Demand for fancy cheese like blocks of Parmigiano Reggiano, Gorgonzola cheese, various types of olive oils, imported meat products are at an all time high in Indian metropolitans. With modern retail taking giant leaps in India, accessibility to gourmet foods is also improving; modern retail stores like Godrej Nature’s Basket, Foodhall and Hypercity have a major role to play in this. When discussing modern retail, the emergence of e-commerce in the last 4-5 years also has changed the marketplace dramatically. According to ICICI Merchants Services report on E-commerce in India- Understanding its Uniqueness, India’s e-commerce market was worth about Rs 50,000 crore in 2011. Food obviously forms an extremely small percent of these numbers (Travel, electronics and apparels are responsible for major sales). The report also mentions that India has close to 10 million online shoppers and is growing at an estimated 40-45% CAGR vis-à-vis a global growth rate of 8-10%, the opportunity for any e-commerce player lies in this growth.
E-commerce vs Traditional Retail
Consumers want to demonstrate their experienced and superior palate, they are looking for ways to bring back and recreate experiences in their homes. The concept of gourmet has accordingly also evolved. “A few years back cooking gourmet at home meant pasta, people are now experimenting with making sushi at home! People moved from chai to green tea and now it’s from green tea to oolong and white tea,” says Neerja Mittersain, co founder of Gourmet Company. Early movers in food and grocery e-commerce were BigBasket.com and MyGrahak.com. Soon with the increasing demand for specialty and gourmet foods dedicated e-commerce sites started coming up. It is still early days for these specialized sites but considering traditional retailers are also making e-commerce part of their business model it is to conclude that the segment is on a growth curve and cannot be ignored.
India has close to 10 million online shoppers and is growing at an estimated 40-45% CAGR vis-à-vis a global growth rate of 8-10%
Both Foodhall and Godrej Nature’s Basket have made a presence in the e-commerce space. But it will not be a primary focus area for them; an analysis of consumer purchase pattern shows that 10 people will shop at a brick and mortar store whereas there will be one person making an online purchase. In such a case brick and mortar is still important. Mohit Khattar, MD of Godrej Nature’s Basket says, “For us it is about meeting consumer requirement and accordingly it is important for us to be present in the e-commerce space as well. We will obviously change and evolve as the business grows but it is about a holistic business presence reaching out to our customers.” Godrej Nature’s Basket offers their e-commerce only in the cities where they have their stores.
Your local departmental store or supermarket may or may not keep your favorite cold cut and easy access to a specialty store may not be there, here lies the biggest USP of e-commerce sites. Availability, efficiency and convenience are perhaps the biggest reasons why a consumer is opting to purchase food products online. Considering the fact that demographically, the demand for gourmet foods is primarily from the age group of 25-45 years e-commerce has a great potential to reach out to non urban centers where a full fledged retail store may not be viable. Mumbai based Foodesto.com recently started delivery services to other cities, Tarun Khanna, co-founder of Foodesto.com informs that 20% of their business is now from outside Mumbai while for Gourmet Company, another Mumbai-based gourmet food e-commerce site, it is a 50:50 split. It is a clear indicator that the demand for gourmet foods is not just limited to metropolitan cities, Khanna adds, “A lot of interest in our products have come from the North East. There is a willingness to buy and spend but the challenge is access of quality products and accessibility.”
E-commerce Challenges
A major challenge for gourmet food on e-commerce is the supply chain management and logistics. As consumers it is a frequent complain that the products purchased did not arrive in optimum condition or even worse the product is past its expiry date. Food is an extremely sensitive category, both in terms of storage and delivery. Most of online players have to work with reliable and safe logistics players and have to work out an internal system. “We have an in-house logistics team that tracks each parcel to ensure quickest delivery and least time spent in transit,” explains Mittersain. Khanna ensures that he hires quality conscious and responsible personnel who will monitor the entire process and conduct multiple quality checks. “Going forward we are also setting up processes, so that when we plan to scale up in the future we have these quality control processes that will manage it for us,” he adds.
Arranging and ensuring a safe and legitimate supply-chain set up is perhaps the biggest cost for an online gourmet food portal. Players who are pure play e commerce have to invest in setting up a delivery center from where deliveries are made. Where as capital expenditure for real estate of a retail store and the logistics and marketing cost is big. But for both business model the total expenditure offsets each other and net earnings would be similar. This can act as a deterrent for the model as well; during our research for this story we came across an e-commerce player who is looking to exit the online gourmet food retail space because of low ticket size and low margins. Prices for product however do not see much change, most food items are sold at MRP.
Indian gourmet food market is growing at a CAGR of 20% and is expected to cross USD 2800 million by 2015.
If you are a regular consumer of imported food products you would have noticed that a lot of your favorite food items are either out of stock or in short supply. One of the biggest reasons for that are the new Food Safety and Standards Authority of India (FSSAI) rules that are being strictly being applied. There is a lot of heart ache since a lot of food products are stuck at excise warehouse since they are not FSSAI compliant. As a body it is similar toFood and Drug Administration better known as FDA in the US, and the aim of these regulations are to keep you safe from spurious and fake products. With these laws coming into place a lot of dodgy products will disappear from the market and only legitimate businesses will survive. “But at the same time, smaller players bringing in niche products will face a challenge because of the stringent entry barriers. Experimentation with new products will suffer,” adds Khanna. Bigger players have to their advantage resources and multiple suppliers to keep their inventory well stocked. Khattar informs that Godrej Nature’s Basket is looking to stock Indian equivalent of imported foods. “We are developing private label of products which are of international standards in both quality and packaging. Collectively this has helped us to deal with the shortages,” he adds.
E-commerce for gourmet food will always be a niche with a limited audience. But if market research firm Technopak’s report is anything to go by, there is definitely place for serious players. The report states that Indian gourmet food market is growing at a CAGR of 20% and is expected to cross USD 2800 million by 2015. That in itself is an opportunity for gourmet food retailers, both traditional retail format and e-commerce. For gourmet foods e-commerce to succeed there is a need for serious players who are willing to make investments in proper supply management and logistics. This directly related with their ability to reach out to smaller markets which are waiting to be tapped.
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