INDIA
INDIAs rising online grocery
delivery industry
An in-depth look at the macroeconomic factors, business models, and opportunities surrounding one of
Asias largest markets in tech.
By:
Michael Dempsey
Email at:
michael@michaeldempsey.me
Tweet at:
@mhdempsey
Last Updated
03.30.2015
INTRODUCTION
This isnt merely a case of US-based business models being ported to a
large, emerging market. Something fundamentally different is happening
in India.
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TABLE OF CONTENTS
Macroeconomic trends
Economic Growth
Population
Internet Infrastructure
Overall Statistics
Why Is It Unique?
Customer Demographics
10
Business Models
11
13
Surrounding Industries
14
Conclusion
15
16
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MACROECONOMIC TRENDS
ECONOMIC GROWTH
ndia is now projected to be the fastest growing large economy in the world per the
IMF, with a projected growth rate of over 7% for the fiscal year of 2015, with others projecting GDP growth of 8%+ in the coming years. And while the boom in GDP growth
has its skeptics who believe that the overall impact of under-the-radar workers is overstated, larger macroeconomic trends are at play.
These trends include largely weaker currencies vs. the stable Rupee, eased inflation, falling oil prices (important for an economy that imports ~80% of its oil), as well as a new
corporation and globalization-focused Prime Minister in Narendra Modi.
Specifically Modi has focused on increasing the foreign direct investment in India. For a
country that just started allowing FDI in 1991, and still has moderately strict caps on FDI
in certain industries, this could be huge. Sonal Pandya of the University of Virginia described the effects of FDI on a variety of sectors best, with this quote:
The textbook case for FDI can be summarized in two words: technology transfer. The
multinational corporations that undertake FDI are among the worlds most productive
firms. These firms introduce their cutting edge technologies and production practices
into the countries in which they invest. In the ideal case, FDI increases demand for skilled
workers and, eventually, their technologies spill over into the local economy.
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MACROECONOMIC TRENDS
A YOUNG POPULATION
Another key statistic working in Indias favor is their population. While rival economies
like China, saw their workforce shrink in the past few years, over half of Indias 1.25 billion population is under the age of 25, while over 65% are below the age of 35. With a
median age of 27 years old in 2014, and an expected median age of 29 in 2020, India
will be the youngest country in the world in the near future.
The young median age is also aided by the high number of software engineers. Currently India trails only the US with 2.75 million to the US 3.6 million, however India is
projected to surpass the US by 2017, as the number of software engineers is expected
to grow 90% to 5.2M vs. the US 4.5M.
With a large number of young people for the forseeable future, and an incredibly deep
talent pool of engineers, internet penetration is another major factor for the overall
Indian tech scene.
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MACROECONOMIC TRENDS
INTERNET INFRASTRUCTURE
Key Points
Low overall penetration
Massive user growth and potential user base.
High mobile adoption
High cost of access and usage
India only has 19% of their population on the Internet. This figure grew 14% last year
(a high figure considering Uganda was tied for the most growth at 17%). The chart
above indicates that the entire ecosystem reached escape velocity around 2010, which
was driven at least in part by mobile penetration in the country. Mobile Internet users
are expected to reach 213 million by June 2015, and there were ~935 million mobile
connections in October 2014, equating to a little over 4 connections per user.
The general increase of Internet users in India is often attributed to the rise of mobile
technology. Previously the costs and subsequently the barriers to entry for Internet
access was too high with computers. In fact, the $61 per MBps (on a PPP basis) gives
India one of the highest median costs for broadband Internet access, more than 4x
that of China, Brazil, and Argentina. Initiatives to develop low-priced mobile devices
like the Aakash tablet, have enabled users in both major cities such as Mumbai, Delhi,
and Bangalore as well as tier 2 and 3 cities to come online quickly.
There are projects being proposed that could even more dramatically increase Internet coverage in India over the next 3-5 years, which would further accelerate the
potential markets for broader eCommerce in the country.
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ecommerce in india
OVERALL STATISTICS
ith increased Internet penetration in India, eCommerce has grown drastically in recent years. Some are comparing Indias eCommerce market today, to Chinas in the mid-2000s, as China had only 8-10% of Internet users
transacting online just a few years ago, but now sees nearly 35% today. Paired with a
similarly unorganized retail structure, this makes for a great comparison as many value
propositions are aligned.
Accel Partners India has a slideshow detailing some broader ecommerce trends. SparkLabs Global also released a report about eCommerce in Asia. Both are incredibly
informative views into this large market.
