Online Grocers in India Eyeing Tier II Cities as Key Regions for Expansion

In 2014, India was the fastest growing economy globally, with a nominal GDP of $2,066,902 and a population of 1.27 billion. The country also ranks third in the world in terms of purchasing power parity (PPP).

The fact that India is also the sixth largest grocery market in the world cements its place as a very attractive region for e-grocers, with the e-grocery market in India expected to grow at a CAGR of 26.24% from 2014-2019.


Why are e-groceries so popular in India?

Rise in mobile commerce

76% of the total online population in India is currently using mobile Internet in one way or another, bringing the number of online mobile users in India to 213 million as of June 2015. This is a massive consumer base for any company looking to tap into the market.

Emergence of new players and increased funding

The massive potential customer base, coupled with low-cost labor and logistics has encouraged many new vendors to enter the e-grocery market in India in the past few years. In 2014, the number of online grocery stores grew to 44, compared with just 14 in 2013.

Companies such as Tata Group, Reliance Industries, and Godrej Group are all getting into the virtual grocery game, and players like Flipkart, Snapdeal, and Amazon are also expected to add grocery to their product segments by introducing food and gourmet categories.

Amazon has already launched KiranaNow, a platform for quick delivery of everyday-use products in partnership with the neighborhood stores. Godrej’s Nature’s Basket teamed up with Snapdeal and listed 700+ products on the Snapdeal’s website.

The rise in the number of start-ups and the growth prospects have attracted many venture capitalists and angel investors to invest in the market.


Increased demand from tier II cities

Increased participation from non-metropolitan cities is a big trend expected in online groceries in India over the forecast period.

BigBasket has already planned to reach 50 tier II cities such as Coimbatore, Madurai, Trichy, Vijayawada and Vishakhapatnam by 2016. The company is also planning to expand to towns in close proximity to their warehouses. PepperTap, an online grocer, is also planning to expand to tier II cities that include Surat, Lucknow, Ahmadabad, Jaipur, and Chandigarh, to increase its customer base.

Online grocers are focusing on strengthening their customer base by exploring the market potential in tier II cities. Most are focusing on reaching small towns by improving their supply chain capabilities, providing easy payment options such as cash on delivery, and offering coupons and discounts. Expansion to tier II cities is expected to provide a significant boost to the online grocery market in India over the next four years.

Influence of social networking

Social media is expected to be a key marketing channel for online grocers to connect with current customers and to attract new customers to their sites during the forecast period. As of 2014, India had more than 100 million Facebook users, and is poised to overtake the US in the near future, which is encouraging e-grocers like BigBasket, AaramShop, ZopNow, and Jiffstore to take to Facebook to interact with their customer base.

Innovative delivery services

The quality of delivery can make or break an e-grocer. Because of this, many large companies in India are acquiring logistics startups to boost their local delivery capacity. BigBasket, for instance, acquired Delyver, a start-up that specializes in hyperlocal delivery, to serve customers efficiently and expand to eight major cities and 50 tier II cities.

And BigBasket is hardly the only company taking this approach. Grofers has teamed up with local merchants in order to deliver orders within two hours, and Veggie Bazaar directly procures fresh supplies from farms.

These kinds of innovative strategies by e-grocers are expected to exert a positive influence on the market during the forecast period.

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