Business

How Big is Pakistan’s Online Grocery Market?

Groceries. The things everyone needs. Depending on where you live, the variety of products available is determined by the strength, width and depth of the supply chain of that geography. Culturally speaking, shopping is a family outing. At one point or another, you’ve been stuffed into a car and parked in the seat of a shopping cart to endure an endless list of monthly shopping.

But Pakistan’s E-commerce market is still small. A lot of investors and seths could literally buy out the whole segment with their checkbooks. A lot of online shops realized if they wanted repeat customers, they needed to be given a reason to come back to their online marketplaces for groceries. From the vendor’s perspective, it gives them a wider product range and fast moving products off their shelves.

Alibaba’s acquisition of Daraz.pk for an estimated $200 million was the first big news out of this sector. Now everyone with a ration surplus at home and some tech skills, is setting up an online storefront. The E-commerce market in Pakistan is mainly made up of players focusing on electronics and fashion, but there is a growing niche of online grocery portals that is gaining momentum. Daraz itself has a grocery section. Alibaba and Amazon are both big on groceries. Again, without consistent repeat sales, the virtual flies are a-swarming.

The global grocery market is projected to cross $2.7 trillion, $1.2 trillion of which will come from Asia. Pakistan is the sixth most populous country which makes it one of the largest markets for groceries in the world. The current shape of the online space is unclear, but there unless someone does something really stupid and senseless, there is no place to go but up

Who is Buying?

A large majority of e-grocery sales come from corporate corporate buying such as banks, major companies and private agencies. The large corporate buyers simply outsource their requirements. The trend is large quantities and repeat purchases. Bulk orders offer companies price controls for a period of time, notifications of price hikes and bundle offers.

While corporate customers may order in bulk, individual customers make up the majority of orders online. 64% of Pakistan’s population is under the age of 30, who have have grown up in the age of computers and smartphones. They are aware of e-commerce outlets like Amazon and Alibaba investing in online shopping and are comfortable with the surf and click behavior. They are looking for similar options at home and will jump at the first opportunity. As long as the online shopping model offers competitive pricing and great delivery service, market share will continue to rise.

The driving force behind online grocery stores in Pakistan is the middle class and the upper middle class who want to save time and money. They just don’t have the luxury of time to fight traffic, parking and checkout queues. Online shopping comes with benefits: discounts unavailable with physical shopping and fuel saving.

Revenue

The average basket sizes for occasional shoppers can vary between Rs.2000-2500 while those of the upper-middle-class customers begin from Rs.20,000. Corporate customer basket sizes typically begin from Rs.50,000-60,000. Corporate customers do tend to pay through bank transfers or cheque and regular shoppers insist on using credit cards but 90-95% of payments are still Cash On Delivery. Fintechs like EasyPaisa and JazzCash as well as major banks like HBL are pushing cashless transactions by offering discounts on online and bulk purchases.

The incentives for banks to get people using their electronic services is two-fold; it allows them to get their money’s worth and pay back payment service providers like VISA and Mastercard and also increases the volume of transactions.

Presently, only 1% of the total transactions conducted in Pakistan are carried out through credit cards. Though it is hard to estimate, the revenue generated from online shopping portals in Pakistan ranges from Rs.5 Million to Rs.20 Million per month. Taza Mart is a good example. In 2017, they generated an average monthly Rs.41 Million. When you compare this to the daily sales of  a super store like Imtiaz, the store generates Rs.22 Million per day. This translates into Rs.8 billion annually. Once you put such numbers into comparison, you really have to step back and wonder just why Imtiaz would want to add another channel and get into online retail. Until the customer side doesn’t demand it, online for a brick and mortar like Imtiaz simply isn’t feasible.

The online grocery market is 6% of Pakistan’s total E-commerce market. Pakistan’s E-commerce market pulled in $700 million in 2017 and is crossed the $1 billion mark in 2018. That puts the current online grocery market size at about $42 million. The market is changing however and is expected to increase significantly in size five years down the line.

Areas of Growth

The largest single unit purchase at online grocery stores is milk. Powdered milk sells even more than cartons of Olpers or Milk Pack. Similarly, staple items such as bread, eggs and butter tend to be great points of interest for most customers. There’s a lot of potential for bulk deliveries of these items to households. And then there are of course discounts on bulk purchases such as a carton of milk free with a case of Olpers or a mug free with every box of Everyday. Seasonal discounts may also hold a lot of importance. The month of Ramzan, for instance, brings unreasonable price hikes across all aisles. If online grocery stores offer discounts on national favorites, they can grab the interest of a major chunk of the market.

