Understanding consumer behaviour and industry

challenges to sell food groceries through e-commerce

By
Omair Nayyar
20120119041
PGDM(C)
In partial fulfillment of requirements of the Post Graduate Diploma in ManagementCommunications

Dissertation Guide
Prof. Kallol Das

February, 2014

Copyright 2014 by Omair B. Nayyar and Mudra Institute of Communications, Ahmedabad (MICA)

Acknowledgement

I would like to thank my guide, Prof. Kallol Das for his immense support and
guidance, which aided me in completing this study. His enthusiasm and interest was a source
of motivation and inspiration for me and I am deeply indebted to him for his valuable insights
and inputs. I would also like to thank Dr. Shailesh Yagnik, whose efforts have enabled me
and my colleagues to access any literature from around the world. The way you have
organised the KEIC at MICA continues to inspire us students everyday. Heartfelt gratitude to
all the respondents for their valuable time and inputs and without whom this study would be
complete. This acknowledgement is incomplete if I fail to thank my parents and my sister for
their unconditional love and support all these years. To my mother, for inculcating in me the
love for words and to my father, for teaching me that there is nothing that cannot be
accomplished through grit and determination.

Table of Contents
Abstract .............................................................................................................................................. 4
Introduction ..................................................................................................................................... 5
Literature Review ........................................................................................................................... 7
Internet usage ........................................................................................................................................... 8
Food retail and shopping behaviour in India ................................................................................. 9
Consumer behaviour and e-commerce ........................................................................................... 12
F&B and e-commerce ............................................................................................................................ 15
Research Objectives .................................................................................................................... 17
Business Problem .................................................................................................................................. 17
Research Problem .................................................................................................................................. 18
Research Methodology and Design ........................................................................................ 18
Stage 1 Secondary Research ............................................................................................................ 19
Stage 2 - Primary Research ................................................................................................................. 19
Limitations of Research ............................................................................................................. 21
Findings and Analysis ................................................................................................................. 21
Consumer Behaviour ............................................................................................................................ 21
Un-organised food retail industry .................................................................................................... 27
Existing e-commerce stores selling F&B products online ........................................................ 28
Problems faced by online food grocery stores ......................................................................................... 29
Business Models of existing e-commerce store ....................................................................................... 31
Sources of revenue for e-commerce players ............................................................................................. 34
Large F&B players in India .................................................................................................................. 35
Conclusions .................................................................................................................................... 36
Bibliography .................................................................................................................................. 38
Appendix ......................................................................................................................................... 41

Abstract
Today, more and more people are shopping for various products online. Even in India, inspite of the relatively low penetration of the Internet, consumers are increasingly visiting ecommerce sites such Flipkart, Myntra, eBay and many others regularly. For certain categories
like books, electronics or movie tickets, online sales make up a substantial part of total sales
in India. Over the past few years, there has been an increasing trend around the world, and in
India, to shop for food groceries online as well. Factors such as convenience, time-saving,
low prices, door-to-door deliveries have helped customer move online for more and more
food grocery purchases. This study aims at understanding consumer behavior when it comes
to shopping for food groceries offline and online. The study also looks at the different
business models and revenue streams for food grocery e-commerce websites in India and
abroad. For a large Food and Beverage company in India, it looks at whether it makes sense
for them to enter the online grocery business and what are the challenges and opportunities in
the segment for any player.

Introduction
In India, the Internet arrived in August 1995 in 6 cities, Mumbai, Delhi, Kolkata,
Chennai, Pune and Bangalore (The Indian Technonomist, 1995). By the end of 1998 there
were more than 1 million Internet users in India. This was further assisted by the huge
increase in sales of personal computers and opening of cyber-cafes across the country
(McKinsey&Company, 2012). In 1996 and 1997, several B2C and B2C businesses such as
online matrimony portals and job portals started moving online (Ernst & Young, 2012).
Companies such as Naukri.com and Shaadi.com were the founding members of Indias ecommerce fraternity. 1997 also saw ICICI Bank launch the first ever Online Banking
facility and paved the way for online transactions. It was in the same year, which saw the
emergence of the poster boy of Indian Internet, Sabeer Bhatia with the launch of
Hotmail.com.
Today, there are between 150 to 200 Million Internet users in the country, depending on
which report one reads and the e-commerce industry is growing with leaps and bounds.
According to a report by the Internet and Mobile Association of India (IAMAI) and IMRB
International, by June 2014, India will have 243 Million Internet users and will have replaced
the United States as the country with the second highest number of users in the world. China
leads with over 300 Million Internet users today (Your Story, 2013). In 2012, e-commerce
earnings stood at a whopping $14 Billion (Hindustan Times, 2012), right from books and
apparel to movie tickets and pizzas, for more and more purchases, the Indian consumer has
moved online. In 2012, Indias Internet contribution was 1.6% of the GDP, which is expected
to grow to between 2.8 to 3%. According to an interview by Sandeep Komaravelly, Vice
President, Snapdeal, Internet penetration and the availability of more payment options, has
boosted the industry. Companies such as Flipkart continue to secure large investments and
the entry of Amazon in India last year has further enhanced the industry. A large number of
factors such as increase in annual disposable income, penetration of Internet, rise in the sales
of PCs, tablets and smartphones and increase in the number of payment options will continue
to enable the e-commerce business to grow in India.
Inspite of the large number of businesses moving online or atleast having an online presence,
one industry that has so to say failed to catch the bus is the Food & Beverage (F&B) industry.
There has not really been any one from the F&B industry, who has cracked a model for
5

