIF Partners and Sequoia Capital. Currently a 100-employee-strong enterprise, PepperTap plans to expand its staffers’ capacity to 500 within the next three months, comprising a mix of new talent and seasoned experience.

Only in February this year, PepperTap had raised close to $1.2 million (around R7 crore) of seed funding from Sequoia Capital. Grofers too had raised $10 million (around R63 crore) jointly from Sequoia Capital and Tiger Global Management. PepperTap claims to deliver within two hours anywhere in Gurgaon and selected parts of New Delhi, while Grofers does it in 90 minutes in Delhi-NCR, Mumbai and Bengaluru.

The online grocery business is suddenly the talk of the town. Everyone, from Amazon to Snapdeal and Flipkart, is entering the arena. So what is making the sector so attractive? As per Navneet Singh, co-founder of PepperTap, grocery is the ‘mother of all categories’. “Any start-up or business that succeeds in this field has the potential to become as big as, if not bigger than, Flipkart or other leading e-commerce players,” he explains.

“Grocery is attractive due to the high frequency of shopping in this particular user case. Invariably, everyone (including us) believes the customer will be loyal to a platform that is most useful to them—something they can use multiple times a week to purchase grocery and household items,” says Albinder Dhindsa, co-founder of Grofers.

With the latest round of funding, ZopNow plans to use the capital to expand to 10-15 cities. “We are happy with the growth of 25% month-over-month in Bengaluru, where we have been operating for three years now. In new cities, we are applying our Bengaluru learning to scale faster. What took us three years in Bengaluru will take six months in new cities,” says Mukesh Singh, founder of ZopNow.

ZopNow is seeing upwards of a thousand orders a day. “In the beginning of the month, the average basket size of orders goes to R1,500 and by mid-month, it drops to R1,100. The basket size for the new cities is lower,” adds Singh.

Although funding deals are picking up in the sector, Gaurav Juneja of GrocerMax feels PE investment in online grocery is still insignificant if one were to aggregate and account for the size of the overall market. “With all online grocery players put together, not even $100 million has been raised so far. Considering the grocery segment is worth over $300 billion in India and the largest component of the Indian retail industry, the investment cycle has just started. This is a channel of the future. Players who can demonstrate successful execution will continue to raise capital to facilitate build-up across the country,” says the co-founder of the recently launched grocery e-commerce portal. Currently delivering only in Gurgaon, GrocerMax plans to expand to Delhi and the rest of the NCR soon.

As per India Brand Equity Foundation, food and grocery made up 69% of India’s $490-billion retail sector in 2013, valuing it at $338 billion. The mere size of the segment has been enough to attract any player worth its name from the industry.

Amazon recently launched the ‘Kirana Now’ programme to offer a convenient and reliable service for people’s daily needs, while at the same giving the traditional kirana stores access to a bigger set of customers. “Starting with just a few stores in three cities, today, Kirana Now has extended to over 800 stores across 45 cities, including Bengaluru, Delhi, Mumbai, Hyderabad, Vellore, Nasik, Vijaywada, Tuticorin, Tanjore, Trichy, Manipal, Vadodara, Salem, Ludhiana and Rajkot, among others,” says an Amazon India spokesperson.

Recently, Flipkart, too, announced that it will start selling groceries from the second-half of this year. Similarly, Snapdeal partnered with gourmet food retailer Godrej Nature’s Basket in January this year to sell about 400 of its products online, with orders delivered the next day.

Even a traditional conglomerate like Tata Group has apparently bitten the bait, with the company launching an online grocery platform My247Market.com in Mumbai recently. Other e-commerce players such as Paytm have also set their eyes on the space.

Most of these start-ups run on a simple business model. They deliver from neighbourhood stores for a fee and do not own any inventory. “Our business model is to replace consumers’ trips to local shops by bringing more merchants (and their inventory) online. It is a local commerce transaction that is giving the user an e-commerce experience. In turn, for channelling this online demand, we charge a commission from the merchants,” says Dhindsa of Grofers.

