Re-engineering of e-grocery units in India

Groceries sell irrespective of the state of the economy. Caught in the city's fast pace, tedious commuting and long working hours, many consumers don't have the time to buy groceries or would like to avoid the chore. This has led to opening of a large number of e-grocery units in the cities in India in the recent times.

However the e-grocery units are facing tumultuous times. Most of e- grocery units are either closing or scaling down their operations. The issues are related to low retailer margins, complex and expensive supply chain, ubiquitous presence of brick-and-mortar grocery stores and the prevailing consumer behavior.

The irony is, on one hand, the union budget, 2016-17, assures full support to the start ups in terms of tax exemptions in order to facilitate growth and employment generation; while on the other the units are forced to suspend or curtail operations.

The Mumbai based Local Banya announced temporary closure of its operations in October 2015. The reason stated being –technical up gradation of its services. However, they did not mention the duration of this up gradation schedule.

The next to follow was Grofers, the Gurgaon based Company which announced shutting down of its operations in nine cities. Earlier, Grofers had closed down operations in a few areas of the NCR which they later resumed.

The explanation offered by Saurabh Kumar, co-founder, Grofers was “We have closed operations in the following cities as we did not see these cities grow at the pace we expected. We are investing in areas where we are seeing great uptake,” The firm claimed to having stopped operations in a phased manner that included offering positions to the employees in other cities.

Flipkart’s devaluation by Morgan Stanley was followed by the closure of its e-grocery business. The Bengaluru based pilot project came to an end.”The project has run its course and the learning from this pilot will now be used for future operations” Flipkart said.

The latest case being that of online grocery business-Ola Store an enterprise  owned by Ola CabsAccording to Pinaki Mishra, (Business and Risk Advisory services) at Ernst & Young India “Many of these players haven’t got the business model right”. He opines that in order to survive in the Indian market, they need to change their business model .There has to be a regular source of revenue for maintaining the day-to-day operations. In addition, the customers must perceive the value addition offered.

Thin profit margins, resource crunch and inefficient business processes have forced these companies to revamp their operations. In this segment, the key success factors are shorter delivery times, attractive discounts /offers and good quality of the products. Hence the companies need to work on reducing the lead times and offer standardized quality products. They must attempt to broaden the spectrum of products.

In order to do so, the companies must maintain adequate buffer stocks. This is aptly brought out by the founder and CEO of Gurgaon based online grocery store Satvacart, Rahul Hari;” The grocery business cannot be run like a market place and be dependent on the offline grocery store. It has to be an inventory led model.”

 Vipul Parekh, co-founder of Big Basket emphatically states that “If you do not have inventory, you are no different from a courier company.”

In addition to maintaining adequate inventory levels, the companies must go in for mutually beneficial contracts with the suppliers; be it at the farm level/ the milling units (eg. Dhal mills, flour mills, sugar mills etc.). This backward integration would ensure smooth supply of fresh and good quality products. This would also help in removing bottlenecks in the supply chain and would eventually lead to shorter cycle times. In other words, there is a need to work on the business processes keeping in mind the rationale of JIT.

Hence, refining the business processes and the business model calls for radical re-thinking in order to sustain in the viable Indian market.

 Ms. Suchitra Srivastava

Associate Professor

Department of Management Studies