selling food groceries online, neither the retailers nor the manufacturers. The industry
constitutes about 70% of the total $470 Million retail market in India. Although only 5-8
percent of the market is organised, the organised retail segment is growing at 3 times the rate
of unorganized retail in India. According to Mr. Raghav Gupta, Principal, Booz and Co.,
organized food retail is expected to grow over 4 times through stores, super-markets and
hyper-markets till 2018 (Poornima & Ashok, 2013). Online food grocery shopping has
already picked up in many developed markets already, in the UK 5% of the total grocery
shopping is through online channels, in France it is 3% and 4% in South Korea. The growth
rates of online shopping are between 20-50% in developed markets and should double in
many other markets by 2016 (BCG, 2013).
The F&B segment which, commands a lion share of around 20% (Ernst & Young, 2012) in
the organised retail industry has failed to find a substantial national level model in India
specially. According to a research carried out by BCG in eight different countries the global
online grocery market is expected to reach USD 100 Billion by 2018. The research goes on to
suggest that out of this 100 Billion, 8 Billion will come from nascent markets and 27 Billion
will come from developing markets. Evolved market will account for 65 Billion of the share
(BCG, 2013). While certain websites such as Flipkart.com have already begun selling
personal care products online, none of the leading Indian e-commerce portals apart from
Infibeam recently has forayed into food groceries. While there are around 15-20 companies
in the country such as bigbasket.com, aaramshop.com which sell food groceries online, most
of these are limited to fixed geographies such as Delhi or Bangalore and do not have a
national presence. In 2001, HUL launched a direct-to-home venture called Sangam wherein
they sold grocery and household products directly to the consumer. The products ranged from
brands of HUL to even other brands like Godrej. Customers could place orders through the
telephone or online and the groceries would be delivered to their homes. By 2007, HUL
exited the venture by selling the 100 Crore business to Wadhawan Retail which run the
Spinach stores in Mumbai. One of the major reasons for HUL selling off the business was the
costs involved in the last mile delivery and this is a problem plaguing many players in this
space. Margins in groceries have always low compared to other categories (15%) and costs of
manpower transportation, logistics etc. make it difficult for any player. (Vaid, 2007).
Not just in India, but even in the developed world companies have found it difficult to sustain
an online grocery delivery model. In the United States, Webvan was one of the darlings of
6

the Internet during the late 1990s. The company was an online credit and delivery store that
delivered to customer homes in 30-minute windows of the customers choice. In 2001, the
company however went bankrupt with an accumulated deficit of US$ 830 Million. Just a year
and a half after raising Millions of dollars through an IPO, aggressive expansion, a complex
website and most importantly lack of enough customers led to the companys downfall
(Glasner, 2001). In 2008, Webvan was named the largest dot-com flop in history (CNET,
2008). What has changed now that venture capitalists are again putting funds in food grocery
e-commerce stores? ZopNow received its first round of funding in 2012 from Accel and
Qualcomm and BCCL. Bigbasket too raised a funding of US$ 10 Million from Ascent
Capital in 2012 (Gulati, 2012).
The aim of this research will be to try and understand consumer behaviour while
shopping for food groceries online. The research will also aim at looking at whether it makes
sense for an F&B major to enter this space. Recently, HUL again announced that it is looking
at the prospects of e-commerce for sales of its products (Agarwal, 2013). Coca-Cola has also
recently launched the sale of its products online (Coke2home.com, 2013). Although this is
only limited to the city of Ahmedabad, such actions by F&B giants shows the opportunity in
the industry and the need is to find the right business model to approach and enter the grocery
e-commerce segment. The aim of the research is to find out what strategies need to be
adopted by F&B businesses to match the growth rates of around 20% (McKinsey&Company,
2012) established by online travel or consumer electronics and understanding what are the
areas of difficulty faced by manufacturers and retailers. A lot of factors such as thin margins,
supply-chain management, storage etc. continue to challenge e-grocery stores and the
research will aim to see how successful businesses are tackling these issues. Outside of India,
Amazon has successfully managed to increase their portfolio to include groceries and it will
need to be seen the model can be replicated in a country like India.

Literature Review
While there is no shortage of research papers on the Internet and e-commerce industry
in India, there seems to be lack of substantial research on the online F&B segment in the
Indian context. The following section will look at the literature available on the following

topics, Internet usage in India, consumer behaviour with respect to food shopping, online
shopping and F&B in e-commerce.
Internet usage
India has a base of over 120 Million Internet users, which is expected to treble by
2015 and will account for approximately 12% of the world Internet usage
(McKinsey&Company, 2012). The rate of growth of Internet users in the country has been a
lot quicker than many other developing countries such as Malaysia and South Africa. For
example in Malaysia, the number of Internet users grew by 1.8 times between 2005 and 2011
and even South Africa had a growth rate of 1.9 times, while in India in the same period, the
number of Internet users grew by more than 5 times. The numbers are varied and according
to certain sections, the number of Internet users has already touched 200 Million in 2013
(The Economic Times, 2013). In India, Internet users spend between 20-25 hours online per
month. (Abhimanyu Mishra, 2012). This is roughly the same amount of time spent by the
people of Latin America and our other counterpart nations. However, this contributes to only
a quarter of the time spent online in countries such as Malaysia or China. (Machado, 2005)
and (Sanjay Jain & Manika Jain, 2011). (Lohse et all, 1999) showed that online purchasing
habits are directly related to hours spent on the internet. The more time a person spends on
the Internet, the more chances of him and her shopping online. According to (Brendan
Hannah & Kristina M. Lybecker , 2010) as time increases the amount spent online also
increases and the time competes with other forms of online entertainment and social
networking. Studies have also shown that in developing countries like India, Egypt, Mexico
and other women are 25% less likely than men to be online (Intel, 2013) India like other
developing technologies has also undergone technology leapfrogging wherein there is a
large population, which has skipped accessing the Internet via desktops, and are now logging
in from their cell phones and other mobile devices like Tablets, Phablets etc. According to a
report by IAMAI, by the June 2014, that estimated number of mobile Internet users would
account for 60% of overall Internet users in the country (Forbes India, 2014). Rural Indians
make a substantial part of this population. The Internet in India has been able to define a clear
proposition for all stakeholders in rural India as well. These stakeholders include farmers,
Mandis, Panchayats, Sanchalaks and others. The Internet has been able to provide
information to the farmers and thus helped in growing of crops. It has also lead to the

