If you are in touch with Indian eGrocery - you must have heard many talking about failed online grocery start-ups. The recent shutdown of PepperTap (one of the top 3 eGrocery start-ups based on funds raised) instigated these negative discussions. Just one year ago, a couple of big deals in eGrocery (followed by the fascinating number of daily transactions) had made majority of the "experts" confident about the segment.
If you ask the "Vasco da Gamas" of eGrocery, who have given precious years of their youth for this unknown segment with their own unique models (including the founders of failed start-ups) - most of them still talk positive about eGrocery. Then why do they fail so rapidly? The reasons of failure of eGrocery start-ups include - lack of focus & perseverance, often the consequences of early funding!
While offline organized grocers are still struggling to make profit, the eGrocers have no choice but to invest a long time in their model until they find the way to profitability/sustainability. (Unlike VC funds, this doesn't come complimentary with an IIT/IIM degree.) As they move forward with the aim of sustainability, the fancy models start turning realistic. Facebook likes, app downloads, media coverage don't remain the focus anymore; rather they become reciprocations of a useful service, hence more "real".
"Inventory-less or Inventory-led" had always been the subject of debate. Those who back inventory-led and criticise inventory-less, have come across only the wrong inventory-less models. And if they base their judgement on the failing inventory-less models then they should be reminded of Webvan. With the recent clarity on FDI norms by DIPP, 100% inventory-led is absolutely illegal. Though smart founders will find work around, they should not forget that there are smart people with the policy makers as well. In addition to being illegal and capital intensive, there is no innovation in an inventory-led model. It's not difficult to get high fill-rate, accuracy, timely delivery when you have your own dark store. The innovation is in getting the same results with someone else's inventory. The greatest advantage of technology is cost saving, hence eGrocery has to offer products at prices lower than offline stores and still earn profit for their investors (It is too early to convince an average Indian customer to consider cost of his time and efforts saved due to eGrocery). The good news is - this is possible!
While profitability is the ultimate goal, most of them fail to basically create an errorless eGrocery service. eGrocery is more complicated than it looks. Displaying the accurate product information (the ever-changing weights, packaging, prices, stock), product picking (toughest job for human biological brain), delivering goods and managing payments (received from customer and paid to supplier(s)) - all are complicated and highly error prone activities. Smallest error at any of these levels is sufficient to kill profitability. Different models involve different degrees of complexity of these activities. While a right model can reduce these complexities, it is not possible to bypass them completely. Technology proves to be the saviour in this situation. The challenge is - there are no readymade affordable technologies available to handle this. One has to develop them as per his customized requirements.
It took 3+ years for MileStores to design the right technologies and processes, though the model had been almost the same from day 1. This simply means, any start-up can create a sustainable eGrocery model + technologies and process, provided the founders have previous experience of developing IT services for the Indian masses and then for next at-least 3 years they devote every hour of their life to this one mission of getting good unit economics. Being a "technology & business model start-up" (and not an eGrocer), all this while MileStores had only been enhancing the unit economics through optimization, and identifying the right opportunities to apply eGrocery. This has made MileStores a readymade solution for wholesale and retail grocers who want to scale-up online without spending years in crash-proofing!
Hope you are watching the amazing growth of online grocery in India. If not, then below are few updates -
"The world has changed radically for online grocery startups in India. Three to four years ago the buzz was around grocery sites shutting down. Now, the survivors and new entrants are thriving. The VC backed five online grocery startups in India have collectively raised over $120 million just this year." - reads a 2 days old news article. To understand this better we need to have a look at current figures and targets of well funded startups.
As per various reports - The online grocery startup Bigbasket was clocking approx 4,000 orders/day at this time last year and today they are getting 20,000 orders/day. It took 3 years for them to reach at 4000 orders/day and then just 1 year to reach at 20,000 mark (the run rate of ~Rs 1,000 Cr). They expect $1bn (Rs 6,200 Cr) revenue by the end of FY 2017. Of course they can do it easily with approx $110 Mn funds received so far + $150 Mn fresh funds target for their investment bankers. In terms of valuation 1 year ago it was Rs 1,000 Cr for Bigbasket and in their recent round of funding it was valued at $400 Mn (approx Rs 2,500 Cr).
"Hyperlocal" is the new buzzword in Indian online grocery. The Model (inspired by Instacart - the recent highly valued online grocery startup in the US) in which they procure groceries from local retailers and deliver to households. Hyperlocal startups PepperTap and Grofers have got approx $45 Mn each so far. PepperTap raised $36 Mn a couple of days ago from existing and new investors including Snapdeal, and is about to raise $20 Mn more in next few weeks. After just 9 months of its launch PepperTap claims to have similar number of customers and daily transactions which Bigbasket has after 4 years of operation. The exponentially rising number of smartphone users (apart from the flat 20% off weekend deals!) in India has fueled this growth.
Among different models, inventory-led is the model followed by Bigbasket, which has high setup cost but offers better control over the inventory. Inventory-less model which is followed by all hyperlocal delivery startups and few others including MileStores has less setup cost, but often it is challenging to run on someone else's inventory if there is lack of technology & processes, which is often the result of lack of experience that comes from lack of dedication and patience - in this complex, execution oriented business. While the hyperlocal model of PepperTap and Grofers has some fundamental flaws in it, at present they don't seem to be addressing even the basic operational complexities of online grocery. They might have to change their models drastically in future when they would want to see profits. How customers respond to their changed models in future will be interesting to see.
Though funds are essential to succeed, just getting funded is no guarantee of success. The market and business models are evolving and it is tough for a VC to identify the right model. It is always the situation in hyper-growing markets and that's the process of ultimately discovering the right models - which sustain due to the strong foundation laid during their initial years of operation.
With close observation of the market, daily track of different startups and own operating experiences - MileStores is by the day becoming more confident of disrupting the online grocery market with its strong business model, innovative technologies and processes - which is the result of 3 years of persistent efforts in this segment. The consistent support from our "sourcing partners" has certainly played a great role. With the support of all we have reached at the inflection point and are hopeful to surprise everyone soon with the amazing potential of MileStores!