Part II: The B2C Online Grocery Segment
Over the last decade, E-commerce has been a fast-growing sector across Asia, including in Pakistan. This growth is the result of a number of factors: technological transformation, e-commerce infrastructure, logistical improvements, and socio-cultural demands, which has led to a spike in e-commerce activity and more specifically in online grocery shopping. Currently, with a turnover of US$1,056.8 billion, Asia is one of strongest B2C e-commerce regions in the world.. Additionally, the increasing number of middle income households and increasing average monthly consumption per household on major food items means the market opportunity for the online B2C grocery segment is large and growing. In fact, an average household in Pakistan spent 36% of their income on food and nonalcoholic beverages in 2018-19, a slight decrease from 2015-16 (37%). As of January 2020, 35% internet penetration in Pakistan, as well as the onslaught of the pandemic this year means that there has been an increased reliance on online shopping as a whole.
Pakistan has a predominantly young population with 65% below the age of 24 years, who due to being time-pressed have responded positively to the online retail format offered by modern online grocery retailers. Therefore, a retail market worth $125 billion a year, out of which $48 billion attributed to groceries alone presents the startup ecosystem with an abundance of opportunities. In this month’s issue, we will delve into the nuances of the online B2C grocery retail sector, the key players, infrastructure and more. You can also read Part I of our briefing from last month, which covered the online B2B grocery space.
For this issue of our newsletter, our team interviewed some key investors and startup founders in the ecosystem and this sector including Faisal Aftab (Lakson Investment Venture Capital), Meenah Tariq (Karavan), Ali Zain (Metro Pakistan), Salman Allana (Rider), Ahmad Saeed (GrocerApp), Ahmed Khan (Cheetay), Shoaib Malik (Walled City), Muzzammil Ghafoor (Unilever), Adam Dawood (bSecure), and Saba Abid (Airlift).
Key Players in the B2C Online Grocery Industry
In the last decade, the B2C online grocery space in Pakistan has had an increasing number of players offering diverse business models and services. Both brick and mortar grocery stores have taken their services online and new grocery delivery startups have launched in recent years. This growth is indicative of a consumer base who seek convenience in their buying needs.
In March 2020, grocery startups in the MENA region saw an uptick in online orders. Similarly, online B2C grocery startups in Pakistan also spike in usage, with the likes of GrocerApp witnessing 100% growth in number of orders over only three days. Amidst COVID-19 lockdowns early this year, a prominent mobility startup, Airlift, ventured into grocery delivery in Pakistan, while more established company Uber, in partnership with Al-Fatah launched grocery delivery in Lahore. Careem that launched a broader delivery service in 2019 can also be used to deliver groceries to your doorstep. Similarly, companies in food delivery such as Foodpanda and Cheetay – with an existing fleet at their disposal – were also able to capitalize on this opportunity. While for some of these businesses the plan to move into the grocery space was in the making pre-COVID, for others this transition was a bit more in response to the pandemic.
Most of these companies (excluding Airlift) use a dropshipping model, which means any B2C grocery company in question passes on their sales orders to a third party supplier, which supplies the products to the former. The order is then delivered by the B2C grocery company to the consumers’ doorsteps. Dropshipping – while lowering barriers to entry by solving for stock control and warehousing – also ends up presenting small businesses with a new set of problems such as limited control over quality assurance, lower margins, and inventory syncing. Cheetay and Pandamart (by Foodpanda) both are more of aggregators, where they have collated a number of different online grocery stores that you can order from, as opposed to Daraz’s dMart (that was launched in April 2020 along with dFresh) and Airlift (that raised $10M in July 2020 to scale its transit and grocery delivery operations) that have their own selection of products to choose from directly. Another common denominator among these four players is that they offer fairly short delivery times ranging from 30 minutes to 24 hours.
Startups like MandiExpress, GrocerApp, Yayvo, Dawaai, and 24seven have years of experience under their belts. MandiExpress (similar to FreshDirect) has been operational since 2015 and has both a B2B and a B2C aspect. Under the B2C model, consumers are able to directly purchase vegetables, fruits, meats, seafood, and organic and gourmet foods. Early this year, the founder Jehanzeb Chaudhri told Tribune that their recent $725,000 investment will be used to fulfil the immense demand coming from e-commerce partners like dFresh (by Daraz.pk). GrocerApp (founded in 2016) that raised $1 million in September 2020 offers a wide range of grocery items from personal care products to fresh produce. The startup’s constant focus on user experience and the quality of products delivered to those users has contributed to their growth over the past few years. Even prior to the pandemic (March 2019-March 2020), they experienced 30% month on month growth. In an interview with i2i Insights, Ahmed Saeed (Founder and CEO at GrocerApp) emphasized the significance of owning the supply chain in making his business sustainable and scalable, which is why they shifted to a fulfilment based model – as opposed to a marketplace model in 2019. Similarly, TCS backed Yayvo has also been working in the online grocery industry since 2016 (although it was founded in 2012) but it only offers personal care products and snacks under its grocery category. 24Seven (founded in 2013), with a wide assortment of grocery items from fresh produce to frozen items to personal care products, is operating in Lahore. Dawaai, which primarily focuses on medicines and other healthcare products, also offers delivery of personal care items. Other players that are fairly new to the industry include OctoberNow and Farmers4u, with the former covering nearly all subcategories under groceries such as frozen items, fresh produce, meat/poultry, non-perishables, personal care and more. Farmers4u, however, mostly focuses on fresh produce.