organisation of the agricultural markets in rural India. Services like e-choupals have provided
a scientific method to old methods of farming (Basu and Banerjee, 2011)
Various studies have also been carried out to understand the reasons why people use the
Internet and what is the major source of gratification for users. According to a study carried
out in Hyderabad, India the gratifications for the use of Internet in India were user
friendliness, self-development, educational opportunities, convenience in communication,
enhancement of self-development, wide exposure and global exchange. Apart from these
Relaxation was one of the most dominant factor for user gratification of Internet use in
India. The study showed that the factors for motivation were the same across genders (Roy,
2007). Another study carried out in 2008 shows that most of the respondents used the Internet
for Work/Business. Respondents who were below 20 years of age used the Internet for
Entertainment; around 23% of urban respondents went online for communicating with
others (Kiran, Sharma & Mittal, 2008).
Food retail and shopping behaviour in India
The Indian food sector continues to be dominated by traditional outlets or Kirana stores.
These stores make up 98% of all sales in the category. Retail food sales were estimated at
USD 270 Billion, which was around 70% of the retail industry. Indians did not leave the
neighbourhood Kirana stores even with lots of modern retail outlets coming up. Modern
grocery stores accounted for only USD 5.4 Billion of the total pie (USDA Foreign
Agricultural Service, 2013). Research firm Frost & Sullivan mentioned the desire amongst
consumers to maintain a healthy lifestyle coupled with increase in awareness of ingredients
such as vitamins, minerals etc. as the reason for the increase in the fortunes of the foods and
beverage market.
Studies have shown that Indians purchase food items for both functional as well as hedonic
reasons. While the functional component was found to higher than the hedonic component
amongst food items, the purchase of food items is not always on the basis of rational factors
but is also dependent on emotional feelings (Gray, Gillpatrick, Marusic, Pantelic, &
Kuruvilla, 2010). Amongst various food categories, milk, sweet and savoury snacks and
processed poultry dominate the field. According to a report by CII and McKinsey, packaged
milk is expected to grow to USD 32.9 Billion by 2030 with an average growth rate of around

8%. Currently only 31% of the milk sold is branded, according to the report this number will
reach 73% by 2030. Similarly Sweets and savoury snacks will be the second largest category
at an estimated USD 16.39 Billion by 2030. The processed poultry products category is
expected to grow the fastest with growth rates of around 17% year-on-year and is expected to
be worth USD 8.34 Billion by 2030. The biscuits category is expected to reach over USD 13
Billion followed by Vegetables and Edible Oils at over USD 10 Billion by 2030 (CII and
McKinsey, 2013). According to Mr. Adil Zainulbhai, Chairman of McKinsey and Company
in India, branding will drive the next wave of growth in Indias food sector (Business Line,
2013). According to the report, the food consumption in India is expected to double by 20130
as standards of living improve in the country. The per capita consumption of food is expected
to grow by 3% annually from INR 9360 to INR 15, 390 in 2030 per annum.
Research has shown that one of the reasons Indians prefer Kirana stores is because of the
proximity to their homes. Around 90% of food purchases by Indians are made within a radius
of 1.5 Km from the customers home. (Goswami & Mishra, 2009) researched on the
differences between organised retailers and Kirana stores for customers. The study carried
out in two large and two small Indian cities showed that Kiranas was rated higher because of
travel distance but rated much lower for cleanliness, offers, quality and salespersons. The
Indian consumer is also very conscious of price, a study carried out by Tata Strategic
Management Group shows that manufacturers of packaged food need to drive down their
prices by around 40% to be able to be compared with home cooked food (K.C Mittal & Ella
Mittal, 2011). (Hemalatha et. all, 2009) categorized shoppers in the Indian retail context,
which has implications in the food retail space as well. According to their research shoppers
can be divided into three categories namely, (i) economic shoppers (ii) convenient shoppers
and (iii) elegant shoppers. (K.C Mittal & Ella Mittal, 2011) studied the impact of
demographics on the buying behaviour of food and groceries in the state of Punjab in India.
Their research showed that vegetables are the most frequently purchased items, while on the
other hand groceries were generally bought monthly. Monthly expenditure amongst the
respondents was highest for food groceries and was in the range of INR 500-1000. Younger
consumers bought vegetables more frequently than consumers who were of higher age. Older
consumers also preferred to travel lesser for groceries and fruits. A similar study carried out
in Navi Mumbai shows slightly contrasting results, according to the study 29% of the
respondents purchased fruits once a month, 27% purchased fruits once a week, 19.5% percent
bought it two to three times a week. 18.3 % bought fruits once in two weeks while only 9%
10

