He added that the goal with the smaller distribution centres is to deliver faster to customers. For example, Bengaluru will have 20 such distribution centres, up from the three it has currently. “So the big warehouses, between one and three, will supply to the smaller centres which will then supply to the customers. Besides doing 3x deliveries the same day we will reduce the time taken during the same day to two hours from the current five-eight hours.”
Pushing for offline growth makes immense business sense. Devangshu Dutta, chief executive, Third Eyesight, says food and grocery is the biggest chunk of spending in the Indian consumer’s basket, of which the vast majority of sales continue to happen offline. Also, the minuscule market share online grocers have so far has been gathered at a massive cost. That apart, online grocers face a multiplicity of challenges — the category is relatively low-margin, it can be price-sensitive and, with frequent small-value deliveries, it’s tough to make money off each transaction. “An offline presence should help them reduce logistics costs per transaction,” he says. “Also, online grocers are driven by immediate needs and planned orders, both of which result in well-defined and self-limiting demand — they largely miss out top-up and impulse purchases on-site. So expanding into an offline presence could even serve to increase the average values per transaction for online grocers.”
According to Bigbasket’s Parekh, the unit economics will not change for the firm because the added real estate costs behind the new centres will be offset by the reduced delivery costs. Also, to meet the rent expenses, the company is going for a franchisee model. “The partners will manage. Ours is a revenue-sharing model with partners. The model will differ depending on the location. For example, someone may pay full rent, and we go for profit-sharing but if rent is based on sales, then we have a different arrangement,” he said.
Experts such as Ankur Bisen, senior vice-president at consulting firm Technopak Advisors, caution about future challengers: “Players tend to put everything from staple to packaged FMCG under one umbrella called the food grocery segment but when it comes to fresh products, a hyper local approach is imperative. And that is where hyper local startups that service products with short shelf lives — such as Milkbasket for milk and eggs or Licious for meat products — step in and seem to be thriving. “Going ahead, the larger online grocery players might aggressively go for an acquisition strategy to take advantage of the hyper-local capabilities the hyper-local guys have managed to build,” Bisen adds.
The company’s other new initiative —setting up vending machines that are operational round the clock — has been planned with an eye on the consumer who runs to the neighbourhood store for top-up. “The machines will be primarily dispensing food giving the shoppers the option to choose anywhere between 48 and 70 SKUs. The machines become useful in ensuring after-workhour supplies. We will put them in large apartment complexes and offices. In offices we are looking to sell food and beverages for breakfast, lunch and dinner; the ones in residential areas will have more packaged items like biscuits, soda or milk, bread or eggs."
Each of these machines looks to serve around 300-400 apartments. In offices, the range is wider. The advantage would be zero additional manpower cost. The machines will monitor their own inventory and if any SKUs is missing, they will generate their own orders which will then be supplied by the nearest vendor. The transactions will not involve any cash dealings — the consumer will need to install the app and from the e-wallet in the app, the money will be debited.
Parekh’s response to questions on competitors with deeper pockets is somewhat philosophical: “If the race was won only by capital, you would only have Amazon and Flipkart today. What we are doing in terms of supply chain or technologies and customer metrics, there is no one else close to that and that really is our USP.”