It is a learning curve for many startups in the online retail segment, particularly in low-margin categories like fresh products. Grofers, the Gurugram-headquartered online grocery startup appears to have come to the conclusion that its fresh products category has to be scrapped for now.
Its new focus would be on private labels, which appears to offer a higher margin if handled correctly. Its rival BigBasket already has a range of private labels across categories.
This strategy by the online players is not very different from what most big format offline stores like Big Bazaar or Reliance Fresh have been doing for years. Sourcing many of the farm products directly from the source and then having them packed and selling increases the margins dramatically from just around 7% to as high as 30%. But one has to make a lot of efforts in this and create the right infrastructure for storing and handling the products safely till it reaches the customer.
One reason being cited by Grofers for dropping fresh products is that it did added less than 2% to its overall volumes. In terms of its operational territory also, Grofers wants to focus on the Delhi/NCR region first and consolidate is position before spreading horizontally.
The other biggies like Amazon, Flipkart and Paytm are also working very aggressively to enter into grocery, food and fresh product categories. And this will all be done using the private label route only to strengthen their customer base. As mentioned, BigBasket’s private labels Fresho, Royal, Popular and Tasties are all growing in familiarity with its customers.
It has been assessed that the online grocery market in India is currently split 3 ways with BigBasket holding 35% followed by Grofers and Amazon with around 31% roughly.
Consultants have predicted a rapid growth of the online grocery segment in the country and could end up occupying around 12.5% of the overall grocery market in the next 2 years.