bought fruits daily. In the vegetable category as well, only 7.8% respondents said they bought
vegetables on a daily basis (Aggrawal, Manjrekar, & Aggrawal, 2011). 90% of respondents
of the same study said that merchandise display and quality, convenience of hours and
payment options were the most important retail characteristics. The number of people who
thought the clientele of a store are important were at 42%.
Another research carried out to study the diversity in retail purchase behaviour for food
categories showed that irrespective of location people preferred to purchase from nearby
grocery stores. The study also showed that apart from proximity, price is the most important
aspect for shoppers of food groceries. Perception and preference for Product Assortment,
Ambience, Communication and Service was different across different geographies (Mittal &
Prashar, 2010). (Ali, Kapoor and Moorthy) studied consumer preferences in Lucknow, Uttar
Pradesh and propounded that customers prefer cleanliness and freshness of food products
most. This was followed by costs, quality, variety, packaging and availability in non-season.
The research showed that the customers preference for a store depended on the convenience
while purchasing, additional services, children entertainment facilities, other amenities and
affordability. (Bishnoi, Bharti, & Gupta, 2009) postulated that based on psychographics,
shoppers in the National Capital Region (NCR) can be divided into nine different groups. The
first dimension of shoppers is those who show impulsiveness and price consciousness. They
purchase other brands if their preferred brand is not available and purchase items on impulse.
The second group consists of those people who are utility and variety seekers. The other
dimensions were those who were loyal to a particular store, consumers who loved spending
time while shopping, status conscious shoppers, opinion seekers, those who value quality of
the products over anything else, shoppers who enjoy the shopping experience as a form of
entertainment. Income of the respondent had a significant association with this dimension.
This study is validated by another similar study carried in Uttar Pradesh and NCR which
showed that all food purchase decisions can be put under the following factors (i) Store
Quality (ii) Marketing Mix (iii) Taste-flavour (iv) New offerings (v) Basic value and (vi)
Food safety (Gupta, 2009). The research also asked respondents what they felt about the
improvement in food quality related parameters. Maximum number of respondents didn't
have a great opinion on the improvement. The study mentioned how the rating for
Reasonableness of food prices with respect to quality had a mean of 2.92 on a maximum
rating of 5. As part of the same research, in order to find out what the perception was with
11

respect to food confidence, customers were asked to rate different food categories. Fresh
Fruits and Vegetables were assumed to be the safest (with a rating of 4.65) followed by Fish
Products and Eggs. Meat products had a rating of 2.90 while the lowest rating was for food
from fast food outlets and restaurants. The people were also asked about what changes had
occurred in their food purchase behaviour. The respondents strongly felt that they look at a
more options, which are now available for food items. In a family both the husband and wife
took decisions with respect to purchase (3.79) and even children had a huge amount of pester
power (3.47). The respondents preferred going to a place where the product displays are
better (3.39) and generally wanted to do all their shopping from one place (3.59). The role of
advertising in food purchase is still debatable as people disagreed to the statement that
advertisements play a role in their purchase (2.6).
Consumer behaviour and e-commerce
While India does have a large Internet user population, according to a study by
ComScore only 9% of the users carried out e-commerce transactions. The most occurrence of
online shopping is found in South Korea (99%) followed by UK (97%), Germany (97%),
Japan (97%) and US (94%) (Kiran, Sharma & Mittal, 2008). Also, according to the same
study the largest growing category in online shopping was apparel followed by comparison
shopping. In India the size of the B2C e-commerce was USD13 Billion, which was just a
small percentage of the USD 400 Billion that was transacted in the US in 2013 (Khanna,
2013). However, inspite of the small current numbers the future of e-commerce in the
country has a bright outlook. Studies have shown that the more time a person spends on the
Internet the more chances of him or her purchasing something from the Internet. Research
suggests that heavy Internet usage show more intent to purchase for goods online (Citrin et
all, 2009).
According to a recent study by Nielsen, reveals that half of the countrys online respondents
have expressed a desire to purchase a mobile phone and accessories via a device such as a
computer, laptop or phone. Around 25% expressed intent to purchase foods and beverages
via a device supporting Internet (Terron, 2012). According to the same research more than
44% of online consumers spend between 10-25% of their time online looking at the various
prices and researching on products. Over 53% of Indian consumers spend time online in the
search for deals by even brick and mortar retailers while 46% research on online products.
For certain categories such as personal care the intention of purchasing among Indian
12

