This story is from October 4, 2017

In grocery, online buys not always cheaper than offline ones

Goldman Sachs Study Finds Physical Stores Like D-Mart and Food Bazaar Offer Better Grocery Deals Than E-tailers
In grocery, online buys not always cheaper than offline ones
Goldman Sachs Study Finds Physical Stores Like D-Mart and Food Bazaar Offer Better Grocery Deals Than E-tailers
Bengaluru: If you think groceries, like most products, are cheaper online, maybe you haven’t stepped into a brick-and-mortar store in a while.
Goldman Sachs is slaying the perception that online players like Amazon and BigBasket have outsmarted brick-and-mortar retailers with better pricing in daily consumables and groceries. In a recent research report, Goldman Sachs analysts noted that Amazon and BigBasket sold personal care products at 10-30% premium compared to traditional supermarkets like D-Mart.
The report though predicts online ordering would accelerate and account for 22% of the modern Indian grocery retailing in five years, up from 3%.
While modern retail is still a small part of overall retail market in India, e-commerce in specific is at a nascent stage. In a bear market, e-commerce could see the highest growth in modern Indian grocery market compared to traditional brick-and-mortar retailers.Traditionally, grocery business has been a low margin business that requires continuous investments to build a strong supply chain.
“We believe there is an additional cost of about 3-5% of sales for home delivery as compared with pick-ups from a delivery centre or purchasing from a store. We believe consumers that value convenience over incremental cost will use the home delivery option, while price-sensitive consumers will prefer to pick-up the order themselves. Amazon and BigBasket also have the option of express delivery for an additional charge. In our base case, we assume a rapid acceleration in the adoption of online ordering,” the report noted, while covering Avenue Supermarket, the parent of D-Mart, which offers 10-15% cheaper pricing compared to online grocers.
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While D-Mart has presence in 132 locations across the country, both BigBasket and Amazon have been ramping up their operations. Amazon, with no worry for capital, has been pushing its grocery business with two products—Pantry and Amazon Now. Pantry, which is for monthly grocery bulk sales, is present in 34 cities and Amazon Now is present in four cities with a promise of a two-hour delivery. BigBasket is delivering across 21 cities with 40,000 orders per day. According to the report, BigBasket accounts for 85% of online grocery market.

Kishore Biyani, CEO of Future Group that owns Big Bazaar, said a reason for higher online prices is the mounting pressure on e-commerce players to make profits. “We also have a wide range of products cheaper than many online players. More importantly, they have realised they can’t scale grocery business online like other segments and that’s why they have gone slow on discounting,” Biyani added. Murali Krishnan, who recently quit as CEO of Nilgiris, added that traditional retailers have an advantage in logistics compared to the online rivals and that margins is typically about 3-4%. “For brands, the shelf presence created by brick and mortar retailers offers more brand awareness than being online which makes for better negotiations. Online players have figured fashion, electronics as categories but grocery has not seen that yet with the likes of Amazon and others but BigBasket has been an exception,” he added.
BigBasket co-founder and CEO Hari Menon told
TOI
that D-Mart had an advantage of owing the real estate of their stores which helps their margins. “Their direct sourcing from various FMCG companies and the movement of stock keeping units (SKUs) has helped them further. Not only online grocers but other traditional retailers too keep a wider range of SKUs than D-Mart,” Menon said. An email sent to Amazon spokesperson did not elicit any response.
About 18-24 months ago, most online grocers were trying to scale up their businesses through the marketplace model but that did not work out with some forced to shrink their operations. While BigBasket is increasingly sourcing from FMCG brands and using its own warehouses, other companies like Grofers are trying to do the same now. Amazon, too, has partnered with BigBazaar, Spar, and HyperCity for Amazon Now which promises a two-hour delivery. According to sources, the cart rate (number of products actually sent to consumer compared to original order) for Amazon Now has been about 70-80% since it does not have direct control over the inventory.
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