3 Reasons Why Flipkart Wants To Acquire A Grocery Chain From Bengaluru

There has been a very volatile battle going on between the top e-commerce retailers in India, for acquiring the top-most position. It seems like the next frontier for the Indian e-commerce battle could be cereals, dairy products, fruits, and vegetables, or at a whole the groceries items. Much has been invested and perished in the business of online grocery retail. Even the top players in this line, like the Gurugram headquartered Grofers, had to downsize its business and shut down its operations in 9 cities around the country, while its biggest competitor, the third largest online grocery retailer in 2016, PepperTap had to slam down their entire business despite having raised over $51 million.  

After the online e-commerce giant Amazon India pulled off its autonomous grocery sales in February 2016 under Prime Now and Amazon Fresh, its bold rival Flipkart is in talks of entering the online grocery business, by buying the Indian grocery chain Namdhari’s Fresh, operating over 30 stores in Bangalore. The chain operates in the premium greengrocers segment, offering groceries, fruits, and vegetables to retail customers. Walmart Inc., the biggest retailer in the world acquired Flipkart last year and believes that taking such a step may beef up Flipkart’s performance, pushing Amazon down the first position it holds in the Indian e-commerce market. Grocery is among the hardest to crack segments in all e-commerce, for several reasons.

Flipkart’s Noticeable Commotion Deal about Namdhari Fresh:

This is not the first time Flipkart is willing to expand its horizons in the online grocery domain. In 2015, India’s largest homegrown e-commerce major, Flipkart had tried its hands on online grocery but due to the sloppy growth and unknown tranquilities faced in this line, Flipkart had failed to continue the same. In 2017, it once again experimented with the same idea and initiated a pilot project called Supermarket, which was decided to operate only in Bangalore, to analyze and scale all the prerequisites before launching it nationwide.

Looking closer to the surface, it can be seen that there is a quiet battle brewing between an eclectic mix of companies, the major e-comm companies to fuel the opportunity of placing their hands behind the top rated online grocery delivery giants. There are some factors we could dot down, for Flipkart to in a way hurriedly buying Namdhari’s Fresh:

1.      The Latent is Comparatively Huge Space for Online Grocery:

·      The waves of e-commerce growth in India have significantly focused on electronics and apparels, constituting over 30.2% and 27.4% of each respectively. They found attracting customers with heavy discounts, easy payment schemes and bringing international brands within their reach, easier and profitable. Even with 19 years of e-comm retailing, grocery has remained largely untapped. This leaves huge headroom for growth.

·         Moreover, grocery is a high-volume business. Customers purchase groceries every week or monthly but fridges or electronic gadgets seldom. In order to improve sales, spending trends need to be closely looked at. FMCG and grocery is something a customer spends the most time.

2.      Major Competitors and The Thirst of Being on Top:

Estimates suggest that by 2020, food and groceries would account to 66% of the total online retail revenue. When there is such an open space for acquisition, there surely are going to be competitors.

·         Flipkart’s biggest rival Amazon has already entered the domain of online grocery and has been burning $3-3.5 million in its online grocery business, as of January 2018. It has come up with Prime Now and Amazon Pantry, which deal in delivering food products, alcohol, dairy products, and perishable items. With a minimal fee, it delivers these products from a time-window of 2 hours to the end of the day.

·         Given the much lower margins in the grocery business, if one loses 10% of customers to a competitor’s online proposition, it is ought to make a difference in the performance by a manifold.

·         Big Basket, the largest online grocery retail in India has a turnover of Rs 1,000 crore, which is around $150 million. It says that there lies an opportunity in top 30 cities around the country. Big Basket burns more than around $14 million in a month, serving over 50,000 orders on a daily basis.

·         One of the major drivers in the competition of the online grocery deliveries are the same day delivery. Millennials today prefer convenience over costs. The trend of not owning a vehicle in metro cities have given rise to purchase groceries online but due to lack of same-day delivery and worries about the quality of food received, people have not fully opened to the idea of online grocery shopping.

3.   Combined Efforts and The Shift in the Ecosystem:

·         Dukaanwalas and Sabziwalas today aspire for their children to work better jobs in India or abroad. This highlights a definite decrease in the unorganized segment, in contrast to which, the retail is pacing up, complying to technological evolution and directly affecting the increase in online grocery sales.

·         Today, there seems to exist an ecosystem model, where grocers and supermarket dealers can merge in hands with the e-commerce companies, to acquire more number of customers and keeping moving them up the value chain, to encourage repeat transactions. Offline retailers are beginning to see the pivotal importance of layering themselves with technology, which could reduce their costs than running the store and this would largely benefit the online platforms like Flipkart as well.

Grocery consumption is the basic human need and its online counterpart fits perfectly in the current dynamics, despite certain challenges. By leveraging the right technology, trends & tactics, this business can bring in large profits.

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