customers has risen to 21% on 2012 from 14% in 2010. This increase in intent has also
shifted to a lot more categories such as movie and theatre tickets, apparel and e-books.
Around one-fourth of online shoppers in India purchase clothing and accessories online while
a slightly higher number purchase and download e-books and digital magazines. Sanjay Jain
& Manika Jain (2011) have propounded that education, gender, recreational shopping
orientation and income are four variables that have impacted a consumers decision to shop
online. Education and income were found to be directly proportional to online shopping, i.e
the higher the education and income of an individual the more likely they were to shop
online. Amongst males and females it was found that more males have bought a product or
service online as compared to women. This is further reiterated by a study in the UK, which
showed that males had a greater bandwidth for Internet use than women. The study
propounded that gender differences on the use of Internet are a reflection of gender
differences in society (Richard Joiner, 2012). Wolfinbarger & Gilly (2001) carried out
research that showed that online shopping behaviour is more goal oriented than experiential
as is possible with a brick and mortar market where the consumer can be motivated by the
experience of the hunt. The goal-oriented shopper would place a lot of importance on
parameters such as convenience, information availability and lack of sociability. Cho & Jialin
(2008) researched on the role played by trust and efficacy on the online consumer in
Singapore and their results showed that women were less trustworthy for online shopping
sites.
Sanjay Jain & Manika Jain (2011) also showed that customers who view shopping as a
recreational activity preferred shopping in brick and mortar stores as compared to online
shopping. The three aspects that were positively related to online shopping and were
successful predictor variables were past online shopping satisfaction, past online frequency
and education. This shows that once a customer makes his first online purchase, it is not too
difficult to retain him or her assuming they had a good experience. The same holds true for
education, the more educated a person is the more chances of him or her shopping online in
the future. An analysis by Kiran Sharma & Mittal (2008) showed that four factors influenced
online shopping. The four factors were (i) Product information and reliability (ii) Website
design and nature factor (iii) Influence of Internet shopping and (iv) Future of E-shopping.
Another research paper published in 2008 discussed the factors influencing online shopping
in India. According to the paper the reasons for shopping online in India is the same as it is
worldwide. The factors listed by the paper were (i) Convenience (ii) Accessibility (iii) Scope
13

(iv) Attraction (v) Reliability (vi) Experience and (vii) Clarity (Rishi, 2008). These seven
factors explained 62% of the total variance. The research also showed that the Lack of
Tangibility was one of the main reasons for people not shopping online, another factor for
lack of penetration was the fact that online shopping did not provide customers with enough
variety. Another research by (PWC, 2013) does a comparison of online consumer behaviour
between India and China. According to the study, Chinese customers are more willing to
purchase products as compared to their Indian counterparts. Demographically, the online
shoppers are the youngest in the world and more affluent that counterparts from other
countries. (Booz&Co) Identified Online shopping as one of the game changers in the Retail
space in India and in their report highlighted cases of how retail can use strategy
development, commercial management, operations and support functions to leverage
ecommerce for its consumer base. Khare, Khare & Singh (2012) carried out a study in the
NCR region and showed that a consumers attitude towards online shopping depends on their
perception on how useful a particular e-commerce store is. It contributed to 36.8% of a
consumers attitude towards online shopping being enjoyable. The three attitudes discussed
in the study were (i) Perceived Usefulness (ii) Ease of Use and (iii) Perceived Risk. (Mishra
& Mathew, 2013) studied the perceived risks of internet use and respondents showed that risk
perception amongst all 8 parameters. The highest risk was associated with the fact that the
online product will be delivered damaged (mean = 6.70, maximum risk =7), followed by the
fear that the product will not match the online description (mean=6.67), followed by fear that
ones credit card information will be stolen and be used by someone else (6.58), non-timely
delivery (6.51), lack of trust of online retailers (6.49), lack of confidentiality of personal data
shared online (6.38). The research also asked respondents to rank how important the various
attributes of an online e-commerce website are. The following were the results in order of
rank (i) Quality of Information (ii) Range of products available (iii) After sales service (iv)
Design of the website (v) Atmosphere of Website (vi) Recommendation from relatives (vii)
Recommendation by friends and finally (viii) Fun. (Magesh, 2011) studied the preferences
towards online shopping with an emphasis on the city of Chennai. The results showed that
54.70% of respondents were in an undecided state whether or not to recommend online
shopping to others while 41% of online shoppers would recommend online shopping. More
than 90% of the online shoppers said that e-commerce provides helpful shopping
information. 66% of the respondents said that it wasnt easy how to learn shopping online
and 66.70% said that shopping for products online fits well with the lifestyle and shopping
needs.
14

A research carried out in Bangalore, India mapped different demographics (age, gender,
occupation and income) of online shoppers in consuming different categories of services
online. The three categories of services were defined as High involvement, Medium
involvement and Low involvement. High involvement online services included those such as
purchase of jewellery, house loans, investments etc. Medium services included transactions
such as domestic holiday packages, hotel bookings and others while low involvement
services consisted of purchase of cinema tickets, restaurant reservations. The research
showed that age had a significant impact on the consumption of all three kinds of services,
which shows the role of youngsters in e-commerce. It also showed that Gender had a
negative relationship for consuming any kind of service online while Occupation had a
positive relationship in the consumption of the medium involvement services. Income also
had a negative relationship for consumption of high and low involvement services but a
positive relationship for the consumption of medium level services (Sakkthivel, 2006).
F&B and e-commerce
While there is not too much primary research that has happened in the F&B ecommerce sector in India, a large number of such studies can be found for international
markets. According to research agency Nielsen, global consumers intent to buy food and
beverages online had increased 44% in the two years leading upto 2012. Over a quarter of
them were planning to purchase F&B products online in the next three to six months of the
time the survey was taken (Clavis Study, 2012).
(Devi, 2008) discusses the entry of Amazon in the E-Grocery market in 2006 and tries to
look at the challenges faced by the organisation. (Belkud, 2013) talks about developing an ecommerce strategy for Indians living in Finland based on their shopping habits and the
requirements of the customers and tries to decode internet grocery shopping behaviour in
Finland. (Robinson, 2007) shows how situational variables such as life events (having a baby,
caring for elderly patients) have become a trigger for starting online grocery shopping
because of the convenience of the mode. The research also shows that once a situational
variable ceases, customers fall back to their old shopping habits. In the case of offline
shopping, this appears to be easy because customers never completely stop shopping in
traditional stores. According to the Clavis eCommerce Insight Study which was designed

