E-commerce is making inroads towards a broad swathe of products and the grocery retail industry is no exception. According to the Kantar Worldpanel Report 2016, sales of groceries through e-commerce platforms reached $48 billion globally and it is projected that by 2025, grocery e-commerce will grow to nine percent of the market and be worth $150 billion worldwide.
Following suit, Pakistan’s e-commerce industry, which currently has a value of $30 million and the potential of reaching $600 million by 2017 (source: GSMA study), has been witnessing an increase in the e-grocery trend. Currently at a nascent stage and evolving, it is difficult to gauge the size of the online grocery market in Pakistan; however, considering the $48 billion global retail market, the growing population and tech trends, one may say that it could grow to be worth millions.
Groceries are categorised into packaged or perishable items that include fresh produce (fruit and vegetables), and there are currently over 20 e-grocery stores (most of them start-ups) operating in Pakistan, among which the most well-established include Tazamart (an Arpatech Technology Ventures company), Pakistan Grocery, QuicknEasy or QnE (Premier Agencies), Cartpk, Mycart (IBL Group), Gomart, MandiExpress (Laborforce.pk), GrocerApp and Sabziphal. Tazamart, QnE and GrocerApp offer both packaged and perishable items while Sabziphal and MandiExpress deal only in fresh produce.
Aurora interviewed some of the founders of these e-grocery stores to find out how they are working, what is catalysing their growth, who their customers are, the segment’s potential – and most importantly, whether these e-stores will be able to convince old-school customers to switch their buying habits in future.
“With the growth of e-commerce and more people moving online to buy stuff, the shift was natural,” says Ahmed Saeed, Co-Founder, GrocerApp. “For years, Amazon and Google refrained from groceries, but even they have jumped into the business.”
Jehanzeb Chaudhri, Founder, MandiExpress, estimates the size of the e-grocery market at approximately $170 million, just in Karachi, and growing rapidly. In his opinion, the segment has huge potential because these start-ups are providing a level of customer support and user experience that people have never experienced before in Pakistan. “Customers don’t want to haggle, they don’t want to be shipped fake products and want a return policy. E-commerce stores are providing that.”
The founders believe that what is driving this shift is access to technology along with more aware audiences open to buying online. The second major factor is convenience; now that people are fairly accustomed to buying things like electronic items, personal care products and clothing online, they want their groceries to be delivered the same way. It saves time, and one can browse multiple e-grocery stores and compare prices within minutes. Chaudhri says the biggest hassle in buying fresh produce is dealing separately with fishmongers, butchers and green grocers and this is the reason why people opt to order from one source. He believes people in this segment are curious to see whether they can actually get the same or better quality produce without having to waste half their weekend doing so.
Since groceries are primarily a woman’s domain, it is not surprising that about 70% of the orders come from women. In fact, the percentage may be even larger, as according to Hassan Malik, Marketing Associate, QnE, “a lot of women are reluctant to give personal information to vendors and use masculine identities.”
Almost all these e-grocery stores conduct business via their websites and have only recently launched (or are in the process of launching) apps. The exception is GrocerApp which conduct business only via their app. According to Saeed, “my experience at PakWheels.com helped. Almost 70 to 80% of PakWheels’ traffic came from mobile phones, so we were clear that mobile is the future.”
In terms of the business model, GrocerApp have adopted the marketplace model, whereby customers can interact with a selected number of sellers, who are registered with the website or the app. When the website receives an order, it is forwarded to the relevant seller who then fulfils it by shipping the merchandise to the customer. All the other e-grocery stores work on the inventory model, whereby the store manages an inventory, interfaces with customers, runs logistics and is involved in every aspect of the business.
Almost all e-grocers deliver without extra charges for orders over Rs 500 or 1,000. Groceries are delivered, on average, within four to six hours (Tazamart say they deliver within three hours). Cash on delivery (COD) is the most utilised mode of payment, among options that include credit card payments, mobile Point of Sale (mPOS) and bank transfers. There are also options for different time slots to have the groceries delivered (especially for families where both spouses are working and are not available at home 24/7), and ‘express delivery’, whereby the order is delivered within an hour (you have to pay extra for it).
As for the price of this convenience, Tazamart say the differential is five to eight percent compared to market rates. Saeed adds that since 90% of the items have a fixed price from the company, there is nothing much they can play with. He says the business is unlike the restaurant business, where people charge more for a burger because they have spent a lot of money on the outlet’s interior. However, on comparing prices in the market and ones on these stores’ websites, it turned out that the differential ranged between 14 and 20%.
Apart from profit and sales volumes, the real competition among these online grocery stores is in terms of quality and service (they believe that even if they gave promotions and discounts without quality service, no one would be interested in saving Rs 50). This is why their customer service includes a no-questions-asked return policy. Chaudhri adds that to attract more customers and retain regular ones, his store is integrating loyalty points to reward customers and has an ‘insider group’ of customers to whom they send out samples of new products and gifts of any remainder inventory procured from the farms. “This gives us feedback, keeps our customers happy and brings in more sales.”
Since these e-stores are more inclined towards catering to online customers, about 80% of their focus is on digital marketing, that includes social media marketing and Google Display Network, in combination with search engine marketing (SEM), and sending SMS and newsletters to the people listed on their database on a regular basis.
Despite the fact that these e-grocery stores are working assiduously towards luring customers via convenience and service, it is a given that people will not stop visiting the traditional grocery stores or hypermarkets, as for most Pakistanis, grocery shopping is an enjoyable experience, where they want to touch, smell and pick their own produce. So although online grocery stores are a great value addition, a combination of bricks and clicks is what consumers want. In this respect, Sabziphal is a definite winner because they run a brick and mortar store as well as an e-grocery store. Saeed for his part is of the opinion that super or hypermarkets are not competitors; rather, they could be potential partners to increase the efficiency of online stores.
All founders agree that the biggest challenge is the conversion from buying groceries from physical shelves to an app or a website. Furthermore, an efficient logistics system is essential in ensuring timely delivery of orders. “Also, we are dealing with a very large informal market that comprises people who are largely uneducated,” adds Chaudhri. This is why, he says, the vegetable, fruit, meat and seafood wholesale markets are unregulated and chaotic. “We want to upgrade this current system by bringing tech into the equation.”
Finally, for any start-up to succeed, a public-private partnership is essential. These entrepreneurs voice concerns over the Government’s silence towards the e-commerce industry and its future. This indifference is limiting the potential of this business. “If someone starts a manufacturing industry or a mill, they will be allotted incentives by the Government, like tax exemption or free land, but for tech start-ups, there are none so far,” says Malik.