Organic and fresh foods are still so niche and limited in quantity, their volumes don’t make for sensible numbers as yet. These environment-friendly foods are limited to the farmer’s markets and niche online stores. Their production does not yield large volume and the tech disruption is negligible because the investment will not yield any ROI. Startups like Mandiexpress and Sabzi Phal began operations with zest, but are struggling to stay afloat. The fault isn’t theirs; the market simply isn’t loyal to the eco-friendly, clean and healthy food space.

Challenges in Supply Chain and Delivery

It’s only been in the recent past that low-cost, effective solutions have been available for small outfits to manage their customer service activities themselves. The online shopping experience is quite a distance from having satisfied customers. Regular complaints of expired or damaged deliveries, along with a broken last mile. Bespoke couriers sprung up to the rescue but it wasn’t until trackable solutions were put into place, that customers starting gaining more confidence in their orders. Product exchange and return was also a big hassle until brands developed their own wallets (to manage the refunds) or got the banks to refund the cash faster. In the last 12 months, the level of customer service has grown because customers have so much competition to choose from.

But there are still business who believe that a webpage and an app is the secret to success. Without any investment in the backend, the honeymoon period will be very ugly.

The online grocery space is fundamentally different than the online electronics or fashion space. Where the latter allows for a standard 3-5 business days to ship, while the former is all about urgency. Acquiring the groceries, stocking them and shipping them out in the time allotted to the customer is the whole game. Without warehousing, track and trace solutions and a transparent supply chain that gives end-to-end visibility, this would not be possible.

The three methods of inventory management being used by retail companies are:

  1. Drop Shipping of JIT (Just In Time): Here, the retailer does not keep items in stock. The items are ordered straight from the manufacturer or wholesaler when the order is placed. The manufacturer then delivers the shipment. The retailer never physically sees the product. The manufacturer is then paid for the delivery and the product. This model fails when the item ordered is not in stock or is unable to be delivered on short notice.
  2. Cross Docking: Different items are ordered from different manufacturers or wholesalers. Items are unloaded from incoming trucks upon arrival and subsequently sorted into different outgoing trucks as per the orders received. There is little or no storage in between. This method incurs huge labor costs and isn’t a viable operation for individual orders such as online grocery.
  3. Stocking: This is where items are pre-ordered keeping in mind shifting demand and stocked in warehouses to ship upon order receipt. This method works best for online grocery because it allows perishable items to be stored adequately and anticipates the level of engagement with the customer. Take a seasonal or event-related sales such as Singles Day, Valentines or Eid.

Then, of course, there is the delivery process, also known as the last-mile. Customers are given the option to choose between delivery windows. Once the decision is made, the delivery needs to be able to map out the most efficient route to make all the stops on time. Deals have to be made with major courier services, a native delivery workforce has to be developed and routes have to be planned. Without a clear road map, the dreaded last mile delivery curse rears its head. In the online grocery space, timing matters more than anywhere else. No customer wants melted butter or stale bread.

Aaraam Shop is a cautionary tale in this regard. Their model relied on purchasing groceries from a store near the delivery location and in case there was no store, there was no delivery. Today the Aaraam Shop website is an almost blank page with an E-mail, any message sent to which bounces back. Almost 15 years ago when TCS separated from DHL and was ramping up its local delivery service, one of the secrets of its success was its maps. They mapped the cities themselves and had the POS machines to coordinate every step of their supply chain. That was before Google Maps. Today, the intricate level of mapping is available to everyone and it all comes down to the level of customer service and pricing to choose between the courier your company can work with.

Way Forward?

Business models of today’s nature of work are more collaborative. The e-commerce shop only gets the customer hooked and satisfied; all other processes are outsourced. This entire segment is run by technology. The better the solution matches your needs, the more success you will have.

You’ll find familiar spaces consulting with online marketplaces, bringing their wealth of brick and mortar experience and relationships with brands. After all, it’s all about the network. Category veterans are often in high demand to guide the younger, tech-savvy startups.

Grocery shopping online will continue to grow but unless end-to-end supply chain isn’t an integrated solution and payment platforms aren’t sorted out, the growth will not be very aggressive nor will it be sustainable. This is a volume game, and the volume has to be a lot bigger to make any kind of noise for further growth. But yes, we still have a long way to go.

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