15

to look at food e-commerce websites in the UK on some basic as well as nutritional

attributes, 67% of the products that were listed on these websites were missing information
such as name of the brand, nutrition etc. Almost a quarter of the product pages did not have a
proper description and misspelling and misrepresentation of brands was a common
occurrence.
Amongst the Indian research, according to (Terron, 2012) over 50% of online
shoppers have begun comparing prices for grocery items on internet enabled devices, while
41% of shoppers have bought a product online in the last 30 days. (Malik, 2012) carried out
research on the shoppers from food e-commerce stores and found that 69% of the shoppers
are male which is inline with other studies regarding gender and Internet. Also, people
between the age group of 18-24 made up 24% of the total buyers. In terms of value of
shopping bag, men averaged INR 580 while women averaged INR 552. Women were ahead
of men in terms of the number of branded products bagged across all ages. With respect to
the number of the products according to the same study, the number was highest for 36 years
and above females who had an average of more than 7.5 products per shopping bag. With
respect to the timing of the shopping, most buying by Indian consumers in food e-commerce
stores happens on Monday (16.77%), closely followed by Sunday (16.57%), and Saturday
(14.99%).
The factors that have contributed the most to online grocery shopping are the increase in
prices of F&B products, health aspects, and increase in transportation costs. (Heejin Lim et
all, 2004) believe that the percentage of grocery shopping that is conducted over the internet,
shall remain small because of the challenge e-grocers face in developing strategies that
respond to the most important areas of customers, a sign of quality of the firm, a feeling of
product quality, range of products offered and customer service. A report on the online
grocery market in India by Nextbigwhat.com highlights the different reasons that online
customers in India shop or do not shop for groceries online. The main reasons why they shop
online are to avoid crowds and people (38%), convenience (35%), special deals (32%), fuel
savings (30%) and time saved (27%). The reasons people hesitated from buying groceries
online were shipping costs (65%), time spent in waiting for the delivery to arrive (40%),
security and privacy (38%), lack of touch and feel (20%). The article also talks about the
challenges faced by online companies such as ZopNow, Aaramshop, MyGrahak.com and
others. Issues such as maintaining a solid supply chain management and building a loyal
16

customer base are some of the challenges that are preventing them from scaling up to a
national presence.
According to (BCG, 2013), there are various strategies that food e-commerce players need to
adopt in order to be successful in this growing space. Amongst the eight countries surveyed
by BCG as part of the study, consumers said they would use an online food grocery ecommerce site at an average of 13.5 times a year. The most important customer segments
would be young families and affluent couples. Large retail players such as Tesco already
make a substantial part of their revenues from sales through online channels, in Tescos case
it was 8%. According to BCG, click-and-collect models are getting popular in many
countries, especially in places where the last mile delivery is a problem. The second largest
grocery store in the UK, Asda, is investing 700 in 2013 in offering a same day click and
collect service which will be a first in the country. The home delivery model is also expected
to grow as large players try new models. Google is already testing same day delivery of food
groceries in the US, Wal-Mart is also looking at a crowd sourced solution wherein customers
are given the task of delivering groceries to get discount cards.
Based on the literature review done, there is a need for a primary research in the food
ecommerce sector in India because of the dearth of such literature and this research aims to
fill that gap.

Research Objectives
The objective of this research will be to find out if there lies an opportunity in selling food
groceries online in India, and what are the consumer behaviour patterns associated with it.
The research will also look if it makes sense for an F&B major (HUL, ITC, Coca-Cola) to
enter the online grocery space in India.
On the basis of the above objectives, the following will be the business questions the
researcher aims to answer:

Business Problem

17

1. Can a successful and sustainable F&B ecommerce business be run in India in the long
run?
2. Does it make sense for an F&B major to enter the online grocery space?
3. Are customers comfortable purchasing food groceries through ecommerce channels?

Research Problem
In order to arrive at solutions for the above, it is important to define the research approach,
which will be as follows:
1. Define and evaluate the business models and strategies employed by current grocery
e-commerce sites in India and abroad
2. Identify the opportunities and challenges in selling of grocery products online
3. Evaluate the business opportunity for an F&B major in selling the product category
through ecommerce
4. Analyse online purchasing habits of customers and their intent in purchasing food
groceries online
Based on the literature review done and preliminary studies, the researcher feels that
it is indeed possible to run a successful F&B e-commerce business in India and that a
business model exists for a national level strategy. Whether the hypothesis holds true will be
determined by the results of the research.

Research Methodology and Design

It is important to define the research methodology and the timelines involved in
carrying out the said research. The research will be predominantly exploratory in nature to try
and identify best practices in the ecommerce sector, predominantly F&B. Before we move
onto the stages of research it is also important to define who the major stakeholders of the
research are. There are four major stakeholders that have been identified, these are:
1. Existing e-commerce stores selling F&B products online
2. Large F&B players in India
3. Un-organised food grocery retailers
18

4. Customers in Tier I and II cities

Stage 1 Secondary Research

Secondary research involved studying of available literature on Internet consumption, online
shopping behaviour, food grocery shopping habits and online grocery shopping habits
predominantly in an Indian context. The findings of the literature review have been listed out
in the Literature Review section above and an analysis of the findings is mentioned in the
analysis section of this dissertation. The secondary research was carried out by looking at
academic journals, periodicals, conference proceedings and reports published in the above
mentioned domains.

