Economy

Online grocery segment set to touch $18 b by 2024: Report

Our Bureau New Delhi | Updated on June 08, 2021

Traditional retailers shift towards omnichannel strategy

The online grocery segment is expected to grow at 59 per cent CAGR to touch the $18 billion-mark by 2024, according to a retail report released by Motilal Oswal Financial Services. A large part of the addressable market for the e-grocery space is not just in metros and tier-2 cities but also in tier-3 regions. There are 150 million online transacting households in the country, of which 130 million households are already using e-grocery platforms or are willing to try.

“The Covid-19 led lockdown has certainly helped e-grocers, with a CY20 monthly exit run-rate of almost 2x that of Jan ‘20 gross merchandise value and largely sustaining the surge seen during the lockdown as evident from our app visit analytics. Over this period, Big Basket and Grofers witnessed a 4x-3x surge in daily orders, with a steady rise in average order value,” the report by the brokerage firm added.

During the pandemic, e-grocery players witnessed strong growth in comfort and health food and hygiene segments owing to the shift in consumer preference to a healthy lifestyle. The snacks and branded food segment witnessed high double digit growth. The average order value also saw a 15 per cent-25 per cent jump to ₹1,500- ₹1,820, the report added.

Stating that nearly 65 per cent of the e-grocery addressable households are price sensitive (low gross margin) value first customers, it added that they prioritize discounts over limited variety, longer waiting time, or an inconvenient experience. “Unit economics of value first customers appear promising with key determinants of profitability like bulk purchases, higher private labels, low delivery cost, and customer stickiness. e-grocers increasingly target them to drive profitability as in the case with modern retailers,” it added.

Challenges of higher costs

The e-grocery players have been witnessing challenges of higher logistics cost, complex inventory management and wafer thin margins making it difficult to compete with the traditional retail/distribution channel. “But the path to scale and profitability, with multiple levers and a stronger balance sheet, is now becoming clearer for e-grocers. These players have started targeting bulk purchase to leverage cost, limited assortment, pushing margin accretive private labels, saving acquisition cost due to customer stickiness, and charging delivery cost below a threshold of average order value, thus creating a favourable equation of higher gross margins and reducing costs,” the report added.

The report noted that from e-grocery specialists to early morning meat and dairy players, multiple models are in play in the country, leveraging deep customer analytics. At the same time offline retailers have also begun venturing into omni-channel strategy. “As the customer is gradually becoming habituated to online grocery shopping, it is imperative to build an omnichannel network to ensure business continues to meet customer requirements,” the report added.

Published on June 07, 2021

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