Published in Jan-Feb 2015
According to The Economic Times (India), the market share of online groceries in Pakistan’s $25 million online retail industry is negligible. This holds true not only in Pakistan, where the numbers are too small to be even tabulated, but globally as well; for example, in the US, under one percent of the $600 billion grocery sales are done online. This, however, has not discouraged three entrepreneurial companies from biting the bullet and entering this underserved segment in Pakistan.
In 2012, two entrepreneurs Ahmed Arif and Qayser Alam established Redbox Groceries, an online home delivery grocery portal. However, they later came into contact with a New Delhi-based company called AaramShop, which worked on a ‘neighbourhood model’. As a result the two companies joined hands in 2013 and a separate entity, with 100% Pakistani ownership, called AaramShop Pakistan was launched (Redbox Groceries was dropped in the process).
AaramShop Pakistan is the only local online grocery shop that uses the neighbourhood model, whereby retailers – ‘kiryanay ki dukaanein’ or general stores – collaborate with each other, and when a customer places an order online, the retailer located nearest to the customer either delivers the groceries or someone from AaramShop collects and delivers the merchandise. So far, AaramShop Pakistan has almost 600 retailers in its network, covering Karachi and Lahore.
Retailers sign in on the AaramShop portal, upload their product details and update the listing as and when required. AaramShop does not charge a commission for basic services including providing retailers with a web presence and a helpline, they do however charge a monthly retainer fee of between Rs 1,000 and Rs 5,000 for any additional value added services, which include sending promotional SMS and emails to the retailers’ customers or building independent mobile apps for them.
Ahmed Arif, CEO, AaramShop, says that it was not easy at first, to get the retailers on board; they were mostly not technology savvy and had to be given technical training about how to upload and maintain their product listings. Furthermore, the idea of an online grocery portal was new and it took a while for most of them to understand the idea and feel confident about it.
AaramShop’s main source of revenue comes from partnership tie-ups with FMCGs; current partners include L’Oreal, Searle Pakistan, Shan Foods and Unilever. Services offered to the FMCGs include special promotions on their website, neighbourhood marketing whereby promotional leaflets are inserted in every delivery bag sent to the customer, and digital sampling – free product samples are given to potential customers who first have to fill in a form and the data thus acquired is passed on to the brand teams.
Minimum delivery orders range between Rs 500 to Rs 1,000 and the main payment method is Cash on Delivery (COD). AaramShop’s competitive advantage is their delivery, which is guaranteed within a maximum of two hours if the order is placed before 6:00 p.m.; if placed after 6:00 p.m. the delivery is done the next morning.
This Karachi-based venture was started in December 2013 by five former classmates of the Sir Syed University of Engineering and Technology; Asim Javed, Faisal Khan, Syed Zeeshan Haider, Syed Rizwan Ali and Imtiaz Qidwai.
RashanLelo maintains its own inventory and has no direct involvement with retailers. The company buys in bulk from the wholesale and sells the products at market price. Currently the company has not entered into any partnerships with FMCGs, as they want to acquire a steady flow of over 1,500 customers per month before doing so. Profits are derived entirely from the price margin and according to Javed, unlike retailer-centric models, where the price of the product can vary slightly depending on the retailer selected, RashanLelo’s product prices remain consistent and customers do not encounter any price change in the final bill because of changes at the retailer’s end.
The minimum order is fixed at Rs 5,000 (although there are plans to bring it down to Rs 3,500), and the order is delivered the following day at the customer’s preferred delivery time. On average RashanLelo delivers 300+ orders per month and caters to all areas in Karachi. Although the majority of customers reside in Karachi, RashanLelo also takes orders from overseas customers. Many overseas Pakistanis, says Javed, want to provide elder family members in Pakistan with the convenience of home delivery.
“They order grocery items from our website, transfer the payment and specify a convenient delivery time.”
Although the preferred mode of payment is COD, customers can also transfer money to RashanLelo’s bank account, which works well for overseas customers.
Based in Islamabad, SmartMart (a product of Tech-Spiders) was launched in mid 2014 by Saqib Hanif (CEO, Tech-Spiders). Hanif is originally from a small town called Shinkiari in Mansehra District, KPK. After completing his education, he moved to Germany and worked there for a few years before coming back to Pakistan to start his own technology venture called Tech-Spiders. Apart from SmartMart, the company has web-based products like CardsStudio, CarShare and DoktorApp.
“We launched SmartMart with the objective of delivering groceries and other products to Islamabad residents, especially to working women or people who have difficulty stepping out,” says Hira Hamid, Product Manager at SmartMart.
Like RashanLelo, SmartMart works on the inventory-centric model. The company buys the products wholesale and sells them at the market price. The main source of revenue are the delivery charges; Rs 200 for orders under Rs 5,000 and Rs 100 if the amount is over Rs 5,000. Although SmartMart accepts payments via multiple methods, such as EasyPaisa, Moneygram, Timepey, Upaisa and Western Union, the most used method is COD because “people still distrust online payment methods, and prefer to pay only when they have the product in their hands,” shares Hamid.
SmartMart’s competitive advantage is the inclusion of perishable items such as vegetables and fresh dairy products in their portfolio, something no other portals are currently offering. However, managing inventory and storage is trickier for perishables and the company does not keep such items in their warehouse; instead they liaise with selected fruit and vegetable vendors to ensure freshness and quality. Customers can place the order online or via their phone, and if a particular product is not available on the site, they can call the helpline and it will be arranged for them. SmartMart delivers the same day for orders placed before 6:00 p.m., otherwise delivery takes place next day.
SmartMart’s expansion plans include increasing its cosmetics range by providing more local and international brands. They are also looking at adding meat to their perishable range and eventually expanding to other cities in Pakistan.
The road ahead
Clearly online grocery stores are still in the initial stages of their development. In terms of target audience they are targeting the convenience factor; working women, who do not have the time to go grocery shopping or housewives reluctant to step out due to cultural or family setup issues or even the elderly. However, there are many challenges. Logistics is a huge issue and includes the cost of maintaining delivery vans/bikes and ensuring timely deliveries. Then there is the security situation which discourages local and global investors and venture capitalists from investing in these businesses.
Although these ventures are not making huge profits at present, all three entrepreneurs recognise the opportunities. Arif talks about how online portals like OLX and Asani have created massive awareness through media campaigns, making customers more receptive to the idea of online retail. Javed talks about global and regional case studies that can be used as lessons for what works and what doesn’t and Hamid thinks that the roll out of 3G and 4G in will significantly accelerate growth in this currently underserved segment.