11 reasons why online grocery startups are failing in India’s small towns

Photo credit: Pixabay.

Meet Suresh. He uses an app to get groceries delivered to his home. After filling his online cart with dairy, wheat, bread, and beverages, he applies a coupon code which slashes 20 percent off his bill.

When the 20 percent discount offer is withdrawn next week, he is back shopping at his local store – the nearby kirana shop in Indian lingo.

This is a typical Indian user behavior. This has perplexed online grocery startups, which have burned millions of dollars in customer acquisition costs but to no avail.

PepperTap, which raised around US$51 million till date in its 18-month startup journey, is calling quits to the online grocery retail from next month. The startup is pivoting to logistics business.

The offline retail industry in India is over US$500 billion in size annually. However, none of the tech startups have been able to successfully assimilate the grocery buyer in India’s small towns.

Here are the top 11 challenges an online grocery retailer faces in India:

1. Discounts being availed by retailers and not enough end consumers

Many retails shops have started ordering groceries in bulk through these apps.

“On many products such as butter and milk, there is a margin of just 4 percent to 5 percent. But if you run an offer of a 20 percent discount through an app, retailers themselves start using it to fill their daily stocks,” said CEO of a grocery app in India, who prefers to remain anonymous. His app does not offer any discounts.

2. Wafer thin gross margins

High customer acquisition cost, or the money spent to lure people into buying groceries with a click rather than a walk to their local kirana store, has become a bane for India’s grocery etailing industry, which already operates on wafer thin margins.

Photo credit: Pixabay.

3. Huge marketing costs

4. The discount-hungry, disloyal user

5. Not mastering the art of inventory management

6. Going the GBF way and going bust

7. Lack of skyscraper neighborhoods

8. Operational issues at delivery boy level

9. Competition from the wandering push cart

10. Grocery shopping is entertainment in small towns

11. Inertia of breaking the age old shopping pattern