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A Look at the Online Grocery Market in India 2020

Oct 29, 2020 11:39 AM 4 min read

India’s online food and grocery retail market is heating up.

An influx of foreign capital, increased consumer interest sparked by the COVID-induced push to online shopping, and a spate of stake sales and new players have made 2020 a watershed year for the hyper-competitive sector.

Moreover, with the BigBasket-Grofers-Amazon “tri”poly being challenged by the likes of Reliance Retail, Flipkart and even Swiggy and Zomato to some extent, the sector could also be staring at considerable consolidation in the near-term.

Birth and Growth

India’s online grocery market began in the early 2010s with an on-demand business model, reliant on local retailers for fulfilling orders. This was, of course, accompanied with the practice of deep discounting.

In 2017, a policy change permitted 100% FDI in food retail. This led to a flood of capital from foreign investors. This enabled companies in the sector to expand into tier-2 and tier-3 cities, aided by a simultaneous explosion in smartphone usage, internet consumption and digital payments. Meaningful investments across the entire ecosystem of food processing, cold storage and overall logistics helped the sector gain additional traction. 



Over time, a warehouse model began taking shape, and soon the overnight delivery model became popular. Today, two-hour deliveries are fast becoming the norm, and to achieve this companies in the sector are increasingly tying up with kirana stores.

“Vocal for hyperlocal,” is the new mantra.


The COVID Spike

We’ve talked before of how the coronavirus pandemic has been a boon for tech companies the world over (especially the bigger ones). It’s been the same case for the e-grocery sector, which has seen a 1.7x rise in gross merchandise value in June 2020 vis-a-vis January 2020. BigBasket’s annualised gross sale run-rate, for instance, crossed $1bn for the first time in May. Most notably, online sales of fresh vegetables and fruits witnessed 144% growth while FMCG products grew 150%.

Lockdowns, social distancing and work-from-home culture have obviously contributed to this trend.

Significantly, COVID-19 has made the idea of shopping for groceries online more mainstream. This is important to note, because it’s a challenge unique to the grocery vertical within the e-commerce sector. Ordering books, electronics or home decor online is easy to adapt to, unlike the practice of ordering fruits and vegetables online. Especially so in a country like India, where consumers are used to purchasing such products from the omnipresent kirana shop.


Some Contextualisation Here…

From being nearly non-existent in 2013, the online grocery market grew to a healthy $1.8bn in 2019. As per a report by RedSeer, this is then expected to see a sharp 10x growth over the next five years to a massive $18bn by 2024.

But if you look at the bigger picture, e-grocery is a minuscule part of the entire grocery market, which is still overwhelmingly unorganised (95%+, in fact). As of 2019, online grocery had only 0.3% market share - a number that is expected to grow to merely 2.3% by 2024.

But while the slice of the cake may be small, it’s still a lucrative slice and one that promises a long growth runway.

And with that, we come to recent developments...


Reliance Retail Rises

Emerging fresh from a bout of $5bn in investments from the likes of Silver Lake, KKR, General Atlantic, Mubadala, GIC, TPG and ADIA, Reliance Retail began eyeing upending the e-grocery sector.

To this end, it struck a deal with Kishore Biyani-promoted Future Retail. This could give Reliance a commanding 40% share of the organised grocery market. No wonder, then, that it upset Amazon - another e-grocery player + a stakeholder in Future Group. The e-commerce giant took the matter to a Singapore arbitration panel, which on Sunday stayed the deal - albeit temporarily.

Then there’s RIL’s $5.7bn deal with Facebook for a 10% stake in Jio Platforms. This paved the way for a collaboration between Reliance Retail, Jio Platforms and Facebook-owned WhatsApp wherein customers could order groceries on JioMart via WhatsApp. Considering that Jio and WhatsApp have 388 million and 400 million users respectively, we’re talking big business potential.

Not to forget the 621 Reliance Fresh and Reliance Smart stores and the 52 wholesale cash and carry stores under Reliance Market that serves more than 15 million kirana stores.


Big Business for BigBasket

The Tata Group is reportedly exploring the acquisition of a 51% stake in BigBasket, which already counts Alibaba as a high-profile investor.

BigBasket has also been in discussions with Temasek, Generation Investments and Tybourne Capital as it seeks fresh capital to expand and potentially boost its valuation above $2bn. It is also eyeing an IPO in 2021.

Then there are the numerous other well-backed players like Amazon, Walmart-owned Flipkart and SoftBank-invested Grofers.

To top it all, the pandemic-induced grocery e-shopping spurt has inspired players in other sectors like food delivery and real estate to try their luck in the sector. This list includes Swiggy, Zomato, Dunzo, Meesho, Snapdeal, Perpule and NoBroker.

When the pie could be worth $18bn+ by 2024 (and still accounting for less than 2.5% of the overall food and grocery market), expect a lot of takers!


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