A few key points from the Accel report:
Online shopping of physical goods will grow to $8.5B in 2016
60% of Internet users visit eCommerce sites
eCommerce only accounts for 0.2% of all retail
Conversion rates should increase to China-esque levels of 3.5%, as some goods in
tier 2 and tier 3 cities are simply not available locally
Its worth noting that Accel Partners is one of the most active VCs in India, with a slew
of high profile eCommerce bets, including now-merged Flipkart and Myntra, as well as
Big Tree Entertainment and Bluestone.com. They also just raised their fourth India-focused fund, at $305M.
On the funding front, overall Asian eCommerce funding reached $11.5B on 367 financings per CB Insights data in 2014, up 312% on a funding basis and 59% on a deals
basis. Indias eCommerce industry accounted for 29% of those deals, while funding
surpassed $3B on the year.
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WHY IS IT UNIQUE?
hile many US and European online food and grocery delivery companies
have raised billions of dollars from VCs over the past few years, the Indian
market is incredibly different and unique.
Key Traits
India is the 6th largest grocery market in the world
Only 5-8% of grocery stores are organized corporations. The vast majority are
mom & pop type shops that are similar to convenience stores in the US and are referred to as kiranas
The online grocery market is growing at 25-30% annually in metropolitan areas and
large cities
Margins are below 10%
43% of the countrys roads are not suitable for vehicles. Paired with checkpoints,
and duty collection points that slow down traffic, infrastructure is an obstacle
In the US, while it is a mild inconvenience to drive/walk to the grocery store, park, shop
for yourself, load up your car, and drive home, it is very doable in almost every city and
town across the country. In India it is magnitudes more difficult, time consuming, and
even could be considered impossible at some times.
Indias infrastructure and overcrowded major cities make it a nightmare for in and out
shopping. In a variety of the major cities, there are very few parking lots for grocery stores, and the prohibitive traffic makes the time commitment and risk even higher when
driving to crowded city centers that feature more full-service grocery stores or modern
retailers. However, while the infrastructure makes it difficult for consumers to get to the
grocery stores, the poor driving conditions and unsuitable roads, make consistent and
stable delivery service a struggle. This has led to a high number of consumer complaints revolving around delivery timing for this still emerging industry.
While the city infrastructure is a challenge, the industry infrastructure is as well. As
stated above, only 5-8% of all grocery stores in the country are organized corporations
or entities. This not only makes it difficult for service providers to win large contracts
with a chain, similar to what Instacart has done with Whole Foods, but it also changes
overall market dynamics as Indian shoppers are rarely tied to a larger brand for their
food purchases.
This has led to a push from the tech companies to try and facilitate better organization
and back-end technology for the kiranas.
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MODERN RETAIL
Unlike the US, India does not have the same level of modern retail penetration where
consumers travel to a mega-store like Walmart to purchase all of their goods. While
modern retail has started to gain traction in recent years, food & grocery, a segment
where companies like Walmart and Tesco derive over 50% of their revenue from globally, has been the least penetrated.
And even while that penetration is modestly increasing, the major players are getting
killed. Estimates peg losses for the 10 largest players including Best Price Modern
Wholesale (Walmart owned), Metro Cash & Carry India (Metro AG), Aditya Birla Retail, Bharti Retail, Reliance Fresh, and Trent Hypermarket at $2.2B in 2013-14. Despite
growing revenues from $500M in 2008 to $4B in 2014, it is projected that losses will
continue to increase.
Both penetration and mounting losses spell a huge problem for these modern retailers
hoping to build sustainable businesses and topple the mom and pop stores in India, a
market where 70% of the over $500B in retail trade comes from food. But maybe in the
way that India largely skipped the PC revolution, they will do the same with modern
retail and go directly to eCommerce.
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CUSTOMER DEMOGRAPHICS
The online grocery delivery market in India has some very unique demographic statistics that have risen out of a new shopping method for the country including:
Women ages 30-35 are the largest adopters of online grocery shopping
68% of all users on major e-grocer LocalBanya.com are women
14% of LocalBanyas customers are senior citizens
11% of orders are done in 10pm - midnight slot. Previously unattainable
Institutional clients make up 29% of orders for select major retailers
The prevalence of women online emerged in Indias eCommerce industry. It is projected that women-influenced sales will be 35% of Indian eCommerce by 2016. This is a
massive departure from brick-and-mortar sales, which are dominated by men across
all industries. The rise of women in eCommerce has been attributed largely to convenience, as well as increased privacy and safety.
