The good news in the online grocery business is that people are ordering more at a time. Between January and May, the average order value rose 33% year-on-year to Rs 1,024.4, says a study by Kalagato, an India focused data analytics firm.
Barely 5% of India’s Rs 20-lakh-crore grocery market today belongs to organized players which gives both offline and online grocers enough room to grow.
The online F&G delivery market alone is estimated to be around $600 million in India and is pegged to touch $5 billion by 2020 at a CAGR of 72%. This market has been largely dominated by three key players Amazon, BigBasket and Grofers.
Currently, the margins that online grocers make are around 13% on sales but the cost of delivery remains high at Rs 80 per order. So presumably these startups begin to break even on the cost of delivery @ Rs. 620 per order(average), as per Kalagato. Analysts believe that at the current scale of 10,000-20,000 orders a day, the inventory-led model seems to have a better margin profile.
Currently, Big Basket dominates the space in India with a presence across 25 cities and an estimated revenue run rate of an annualised $300 million or roughly Rs 2,000 crore.
Amazon has plans to invest around $500 million in the food retailing segment in India and there has been similar foreign direct investment proposals by BigBasket and Grofers also. Flipkart will be making an re-entry into the online grocery market during this quarter.
In 2016, India was the fifth largest market in Asia Pacific for online grocery retailing at US$135 million. The leading country was China, followed by Japan and South Korea. Despite the channel being relatively new in India, it was amongst the top five countries in Asia Pacific in 2016 in terms of growth.
As of now, the opportunity for organised grocery retailers is pegged at close to Rs 3.5 lakh crore based on demands assessed for urban metropolitan towns and cities with a population of more than one million.