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BLOG: Online grocery in India crashed (?) after the recent take-off

From the CEO's desk

Online grocery in India crashed (?) after the recent take-off

2nd MAY 2016

Hello Everyone!

If you are in touch with Indian eGrocery - you must have heard many talking about failed online grocery start-ups. The recent shutdown of PepperTap (one of the top 3 eGrocery start-ups based on funds raised) instigated these negative discussions. Just one year ago, a couple of big deals in eGrocery (followed by the fascinating number of daily transactions) had made majority of the "experts" confident about the segment.

If you ask the "Vasco da Gamas" of eGrocery, who have given precious years of their youth for this unknown segment with their own unique models (including the founders of failed start-ups) - most of them still talk positive about eGrocery. Then why do they fail so rapidly? The reasons of failure of eGrocery start-ups include - lack of focus & perseverance, often the consequences of early funding!

While offline organized grocers are still struggling to make profit, the eGrocers have no choice but to invest a long time in their model until they find the way to profitability/sustainability. (Unlike VC funds, this doesn't come complimentary with an IIT/IIM degree.) As they move forward with the aim of sustainability, the fancy models start turning realistic. Facebook likes, app downloads, media coverage don't remain the focus anymore; rather they become reciprocations of a useful service, hence more "real".

"Inventory-less or Inventory-led" had always been the subject of debate. Those who back inventory-led and criticise inventory-less, have come across only the wrong inventory-less models. And if they base their judgement on the failing inventory-less models then they should be reminded of Webvan. With the recent clarity on FDI norms by DIPP, 100% inventory-led is absolutely illegal. Though smart founders will find work around, they should not forget that there are smart people with the policy makers as well. In addition to being illegal and capital intensive, there is no innovation in an inventory-led model. It's not difficult to get high fill-rate, accuracy, timely delivery when you have your own dark store. The innovation is in getting the same results with someone else's inventory. The greatest advantage of technology is cost saving, hence eGrocery has to offer products at prices lower than offline stores and still earn profit for their investors (It is too early to convince an average Indian customer to consider cost of his time and efforts saved due to eGrocery). The good news is - this is possible!

While profitability is the ultimate goal, most of them fail to basically create an errorless eGrocery service. eGrocery is more complicated than it looks. Displaying the accurate product information (the ever-changing weights, packaging, prices, stock), product picking (toughest job for human biological brain), delivering goods and managing payments (received from customer and paid to supplier(s)) - all are complicated and highly error prone activities. Smallest error at any of these levels is sufficient to kill profitability. Different models involve different degrees of complexity of these activities. While a right model can reduce these complexities, it is not possible to bypass them completely. Technology proves to be the saviour in this situation. The challenge is - there are no readymade affordable technologies available to handle this. One has to develop them as per his customized requirements.

It took 3+ years for MileStores to design the right technologies and processes, though the model had been almost the same from day 1. This simply means, any start-up can create a sustainable eGrocery model + technologies and process, provided the founders have previous experience of developing IT services for the Indian masses and then for next at-least 3 years they devote every hour of their life to this one mission of getting good unit economics. Being a "technology & business model start-up" (and not an eGrocer), all this while MileStores had only been enhancing the unit economics through optimization, and identifying the right opportunities to apply eGrocery. This has made MileStores a readymade solution for wholesale and retail grocers who want to scale-up online without spending years in crash-proofing!

Thank you!