E-grocers subscribe to a new model for efficiency

The hyper-local grocery segment, which has seen several players going bust, is seeing a revival of sorts with a new business model. Companies such as Grofers, Bigbasket, RainCan, DailyNinja and Satvacart are trying to improve efficiency by adopting the subscription-based model. Amazon.in, which entered the grocery segment a few months ago, also offers a ‘subscribe and save’ feature for its customers. Under this model, consumers pay a fixed fee every month and get to order grocery items.

“This model helps people save around 33 per cent on their monthly shopping; so we have seen pretty strong response around it,” Albinder Dhindsa, founder, Grofers, told BusinessLine . “We have so far sold over a 1,000 boxes this month, and will probably get a majority of the orders at end of the month, closer to the monthly shopping cycle for consumers,” he said, adding that the company also allows customers the flexibility to top up their orders.

Ajeet Khurana, a serial investor and entrepreneur, said as investors are asking online players to focus on revenue generation and profitability, they are trying out different models that will work in the longer run. Subscription model works in segments that have regular repeat purchases, for example grocery, beauty and media. “Under the subscription model, as demand is predictable, it is easier to manage operations in a cost-effective manner by allowing positive cash flow; one can also directly source products at extremely competitive prices from manufacturers due to high volumes,” he added. Subscription model in the grocery segment works for categories such as milk, bread, staples and vegetables such as onions and potatoes. RainCan, founded by IIT-Bombay alumni Munendra Singh and Abhijeet Kumar, said the firm currently deals with around 3,000 orders everyday in a concentrated area of two pincodes in Pune, and plans to open up one more shortly. With about ₹8 crore revenues last fiscal, the company is expecting to operationally break even by next month.

According to Singh of RainCan, the model helps companies plan upfront for upcoming orders. Apart from ensuring a long-term relationship between the firm and the consumer, it also ensures repeat customers. He further added that the return on investment in the subscription model is much higher than post-paid or pay-per-order models.

“Discounts are not the medium to create loyal customer base. Most of the start-ups in India understand it now, and they are tweaking their model to bring them closer to subscription/membership kind of offerings,” Singh said.

Subscription business in India can be a game changer and can surpass others verticals such as fintech and e-commerce, believe several industry experts, adding that globally, too, the model is being tried and tested by large consumer companies.

For example, FMCG major Unilever acquired subscription-based Dollar Shave Club for $1 billion in July this year. According to research firm Tracxn, the subscription commerce space has witnessed about $1.9 billion in funding globally in 2015.

With easy revenue forecasting, less uncertainty, fixed customers and low inventory maintenance cost, subscription e-commerce has a great potential in India, said Seshu Kumar Tirumala, National Head — Buying and merchandising, Bigbasket, which is planning to introduce the model in the coming months. However, he said the consumer dynamics is changing fast and the companies have to be very agile in understanding the trend.

COMMENT NOW