There are also e-commerce grocery delivery companies that have a solid backing from a parent company or a prominent partner. This list includes initiatives such as QnE, HumMart, Super Sauda, and Munchies. Founded in June 2015, QnE was conceived by Premier Agencies with 40 years of grocery distribution experience. HumMart is a subsidiary of Hum Network and it was founded and has been active in the online grocery space since April 2018. Super Sauda will be launched in the fourth quarter of 2020 and will include all Unilever products in its inventory and will essentially be focused on acquiring first-party data for the global consumer goods business. Another similar enterprise recently propped up by Unilever and VentureDive is called Munchies, which instantly delivers snacks to customers (in Karachi for now). It works on a hyperlocal model that leverages retail stores in close proximity to the customer to quickly fulfil the order.
Lastly, there are the traditional multi-chain superstores who already have the customer base, the warehousing capabilities, their own logistics and have enough financial clout to enter the B2C online grocery industry. We see this with Naheed, Imtiaz, Metro, Carrefour, and Al-fatah who have entered the space – with the trust of their customers that startups often create from scratch – making them viable competition to the budding startups and vice versa. In an interview with i2i Insights, Ali Zain Sheikh (Head of E-commerce & Digital at METRO Pakistan), pointed out how Metro recently started Open Box delivery with their fresh produce and other perishable items so that customers can check the quality and return anything they like, which was a strategy they were only able to implement due to owning their logistics. The mantra used by many in this space is OTIF (on time, in full): ‘the extent to which shipments are delivered to their destination according to both the quantity and schedule specified on the order’. OTIF is directly related to a seamless supply chain, which is something most players have recognized and are acting on.
We spoke to founders and investors to understand some of the key challenges faced by the B2C online grocery sector. Some of the key challenges are summarized below.
Customer Satisfaction & Data Analytics
Our research shows that customer satisfaction continues to be a major challenge for B2C online grocery businesses. While players in more developed ecosystems are using cutting-edge research and data practices to decode customer satisfaction vis-a-vis demographic factors, psychographic variables and customer journey, only a handful of stakeholders have properly adopted these practices in Pakistan. Customer satisfaction is therefore harder to crack. Founders shared (in interviews with our team) that when ordering groceries online three things are of utmost significance: a) The order being complete, b) The quality of the product(s), and c) Order being delivered in the time frame mentioned on the order. So the customer most often would not care who you are and who your delivery partner is so long as the above three aspects are working seamlessly.
Digitization of Inventory
The digitization of the inventory is one of the least talked about challenges but is also one of the most vital, because it can make or break a business. Adam Dawood (Founder, BeSecure) told our team that sometimes customers order a product (that is in stock) using the website only to later discover it’s not available because the distributor at the backend was out of stock. Issues like these are widespread and are faced by any and all startups that have outsourced their procurement. This can be resolved by synching inventories among distributors/suppliers and other stakeholders through digitization.
Shorter Delivery Times & Resulting Variables
Recently, many players have offered shorter delivery times and while that is a great offering for customers who need their groceries instantly, it relies heavily on a couple of factors to work seamlessly. These factors include: a) efficient and product-tailored packaging system b) warehousing capabilities to host the packaging process c) cost of delivery that’s impacted by basket sizes, i.e. smaller basket + faster delivery = higher cost, and d) delivery route optimization. All of these factors when managed effectively lie at the heart of crafting good customer experience and nurturing desired outcomes.
Cost of Cash on Delivery
B2C online grocery companies need to have ample cash at hand on a given day to keep their operations running, which often depends on the payment modes widely used by their consumers. Currently, the majority of the grocery startups are using Cash on Delivery (CoD), with some of them accepting online payments through bank transfers and e-wallets. While Pakistan lags behind in the number of plastic cards issued, e-wallets can be a game changer in the market as they provide customers with a secure electronic payment method. It goes without saying that any e-commerce business that uses a mobile payments strategy that embraces omnichannel acceptance, provides merchants with tech-forward solutions to tap into a growing market and increases their presence in the digital marketplace. It also helps businesses cut back on the costs associated with CoD transactions. To read more on the cost of CoD click here.
Post-Covid19 World & Conclusion
The B2C grocery space has seen a steady increase in the number of firms and the amount of investment coming in with COVID-19 accelerating the process. As Meena Tariq (Karvaan) told our team, these investments are the new benchmark for the ecosystem. The online grocery market is big enough to accommodate a lot more businesses, which indicates that there is something in the market for everyone.
As Sherlock would say, “The game is afoot”
P.S. To access all of this information in a consolidated report form along with the previous issue on the B2B Online Grocery space click here.