Singh of PepperTap adds: “On getting a seller/partner on board, we upload his catalogue and map a certain delivery radius to him. Once a user comes on board our mobile app, he gets to see the catalogue and the area it’s been mapped in and places his order. The order is received in real time by PepperTap’s executives and fulfilled instantly.”

However, this hyper-local model may pose a serious challenge to e-grocery pioneers like BigBasket, which sources and maintains its own inventory. The Bengaluru-based online company, founded in 2011, has had a stronghold on the online grocery segment with a warehouse-based model that guarantees control over customer experience. Now, BigBasket, too, is keen on exploring the hyper-local strategy. Recently, the company announced that it will shortly roll out partnerships with about 1,800 neighbourhood stores in Bengaluru, Hyderabad, Delhi, Mumbai, Chennai and Pune. For ‘express’ service, the company has tied up with local stores to promise delivery within an hour of at least 400 items that it has identified as household essentials.

In the past, ZopNow had also tried a warehousing model and realised the pros and cons of both models. “We did the mix (inventory and partnership models) during July-December 2014. This year, we are no longer carrying our own inventory. Right now, we are happy with the quality of inventory at HyperCity and continue to stick to this model,” says Singh of ZopNow. The company delivers from 7 am to 10 pm through its own delivery mechanism.

Going forward, the future looks very competitive and is about to get tech-heavy, says Dhindsa of Grofers. “The amount of consumer insight we generate on a daily basis will feed a lot of the supply chain decisions in the near future. We plan to start engaging more smaller stores in addition to the ones we have and enable their online presence,” he explains. Adds Juneja of GrocerMax: “We believe that the online channel for groceries will get better traction from customers in the near future. Falling prices of smartphones and cheaper data charges will also accelerate the process. Better service delivery will help lock in customers for a longer time.”

The new order

Online food delivery portals and services promise to be the next big thing in online retail, even raising the question if food can overcome shopping.

Anirudh Vohra

PICTURE THIS: you’ve just come home from work and you are hungry, but in no mood to cook. Going out is not an option. But there’s help at hand in the form of an online food aggregator that can help you select the food of your choice and order it, and get you big discounts as well.

Now picture this: you are a new restaurateur or a takeaway provider. You’ve set up your business to showcase your culinary expertise, engage with your clientele, build relationships and, most importantly, build your reputation and business. Your food is good, but you could do with a few more people through the door. Then, you’re approached by an online food aggregator. If you’re not familiar with the term, it describes an organisation set up purely to send you more food orders or customers. Think of it as more like the broker model, but not for anything financial or tangible, just for hungry people!

This online food aggregator takes care of the marketing, orders, online payments, etc, and takes the payment for the business they’ve sent your way.

Both sound good, right?

This very opportunity has created a market that is currently valued at $15 billion (R94,755 crore), and is growing fast. If online delivery of food started with the likes of Domino’s, players like Zomato are also on the scene today, with several dedicated companies like FoodPanda growing bigger and bigger every day.

“The online food ordering market is booming. Thus, you see so many companies sprouting up on the horizon. The segment has picked up in the past two years, and while it’s still in the nascent stage, I will say it has picked up very well. And not just in the metros, even tier II and III cities are showing great potential in the space,” says Saurabh Kochhar, CEO, FoodPanda. The company recently acquired JustEat and TastyKhana, both online food delivery services.

For food search website Zomato, which is easily the biggest such player in the country and one expanding very fast globally too, introducing online food delivery was a natural step.

“We had been wanting to venture into online ordering for quite some time, but were waiting for the restaurant merchant community to evolve in the country. We are certain that this feature is going to change the way people dine,” explains Deepinder Goyal, founder and CEO, Zomato.

The company has currently rolled out an online ordering feature in Delhi-NCR with around 1,000 restaurant partners. Bengaluru and Mumbai are next, with more cities to follow. Over the next few months, Zomato aims to offer this feature with over 10,000 restaurant partners in India.

“We hope to start processing around 40,000 orders a day in the very near term. Given that we currently see 3 million daily visits across all platforms in India, this shouldn’t be too hard to achieve,” adds Goyal.

