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Aug, 2021     

Online Groceries: The New Normal

Higher focus on fresh groceries and supporting infrastructure are key to ensuring higher margins and better bottom-line


1. Buying groceries online has become mainstream, leading to various players jumping on to the eGrocery bandwagon and inflow of funds

As a result of the pandemic, buying groceries has become the new normal. There has been a substantial increase in the online spend on grocery category, especially the fresh category which witnessed a 46% increase from pre-covid levels.

In light of this growth, a variety of online platforms have entered the online grocery shopping space with varied operating models. For instance, players like Sayurbox offer a farm-to-table platform, Chilibeli provides a group buying model and GrabMart acts as an aggregator that delivers groceries from partner stores.The shift in buying behavior has also led to increased funding activity and new players like Dropezy and Segari stepping into this space.

Growth in Online spend across categories

eGrocery platforms that raised funds in 2021

2. While unit economics is not at par with that of brick-and-mortar stores, there are measures that can help in improving unit economics

While the opportunity looks promising owing to a shift in buying patterns, EBITDA margins for delivery models continue to be negative. Delivery models have low negative EBITDA margins, compared to brick-and-mortar stores with margins of 5-7%.

However, the bottom line can be improved by undertaking measures such as offering data analytics to FMCG brands, creating special promos for brands, and offering subscription to consumers.

Note: 1. Additional income includes income from delivery fee, small order fee, and marketing revenue from FMCG brands

3. Higher focus on fresh groceries and supporting infrastructure are key to ensuring higher margins and better bottom-line

Another key driver to profitability is the sub-category. While dry groceries carry a commission of <10% fresh groceries carry margins as high as >15%.

Currently, grocery verticals have a higher share of fresh in their GMV mix when compared with the horizontals.

We have seen various partnerships taking place between grocery verticals and horizontals. The partnerships are symbiotic, with verticals taking advantage of horizontals’ large user base to drive volumes, while horizontals look to capitalize on verticals’ strong position in the fresh segment.

 

Note: 1. Partnerships are not exclusive