🛒 Why grocery delivery may never work

Basically, it boils down to the manufacturer, distributor, retailer, & the last mile logistics play.

Welcome to the 75th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more

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Year 2022: BigBasket posted ₹812Cr loss 💵
Year 2016: PepperTap failed in less than 2 years 📉

So what’s the reason for Grocery business failing in India, one after the other ⬇️
Just hoping it's 2030 and India has at least one profitable grocery company 🤲🏻

Let's begin ✈️

Every year new grocery startups raise, build sleek product, hyper-grow & go bust. Whatever the reasons, they never turn a profit.

So what's behind every grocery business's failure? 🤔

This question has haunted everyone who has ever worked on building a grocery business in the last 30 years. The answer lies in the nature of any grocery business.

The four players - manufacturer, the distributor, the retailer, the last mile logistics play the game of bringing profits.

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The manufacturer 🏭

They never lose money & turn a good profit. These are the OG brands who are the nouns for grocery items in their loyal customer base - Aashirwaad for Atta, Parle/Britania for biscuits, Fourtune for sunflower oil & the list goes on. Typical margins 15 to 30%.

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The distributor 🚚

This player doesn't make huge profits but never makes a loss. If you are a grocery player and you rely on distributors - it's really hard to make any margins on most products. Typical margins 10 to 15%.

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The retailer 🏬

They have to setup a store, get right branding, do marketing, solve for increasing time spent per customer in the store & 100s of other things. Typical margins 7 to 15%.

Now this is where it get's interesting ✨
Most grocery startups have typically focused on two things.

First, eat into the distributor margins and buy in bulk from manufactures. Cutting the middle man. This has worked for few brands to reduce losses but no one, I repeat no one has turned operational profit, yet.

Second, promote a white labeled product (Dunzo's own rice, Zepto's own oil, DMart's own sugar & so on) to improve the 7% retailer margin to ~30% = {manufacturer + distributor + retailer}

But, it missed an important aspect. Will you use a different toothpaste than Colgate & the next 2 brands? Will you change your choice of rice / daal. Maybe Sugar could be something you have flexibility of choice. But, that too if the non-branded sugar is cheaper.

Changing a user’s behaviour to switch brands is huge & a retailer (let's say they even cut the distributor) can never compete with traditional brands to influence the end users.

Could this be the Amazon-way of doing this? For the longest time, Amazon has been accused of knocking any good business out of market by launching their own, just a little cheaper. Reuters spent a bomb of time reading through Amazon’s policy and the company has a legit method of creating knockoffs & selling them.

Unfortunately, while people can buy a cheap pan or bottle, they may not switch so easily when it comes to years of habit in their food consumption.

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My honest admission 💙

This post was triggered when I visited a local DMart type of store and I saw the shopping cart at the billing counter. I had less than 2 whitelabeled items for every 10 items I bought from OG brands in the cart.

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