While demonetisation took the sheen off many sectors, there were some that cashed in on the cash crunch. Among those that have profited are India’s fledgling online grocery retailers. In the days that followed demonetisation there was a sharp decline in sales at local mom and pop stores and a huge spike in orders at online grocery retailers.
Almost all the online grocery retailers we spoke to said that they all registered a huge spike in demand in the last one month. bigbasket, one of India’s leading players in the sector has registered a growth of 25-30% in orders and new users joining the platform. Sharad Harjai, AVP Marketing Grofers, said that new users have been joining them at a steady rate since Prime Minister Modi declared the demonetisation of high denomination currency on November 8. Raj Pandey, CEO, ZopNow, said that there was a big swell in demand in the first three days following demonetisation.
Focus on capacity building
“The lack of availability of cash with shoppers meant that the initial few days saw a general drop in business across all our partner stores. The impact of demonetization was also felt on the cash-flow of stores. However, things are slowly but surely getting back to normal levels. The category that we operate in, which is grocery, personal care and pharmacies – will not be impacted for too long as it is more a need based and unavoidable category,” said Vijay Singh, CEO and Managing Director, AaramShop.
Explaining why the sector benefitted from the biggest watershed event of this year, Pandey said that while discretionary sales declined over the last month, groceries and home supplies is a repeatable category. “Ours is one of the very few categories that has actually benefitted,” he said.
Given the high demand, online retailers have been building their capacity to serve their customers better. Pandey said, “At some point we stopped taking orders because of the high influx of orders.” Although Pandey feels the spike is not necessarily a healthy one because the quality of orders were not all good. bigbasket quickly jumped into capacity building mode and had to ramp up its delivery mechanism in the first couple of days.
“We are yet to catch up with the rising demand,” said Vipul Parekh, Co-Founder, Chief Finance Officer and Chief Marketing Officer, bigbasket.
Impact on market dynamics
While demonetisation will impact market dynamics, the growth will stabilise, industry experts say. “This growth will taper out. But we do expect to retain most, if not all of the new users,” said Parekh.
So far, the spike in demand has mostly been from customers in Tier1 cities while customers in Tier2 cities have also shown similar interest in trying out online grocery retailers. Recognising that going cashless is a move in the positive direction, Pandey said, “Tier2 cities are not ready for this. Density of orders and density clusters are not on the same page.”
Singh said that the long-term benefit of demonetisation for this sector will be that pure-play e-commerce grocery operations would witness a sharp reduction in the number of COD orders, which is good for the business. “However, the bigger business problem that they have is negative unit economics, and overcoming that is more a business challenge where demonetisation would not have a role to play,” he said.
Customer welfare services
While capacity building has been the prime focus of the start-ups in this sector, some of them are also making attractive offers to customers. “Our retailers can now extend informal credit to their known consumers, using our merchant app (AaramOn). The retailer himself decides the amount of credit extended and its duration. AaramShop communicates the info of the credit amount etc seamlessly to the customers,” said Singh.
Grofers launched a creditline for corporate employees recently. “Companies can share with Grofers a list of employees who want to be part of the scheme. These employees will receive Rs 2,000 in Grofers cash and the money that has been spent will be directly deducted from their salary,” said Harjai.
Future of the sector
Singh also added that for the development of the sector as a whole, offline stores also need to participate in this digital revolution. “Our belief is that every physical store needs to be e-enabled and be able to participate in and grow in the increasingly digital India. Pure play online grocers will see an increase in competition,” he said.
According to Harjai, “this uptake in using online grocery stores can continue if the government takes steps to train more people and encourage more people to use digi-wallets and cashless methods of payments.”
The online grocery retail sector has struggled to survive in India with a few start-ups shutting shops after mere months. Some are yet to break even and still registering high losses. In a sector that has been labouring to find its place in the market, demonetisation may have come as a boon.