A new JP Morgan report has cited Sanjiv Mehta, Chief of Hindustan Unilever and Hari Menon, Co-founder & CEO, BigBasket, saying that COVID-19 has caused unparalleled disruption in the India story of online grocery penetration. Forced consumer trials, leading to a sustainable change in consumer behaviour, has triggered a three times uptick for Big Basket. New customers stand at two times for Big Basket.
Adoption rates have also picked up significantly in Tier II cities, outpacing Tier I/ Metros.
Even as growth rates have stabilised post easing of lockdown, strong customer retention metrics (especially new customers) indicate a sustainable shift in penetration for this channel, JP Morgan researchers reported.
Further, higher order density, pick up in ticket sizes and moderation in promotional intensity have culminated in expansion in the overall industry profit pool for e-grocers.
While promotional intensity could revert to earlier levels, increased order density could well be a meaningful margin tailwind.
For FMCG companies, online channel helps accelerate innovation with better handle on customer insights, and agility in identifying emerging trends.
Online grocery retailers too gather customer data and help brands optimise tactical promotions.
Implications include consolidation underway in modern trade (MT) and emergence of omnichannel.
COVID-19 disruptions have underlined the benefits of e-commerce, thus accelerating online adoption by modern and general trade.
Even as offline retailers step up digitisation and online investments, they need to be mindful of cross-channel cannibalisation and target unique customer cohorts.
Mehta and Menon said the focus should therefore be to add new customers on the online platform, necessitating a differentiated approach (aggregators/ market places/ grocery portals).
On a strategic level, online/offline channel needs to be dealt with separately even as offline retailers increasingly adopt an omnichannel model.
Mehta and Menon said a general trade (GT) channel is underway with rising digital technology intervention. Proximity and convenience has been a core driver of consumer behaviour over the recent months, thus magnifying the criticality of mom-n-pop outlets.
With 10 million+ outlets, general trade accounts for 75-80 percent of fast moving consumer goods (FMCG).
Even as MT and e-commerce channels have continued to scale up, GT will continue to remain the most important channel over the long term, they said.
Further, digitisation of mom-n-pop outlets is driving improved demand capture/ fulfilment, optimised inventory, digital payments and superior customer servicing efficiency enabling them to upgrade and compete with the channels of the future.
HUL is participating in the digitisation journey for general trade e a Shikhar app now has 0.23 mn outlets onboarded and has seen a two times rise in order value and number of SKUs ordered (vs pre-COVID-19 levels).
Private labels remain a challenge for established brands. The strategy by online retailers has primarily been on entering spaces with modest competitive intensity and limited presence of established branded players.
Key spaces for e-grocers (like BigBasket) include: fresh fruits and vegetables (leveraging an integrated farm-to-fork model); emerging categories like health foods/organic; general merchandise; selective presence in large FMCG categories (soaps, detergents); and categories with few leading brands (Snacks, Batter, Toilet cleaners).
While established FMCG players recognise private labels as a source of incremental competition, they derive confidence from their well reckoned ability to fight off regional brands across multiple categories/ markets over the years.