Online grocers have been able to target a niche by offering later delivery windows than
many traditional grocery stores. Currently, 11% of orders are for delivery during the
10pm 12am time slot, which was previously unattainable for customers. This offering
comes at a time when Narendra Modi has spoken about extending work hours to 8 pm
from 6 pm for government officials, while overall workers in India feel they are working
longer hours than in previous years.
Larger online grocers have also been able to attract a high number of institutional
clients from restaurants to corporations to other organizations that require groceries
in bulk. As some of the larger online grocers continue to white label consumer diet
staples, restaurant purchasing could even increase further.
The middle class is also expanding in India
and will be the 3rd largest middle class in the
world in 2020, and the largest in the world in
2030. This will lead to a growing number of
consumers that buy groceries, but begin to
calculate a time-value analysis as their wealth
grows. These consumers will subsequently
find that grocery shopping via the Internet is
a high value-add service.
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Major Players
Big Basket - $33.7M revenue
Local Banya - $11.8M revenue
Reliance Fresh Direct
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Marketplace Providers
Business Traits
Charge grocery stores recurring fee.
Manage front-end and logistics
Asset-light business focused on fast
delivery
Major Players
AaramShop
Peppertap
Jiffstore
Amazon Kirana
Others
Larger companies like Amazon (outside of
Kirana Now) and eBay offer select gourmet and non-perishable items. Many are
skeptical of this model, as consumers look
to fill their entire order at once online.
Marketplace players also face competition from companies like Grofers (another
Sequoia investment), which are more general on-demand platforms and could
be used for similar food and grocery delivery tasks, a la Postmates in the US.
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customer behavior
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SURROUNDING INDUSTRIES
Future opportunities
There are multiple areas of opportunity for players servicing and surrounding the online grocery delivery industry, as well as the broader eCommerce space. Below are a
few notable industries that
are primed to benefit
from the ongoing boom
in India.
Payments Gateways
Currently cash on delivery
accounts for 60% of all
online retail payment methods in India. India has a
high rate of payment failu-
Real Estate
have
creased 7x YoY.
Other Opportunities
Mobile Infrastructure
Internet of Things
Verifiable Digital Identity
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CONCLUSION
The winners in the long-term will be companies that can build a
sustainable large-scale business that meets the needs of one of the
worlds most dynamically changing economies.
ability.
dustry?
700 million more who are still left to come online. And while I believe that a large number
on grocery delivery thus far. Could other major players or private equity investors seek to
United States?
economies.
15
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Thank you.
Foods
Cities Operating In
Domestic
Mumbai
Mumbai
www.aaloo.in
www.localbanya.com
www.eemli.com
www.bigbasket.com
www.naturesbasket.co.in
Fresh seafood
Pune
Domestic
Pune
www.fishvish.com
www.rationhut.com
www.mygrahak.in
Delhi
www.dilligrocery.com
Domestic
Delhi
www.eazygrocery.com
Domestic
Delhi
www.onekirana.com
Domestic
Delhi
www.easyration.com
Delhi
www.grocerywalk.com
Domestic
Delhi
www.gopeppers.com
Delhi
www.get929.com
Domestic
Delhi
www.homefills.com
Domestic
Delhi
Delhi
Domestic
Delhi
www.tazastuff.com
Domestic
Chandigarh
www.zopnow.com
Bangalore
www.towness.com
Bangalore
www.jiffstore.com
Domestic
Bangalore
www.vokav.com
Domestic
Bangalore
www.momgrocery.com
Domestic
Bangalore
Bangalore
www.kiranawalla.com
Domestic
Bangalore
www.youmart.com
Domestic
Bangalore
www.yzury.com
www.farmerzden.com
www.irely.in
www.chennaionlinegrocery.com
Domestic
Chennai
www.veggibazaar.com
Fresh Produce
Chennai
www.kovaigrocery.com
Domestic
Coimbatore
www.kada.in
Domestic
Trivandrum
www.homespices.com
Spices
Hyderabad
www.grocerszone.com
Domestic
Hyderabad
http://store.perigreensafefoods.com/
Domestic
Hyderabad
www.foodshoppy.com
Domestic
Hyderabad
www.andhrakart.com
Domestic
Andhra Pradesh
www.saltnsoap.com
Domestic
Kolkatta
www.familykar.com
www.punexpress.com
Pune
Organic Products
https://daily.ebay.in
Imported
www.healthkart.com
www.farm2kitchen.com
www.homeshop18.com/groceries/
www.organicgarden.co.in/
Domestic
Organic Products
16
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THE END
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