Stage 2 - Primary Research

Stage 2 involved primary research and was carried out for all the 4 stakeholders mentioned
above. This was done by means of a mixture of in-depth interviews, semi-structured
interviews and an online questionnaire. For each of the mentioned stakeholders the following
is the research methodology:
1. Existing e-commerce stores selling F&B products online
India is still a nascent market for companies selling food groceries online. There are currently
around 15-20 players in India who are involved in the selling food groceries online. While
most of them are involved in just selling food groceries, a few websites like Infibeam and
Homeshop18 also carry other categories. The following is a list of the 10 most prominent
online grocery stores in India:
1. Bigbasket.com
2. Naturesbasket
3. Yzury.com
4. Zopnow.com
5. Aaaramshop
6. Mangoshoppers.com

19

7. Farm2kitchen
8. Infibeam
9. MyGrahak.com
10. Homeshop18
On the basis of convenience sampling two of the above companies (Aaaramshop.com and
Mangoshoppers.com) were selected and in-depth interviews were carried out. Transcripts of
the in-depth interviews were taken and analyzed by means of Textual Analysis.
1. Large F&B players in India
Currently there are more than 100 major companies who are involved in the sale of food and
beverages in India. These companies operate across categories such as staple foods (oils,
sugar etc.), beverages (soft drinks, alcohol, juices, milk and milk products), snacks and
confectionary (biscuits, chips etc.) and many more. In order to carry out interviews, the top
10 food and beverage industries were identified on the basis of market cap and brand share.
The following were the list of 10 companies in no particular order:
1. Hindustan Unilever Ltd.
2. PepsiCo India
3. Dabur
4. Britannia Industries Ltd.
5. Nestle India
6. Coca-Cola India
7. GCMMF (Amul)
8. ITC Limited
9. Cadburys India
10. Parle Agro
On the basis of convenience sampling, two companies (HUL and ITC Ltd.) were identified
and in-depth interview was carried out with senior personnel from within these companies.
Transcripts of the in-depth interviews will be taken and these will be analyzed by means of
Textual Analysis. Using textual analysis, educated inferences and interpretations were drawn
from the interviews to reach a solution to the business problem.
20

2. Un-organised food grocery retailers

98% of all food grocery sales are made through un-organised retailers in India and hence it
becomes extremely important to understand consumer-shopping behaviour in Kiranas and
other unorganized retail stores. Interviews were carried out with three stores in the Bopal area
of Ahmedabad. Using textual analysis, educated inferences and interpretations will be drawn
from the interviews to reach a solution to the business problem.
3. Customers in Tier I and II towns of India
A study was carried out to understand consumer behaviour in grocery shopping and online
shopping in India. The study was done by means of an online questionnaire sent to 50
respondents in Tier I and Tier II towns of India. Rating scales were used for questionnaire
design and mean and standard deviation were the analysis tools used post data collection. The
questionnaire was divided into three sections, the first section dealt with capturing the
demographics of the respondent, the second section dealt with understand their online
shopping habits and the final section dealt with understanding their purchase habits with
respect to the food groceries categories.

Limitations of Research
The study falls short of coming up with a recommended business model for a food grocery ecommerce website. The research also does not look at how the brick and mortar retail
industry can leverage their distribution networks and come up with an e-commerce model for
selling goods online.

Findings and Analysis

Consumer Behaviour
In order to understand the success of an industry, it is extremely important to understand how
consumers behave in that industry. The behaviour patterns of consumers in the online food
grocery industry is related a lot to how Indians spent time on the Internet and how they shop
for food groceries and for products online. Using studies done earlier, we can identify a
21

pattern of behaviour for these parameters. We will further strengthen this by means of the
results of the online survey. Out of the 50 respondents, majority of the respondents were
between the age group 21-25 (48%) and 26-30 (30%). The gender ratio was slightly skewed
in favour of males (59%). With respect to educational qualification, more than 50% of the
respondents were post-graduates and 75% were working professionals. The studies have been
mentioned in the earlier section on Literature Review. The following are the findings from
these sources:
1. In India, the average time spent online is between 20-25 hours per month. While this
has grown over the past decade, it is important to note that it is still quarter of the way
behind time spent online in China and Malaysia, other developing economies.
Research has shown that the time spent online in a country is an indicator of how
open the people are to online shopping, the more time spent online the more chances
of him or her shopping online. The average times have increased over the past 10
years thus ensuring that the e-commerce industry is also on the rise in India.
2. India has still a long way to go with respect to the number of online transactions.
Research has shown that only 9% of consumers shop online. According to the survey
carried out, it was seen that 30% of the respondents shopped online atleast once a
month. The number of people who were shopping online more than once a week was
at 7%. The majority of the respondents had shopped online once a month or lesser
(45%), which validates the fact that Indians have a lot of catching up to do with
respect to online transactions.
3. Amongst those who shopped online 19% of the Males said they shop online once a
week or more whereas there wasnt any Female respondent who shopped online
atleast once a week. This shows that if we consider gender, males are more open to
shopping online. This is also validated by various studies such as (Sanjay Jain &
Manika Jain, 2011) which found that males are more likely to shop online when
compared to women. Another study in the UK also found that males showed a greater
brand-width for the Internet as compared to women.
4. (Sakkthivel, 2006) showed that age has a role to play in online shopping with more
youngsters being open to online transactions. On the basis of the survey carried out it
22

