When offline deals beat online ones

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  • November 6, 2017
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When offline deals beat online ones

BENGALURU: If you think groceries, like most products, are cheaper online, may be you haven’t stepped into a brick-and-mortar store in a while.

Goldman Sachs is slaying the perception that online players like Amazon and BigBasket have outsmarted brick-and-mortar retailers with better pricing in daily consumables and groceries. In a recent research report, Goldman Sachs analysts noted that Amazon and BigBasket sold personal care products at 10-30% premium compared to traditional supermarkets like D-Mart. The report though predicts online ordering would account for 22% of the modern Indian grocery retailing in five years, up from 3%.

While modern retail is still a small part of overall retail market in India, e-commerce in specific is at a nascent stage.

In a bear market, e-commerce could see the highest growth in modern Indian grocery market compared to traditional brick-and-mortar retailers. Traditionally, the grocery play has been a low margin business that requires continuous investments to build a strong supply chain.

“We believe there is an additional cost of about 3-5% of sales for home delivery as compared with pickups from a delivery centre or purchasing from a store. We believe consumers that value convenience over incremental cost will use the home delivery option, while price-sensitive consumers will prefer to pick up the order.

Amazon and BigBasket also have the option of express delivery for an additional charge. In our base case, we assume a rapid acceleration in the adoption of online ordering,” the report noted, while covering Avenue Supermarket, the parent of D-Mart, which offers 10-15% cheaper pricing compared to online grocers.

While D-Mart has presence in 132 locations across the country, both BigBasket and Amazon have been ramping up their operations.

Amazon, with no worry for capital, has been pushing its grocery business with two products — Pantry and Amazon Now. Pantry, which is for monthly grocery bulk sales, is present in 34 cities and Amazon Now is present in four cities with a promise of a two-hour delivery.

BigBasket is delivering across 21 cities with 40,000 orders per day. According to the report, BigBasket accounts for 85% of online grocery market.

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