Faaso’s, another online food delivery service that functions mostly from its app, provides real-time estimated delivery time before an order is placed based on the customer’s location and what is being ordered. “The app also provides a dynamic minimum order amount based on the customer’s location. The biggest attraction for any customer are the daily specials available on the app based on the city and area one is in. These specials change every day and are always in limited quantity based on the time of the day,” says Revant Bhate, co-founder, Faaso’s, which has raised around $20 million so far.

The booming industry is not just inspiring newbies to venture into the space, but also industry veterans like celebrity chef Sanjeev Kapoor, who recently announced that he will be launching a food aggregation app in six months.

In fact, this massive rise in the number of online food aggregators also makes you wonder if online food ordering can be pitted against online shopping?

As per Kapoor, “Food cannot compete with apparel and electronics being sold online, for the margins and costs included there are huge. But if you see it in the light of order volumes, we are not that far behind even now.”

On the contrary, Tapan Kumar Das, CEO and co-founder, iTiffin, an online health food provider, says, “The segment of online food ordering is poised to become a much larger industry than e-commerce due to the fact that food is a basic necessity of an individual, while shopping is secondary. Having three meals a day is necessary, shopping three times a day is not. The realm of online food ordering is mushrooming at a fast pace and, in no time, it will surpass the standards set by e-commerce.”

So what do the experts say?

“The future of food start-ups holds positive potential. Presently, the companies are immature, as we can see a lot of them getting acquired by bigger companies. The trend will get stronger in the future. Eateries like Domino’s, Pizza Hut, etc, alone get 50-60% online sales. So the future seems a tough competition between food start-ups and single-brand eateries. The question of who will survive is a little tricky, as the one who maintains its logistics well will rise,” says Ankur Bisen, head of retail at Technopak.

“Quite a few start-ups have approached us with strategic propositions and we are evaluating a few. We might not need to acquire, as we have our own in-house technology, but in this age of quick growth, any business that can help us scale up faster could be interesting to partner with,” says Bhate of Faaso’s.

Kapoor and Kochhar of FoodPanda have similar views: “It’s always better to launch your own product in the market rather than acquiring an existent player, but yes, it’s easier and faster to tap an existing set of clients if you have the money.”

The increasing competition in the industry is making things easier not just for the consumer, but also for companies offering these services. “We strongly believe competition is good, as it ensures a great and constantly evolving and improving customer experience. Also, there might even be partnership opportunities with large international chains because we can provide a strong distribution mechanism for them and give our user base even more options of restaurants to choose from,” says Goyal of Zomato.

Additionally, in an interesting twist, niche businesses have also decided to dabble in this lucrative business. JustDial has made its way into online food ordering and cab aggregator Ola has entered the segment with the launch of its own food delivery service in four cities. The appetite is just getting bigger!

Our business model is to replace consumers’ trips to local shops by bringing more merchants (and their inventory) online. It is a local commerce transaction that is giving the user an e-commerce experience

Albinder Dhindsa, co-founder, Grofers

Any start-up or business that succeeds in this field has the potential to become as big as, if not bigger than, Flipkart or other leading e-commerce players.

Navneet Singh, co-founder, PepperTap

Considering the grocery segment is worth over $300 billion in India and is the largest component of the Indian retail industry, the investment cycle has just started. This is a channel of the future.

Gaurav Juneja, co-founder, GrocerMax

We had been wanting to venture into online ordering for quite some time, but were waiting for the restaurant merchant community to evolve in the country. We are certain that this feature is going to change the way people dine.

Deepinder Goyal, founder and CEO, Zomato, which launched online food delivery service this month

Food cannot compete with apparel and electronics being sold online, for the margins and costs included there are huge. But if you see it in the light of order volumes, we are not that far behind even now.

Sanjeev Kapoor, celebrity chef, who will be launching a food aggregation app in six months

The segment of online food ordering is poised to become a much larger industry than e-commerce. The realm of online food ordering is mushrooming at a fast pace and, in no time, it will surpass the standards set by e-commerce.

Tapan Kumar Das, CEO & co-founder, iTiffin, an online health food provider

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