The Tata group is buying out the management team and technology infrastructure of Gurgaon-based GrocerMax to enter the online grocery business as consumers increasingly place orders for their supplies over the internet.
The new team will help set up the online platform for Trent Hypermarket, an equal joint venture between Tata and British retailer Tesco that will rival Amazon and Bigbasket in the nascent yet rapidly growing segment. GrocerMax will shut down its business in Gurgaon because the Tata group’s grocery business is not present in North India.
The Tata group runs three formats under the Star banner—Dailies, Market and Hyper—and has around 42 stores. For Tesco, the world’s third-largest retailer that has nearly 6,800 stores globally, its online business earns roughly £3 billion in sales and is one of the rare such ventures that’s profitable. However, the Indian business is minuscule. But the opportunity offered by the $500-billion retail market is attractive for any player, foreign or local. Food and grocery account for almost 50% of the overall retail basket in India, although general merchandise, personal and home products fill up a bulk of the retailer’s profit pool.
Experts feel omnichannel retail offers consumers more ways to shop and interact with a retailer.
It also gives more information about products or categories of products that interest them and greater product availability. “Having their established physical retail formats and expanding their digital presence would certainly help them having best of both worlds,” said Ruchi Sally, director at Elargir Solutions.
“At the same time, what’s important is right execution of omnichannel strategy by creating a USP in a competitive environment.”
Founded by Gaurav Juneja and K Radhakrishnan about two years ago, GrocerMax is a hybrid platform for grocery that keeps only 10% inventory, sourcing the rest from supermarkets and provisional stores in real time. Both Tata and GrocerMax declined to comment.
Multichannel offering
Most retailers are trying to provide a multichannel offering that meets the demands of customers, who easily switch channels to buy products. So far, the omnichannel strategy is most restricted to a few lifestyle retailers including Shoppers Stop, Arvind and Aditya Birla Retail as grocery delivery is more complex than supermarkets. Challenges include perishable products like food and the high cost of having numerous facilities located close to consumers.
“Indian retail has always struggled to remain profitable. The common refrain is always what is the right model for grocery?” said a retailer who didn’t want to be identified. “If anything, the Amazon acquisition of Whole Foods should provide some answers. Omnichannel is the direction, it may be surmised. Tata may have seen this as a possible way to go. To get a frugal online operation on top of the stores provides an expanded market for every store. This may be the solution.”
Online food and grocery penetration is still less than 1%, suggesting the infancy of the category and its potential opportunity. Morgan Stanley expects the food and grocery segment to become the fastest-growing segment, expanding at a compounded annual growth rate of 141% by 2020 and contributing $15 billion, or 12.5%, of overall retail sales.
