Why Grocery Franchise is the Most Smart Business Decision

As the Indian retail industry is still in the midst of the recovery from the Covid-19 disruptions, grocery is taking the lead to drive the entire sector out of the shackles. According to management consulting firm RedSeer, India’s retail sector, which has seen a steady recovery post the ‘Unlock,’ has reached 80% of pre-Covid gross merchandise value (GMV) levels, and is pegged at about $780 billion in 2020.

Remarkably, close to 65% of India’s retail is coming from the grocery market, and its recovery post-covid can be attributed to customer-affinity towards local ‘Kirana’ stores, which continued to be open throughout India’s lockdown.

The Online Boom

In midst of the Covid disruption, there are multiple indicators that point to the fact that we have entered a sustained growth phase for Indian e-commerce and the best is yet to come. In fact, online grocery has emerged as the major driver for growth.

The online grocery market is encouraged by changing behavioral patterns in consumers' purchasing habits. Consumers are now more inclined towards purchasing online at the tip of the palm with the rising e-commerce. Players in the space are capitalizing on this trend to establish themselves as an integral part of the daily grocery fulfillment value chain.

Given the rise in demand, most players witnessed a 20-80 percent surge in their order volumes. In a way, the lockdown gradually changed the mindsets of consumers and encouraged them to switch to online grocery shopping. This indicates that online grocery will be a sunrise sector in the long term, even after the Covid-19 chapter comes to a close.

The total size of the e-grocery market in India is expected to grow from $1.9 billion in 2019 to $3 billion by year-end, according to a recent report by consulting firm RedSeer. With the market charting an annual growth rate (CAGR) of 57 percent, the online grocery business is expected to reach $18.2 billion by 2024.

Online and Offline Convergence

Grocery is the largest consumer segment by far; Indians spend more than 50 percent of their monthly income on groceries. That’s the reason it has become a must-capture space for organized players. Considering the huge market potential, various brands—both national and international—are fighting to get a share of the profitability pie.

With offline players like Reliance Retail, More, and Easy Day, who have already established their presence in the Indian market and are expanding rapidly, many online brands are also foraying into the offline space. For Instance, Walmart-controlled online retailer Flipkart, Reliance’s JioMart, and Grofers have aggressive plans for grocery retail expansion with brick-and-mortar stores in India.

Experts say that grocery is a very hyper-local business and setting up an offline presence is the logical next step for e-tailers once they have set up a strong delivery system and have a strong customer base.

Further, in spite of online grocery seeing a massive push due to the Covid-induced disruptions, it still commands 0.3 percent of the overall retail market and will grow to 2.3 percent catapulting into a market size of $18.2 billion, by 2024. This comes on the back of Indian e-commerce majors like Flipkart doubling down on this segment, and Reliance Retail-backed JioMart also being a new entrant into this space.

Reliance Industries has ambitious plans for its 'Kirana' e-commerce platform, JioMart. Reliance Retail is serving over 200 cities, with the grocery platform crossing 250,000 orders a day. But it has big plans for the 10 million ‘Kirana’ stores with its omnichannel approach by digitally enabling merchants through Jio PoS at the backend and JioMart app at the frontend. 

Grofers is aiming to help aspiring local entrepreneurs in India by launching its ‘Grofers Market’ initiative. Under this initiative, the online grocery retailer will be partnering with local entrepreneurs by offering them an opportunity to build their own fully-branded Grofers Market store in their city. “Today, more than 90% of the Indians purchase groceries from neighborhood stores, and our latest move will help these customers with an experience of a supermarket having a wide range of branded, quality products at unmatched prices. We are sure that with Grofers Market, we will be able to move closer to our customers and extend our online expertise to ensure access to high-quality products and maximum savings on everyday purchases,” says Saurabh Kumar, Founder, Grofers.

Currently, the biggest ongoing trend is the rise of integrated e-commerce which not only digitizes the frontend but also the backend of India's retail ecosystem. This means that earlier e-tailers were trying to only solve for customer frontend and convenience, but now with the advent of ‘Kirana-tech,’ players have also started to digitize the backend of ‘Kirana,’ stores and solve for supply-chain bottlenecks.

Franchise Expansion

Seeing this upward trend, many online grocery players have started offering franchises for expansion. Players like JioMart and Grofers are collaborating with existing ‘Kirana’ stores to help them optimize their operations and improve profitability by accessing its supply chain and technology.

Grofers expects the size of stores to be around 1000 to 2000 sq ft in a residential area where around 4000 families are residing. For any franchise setup, Rs 8 to 12 lakh is the expected set up cost with a franchise fee of Rs 5 lakh. The working capital comes at around Rs 15-16 lakh. That makes a total of about Rs 25 lakhs of investment. The company expects a focus on customer excellence. The partner must look into customer retention and create a good customer experience. All the store operations and manpower management would be in coordination with the Grofers.

The Organized Edge

While the ‘Kirana’ stores have personal connections with the local consumers, they lack the operational competence of the organized retailers. In addition, the middle-class consumers look for discounts on groceries, which the local 'Kirana' stores cannot offer due to their limited purchasing power.

On the other hand, large retailers have good discounts to offer because of their high purchasing power and direct purchase agreements with the manufacturers. Further, players like Grofers and JioMart have a huge customer base backed by an excellent customer-facing platform and robust supply chain, which definitely benefits the partners in delivering a high level of customer experience. Hence, the grocery franchise has surely become an excellent opportunity for entrepreneurs and prospective businessmen.