By Mohul Ghosh
Thanks to the intense rivalry between Flipkart and Amazon, online grocery market may witness a new level of competition and activity in the coming days.
We had hinted that Flipkart may enter grocery business last year, which has now been confirmed.
As per confirmed reports, Flipkart is all set to re-enter into online grocery niche; and this time, instead of launching their own app or service, Flipkart may acquire an existing player or merge with their current operations.
Also, with a huge funding round of $1.4 billion, they are right now flush with cash and acquiring an existing player would definitely hasten their re-entry into this space.
Can it trigger a new wave of investments and funding into the sector?
Flipkart aims for grocery dominance
As per reports, Flipkart is now all set to relaunch their presence in the online grocery niche, with renewed focus and zeal. Flipkart has estimated the market to be worth around $400-600 million, and the objectives are now clear: Dominate the market.
Flipkart CEO Kalyan Krishnamurthy said at an event: “Yes we will get into grocery… 80% of units bought in India is grocery… $ 400-600 million is grocery market, so we have to get into it,”
When asked on which model they will work on, to kickstart their grocery operations, he said, “We will look at M&A, size doesn’t matter. What we are looking at is capabilities. A lot of business we acquired over time were actually small,”
Considering that Flipkart has this habit of acquiring fast moving Internet startups, and then integrating the operations, this seems likely that Flipkart will actually go for Mergers and Acquisition route. Examples of Myntra, PhonePe and then Jabong clearly showcases that.
Is online grocery business viable now?
As per Flipkart’s internal surveys, yes it is. In fact, online grocery is the most unsaturated market as of now, with Flipkart estimating the market to be $600 million now, which can expand to $5 billion by 2020.
As per Flipkart’s own data, there are right now three segments within online grocery space: a) The daily purchase model, wherein average selling price is around Rs 300-400; Weekly purchase model whose average selling price is a bit higher; and the monthly purchase model, whose average selling price is around Rs 2000. And Flipkart has made up its mind to target this lucrative segment, and fortunately for them, 60-70% share of the online grocery market belongs to this monthly purchase model.
Flipkart had actually jumped into online grocery way back in 2015 when it launched their app called Nearby. But within 6 months of their launch, they shut down their operations, citing low margins and heavy losses.
On the other hand, Amazon launched their grocery delivery services last year in June, and late last year, they have already showcased their next generation concept of delivering grocery, via a mixture of online, offline and automation route.
Besides, Amazon has already announced an investment of $500 million for venturing into the delivery of packaged food products, online.
As investments into this sector have dried up in the last 12 months, hyperlocal deliveries and grocery startups were looking ahead at a lean patch, as business demand was sluggish, and lots of smaller players were either being acquired or closing their shops.
Amidst this dry spell, the news of Flipkart re-entering this space has infused a fresh energy into this sector.
Featured Image Source: Trak