70% of global grocery investments came to India in 2020: McKinsey

In early 2020, prior to the outbreak of the deadly Covid-19 pandemic, many of us did buy our groceries online on BigBasket or Grofers (now Blinkit), but it was largely a metro phenomenon. Though grocery retail on e-commerce platforms was certainly growing, the bulk of Indians preferred to buy their groceries from the corner store in their neighbourhood. Though big monies were being spent on grocery retail globally since 2017 — to the tune of $42 billion — the Indian grocery sector accounted for a paltry 1% of those investments. However, the onset of Covid-19 and the rapid adoption of online buying turned the fate of the Indian grocery sector. According to McKinsey’s State of Grocery Retail in India report, around 70% of global grocery investments excluding mergers and acquisitions ($7 billion out of $10 billion) came into India in 2020.

Reliance Retail received the lion’s share of this money, attracting over $5 billion from the likes of General Atlantic, KKR and Silver Lake. Similarly, Tiger Global and Accel invested in platforms such as Ninjacart. Though the Indian grocery online sector did attract foreign investors, the past two years, says the McKinsey report, has also seen incumbents of the grocery sector embracing omni-channel aggressively. Reliance Retail for instance, has invested $4.2 billion in the past two years and has acquired 12 companies to strengthen its omnichannel play. On one hand, it acquired subscription-based micro delivery platform, MilkBasket and on the other hand, it secured a franchisee deal with American convenience store chain, 7-Eleven. Tata Group acquired BigBasket last year along with other acquisitions such as 1MG and Curefit.

Serving customers directly and through an omnichannel approach is emerging as a prerequisite to growth. “In our experience with leading CPG players and retailers in the country, the average revenue contribution from online business has nearly doubled in just the last three years. In the modern trade landscape, Reliance Retail has enhanced D2C offerings with JioMart and the kirana ecosystem. Discounters like D-Mart (Avenue Supermart) are also entering the market with D-Mart Ready, which allows for online shopping and home delivery. Big Bazaar (Future Retail) has introduced two-hour delivery to consumers through a proposed seamless application interface,” explains the McKinsey report.

Online grocery retail in India, as per the McKinsey report has seen a cumulative annual growth rate (CAGR) of over 50%, estimated to be $2 billion-$3 billion in 2020, and projected to grow to $10 billion-$12 billion by 2025. The top six or seven metros are expected to make up 60% of the market and mid-to-high affluent households could form the bulk of the customer base.

The action in the grocery sector is not just limited to foreign investment or the existing biggies making aggressive omni-channel investments. The sector has seen disruptions such as emergence of hyperlocal grocery delivery platforms such as Swiggy’s Instamart, Zepto and Dunzo which promise grocery delivery within 20-30 minutes. On the other hand, specialists such as Licious, Tender Cut and MilkBasket which focus essentially on meats and milk have also scaled up their business considerably.

However, profitably has been a challenge for online grocers, which focus on growing their gross merchandise value (GMV) to offset high operating costs, investments in delivery infrastructure and, often the customer’s reluctance to pay for deliveries. “Most leading players are having a negative EBITDA, while offline grocers typically have an EBITDA of 5-8%,” says the McKinsey report.