was seen that amongst respondents who were between the age group of 21-25, 39%
shopped online more than once a month whereas amongst consumers that were of a
higher age group i.e between 26-30, only 13% of respondents shopped online.
Amongst respondents who were above the age of 30, there were no instances of them
having shopped online more than once a month.
5. The respondents were asked what asked what were the factors or attributes they
looked for while choosing an e-commerce site. The most important factor was low
prices, mean value 2.76 (most important = 1), followed by larger selection of brands
(mean value 2.90). The third most important factor was quick delivery times (mean
value 2.95). This is very similar to the results of a research carried out which shows
that the most important aspects of an e-commerce website are Quality of Information
(ii) Range of products available (iii) After sales service etc. This shows that in-order
for a online food grocery store to be successful, they need to (i) provide low prices (ii)
larger selection of products and (iii) quick delivery times.
Importance of attributes while choosing an e-commerce website
3.24

3.1

3.05
2.29

2.19

1.14

Low Prices

Quick delivery Easy to use Good customer

Larger
times
website
support
selection of
brands

Multiple
payment
options

6. The Indian online shopper is most open to purchasing mobile phones and accessories
(50%) online according to research by Nielsen. Other categories include
Entertainment tickets (38%), books (36%), tickets for travelling (35%), digital
cameras and MP3 players (33%), apparel and accessories (25%). 25% of the
respondents of the study by Nielsen said they would be open to purchasing food and
23

beverages online. The same results can be drawn from the online survey carried out.
Majority of the people (90%) said that in the past they have shopped for books, movie
tickets and train tickets online. Electronic items came next with 62% of the people
saying that they shopped for electronic devices in the past. Only 14% of the
respondents said they had shopped for food groceries online according to the primary
research carried out. This shows that food groceries as a category has low penetration
even amongst online shoppers in India. It was the lowest amongst all 10 categories
mentioned.
90%

90%

90%

62%
38%
29%

29%
14%

14%

14%

7. With respect to shopping for food groceries offline, 59% of the respondents said that
they shopped for different food categories from different stores. Categories like daily
essentials (eggs, bread etc.) and fruits and vegetables were mostly bought from nearby
Kirana stores and roadside vendors. The importance of Kirana stores is well
documented even in literature with most reports pegging the un-organised retail
industry at 98% of the total pie (USDA Foreign Agricultural Service, 2013). Staple
items like rice, flour, sugar etc. which, are required in bulk were mostly bought from
supermarkets which offer discounts. For any category of food item the maximum
percentage of respondents purchasing through online grocery stores was 9%.
8. Various studies conducted in India have shown that while choosing a store some of
the things consumers look for are (i) Convenience (ii) Store Quality (iii) Basic Value
or Prices (iv) Marketing Mix and (vi) Food Safety (Gupta, 2009). According to the
research carried out as part of this dissertation, travel time to store (mean value 1.73,
most important = 1) was the most important feature. This was followed by Prices
(2.36), and number of brands/categories (3.23). This validates available literature on
24

the topic. Also, it is important to note that since most of the respondents were under
30 years, convenience (time taken to travel to store) as well as prices were important
to them.

9. In India, 25% of Internet users are open to purchasing food groceries online (Basu and
Banerjee, 2011). According to primary research carried out, only 14% of the
respondents said that they had shopped for groceries online before. Studies show that
the main reasons people shop online for food are (i) in-order to avoid crowds (38%),
convenience (35%), special deals (32%), fuel savings (30%) and time saved (27%)
(Nextbigwhat.com, 2013). The reasons people didn't shop online were shipping costs
(65%), time spent in waiting for the delivery to arrive (40%), security and privacy
(38%), lack of touch and feel (20%). This is also validated by the primary research,
which asked customers what were the main reasons for them not adopting online
groceries. Lack of awareness was the most often repeated reason with 50% saying
that werent aware of any website that delivers food groceries online. The next reason
was trust, with 45% of the respondents they didn't trust any current player. 23% of the
respondents said that the prices were higher than their current stores. 18% said the
lack of flexible was the major concern and hence they didn't shop for food groceries
online.

25

Reasons for not shopping online for food groceries (Nextbigwhat.com, 2012)

65%

40%

38%
32%

31%
22%

20%

18%

15%

Mr. Ashutosh Malik (COO, Aaaramshop.com) who was interviewed as part of

primary research said that just like people were slow to adopt phones for placing
orders with their local kirana stores, the adoption rates will be slow, however he sees
that the food e-commerce service offers enough of a need gap to customers for them
to adopt it. Some of the factors he listed out were Convenience and Pricing that
will ensure people will go online. He also mentioned that it is possible for all three
kinds of purchases to occur simultaneously and consumers will not leave one for the
other, (i) shopping physically at brick and mortar stores (ii) ordering on the phone
through the nearest kirana store and (iii) shopping online. According to Mr. Anmol
Aggarwal from Mangoshoppers.com, an upcoming online food grocery website based
in the NCR region, people use online groceries maximum for monthly groceries. This
is because of the discounts and the fact that they don't mind if the delivery happens
later in the day or the next day. According to him, For instantly required food items
consumers

will

continue

to

visit

the

local

stores.

10. According to (Malik, 2012) the top 5 brands that were being bought by volume online
were (i) Amul (ii) Ashirwaad (iii) Maggi (iv) Treat and (v) Haldiram. The top 5
brands that were being bought by value were (i) Aashirwaad (ii) Saffola (iii) Pampers
(iv) Amul (v) Everyday. Amongst categories the highest categories that were bought
26

by value were (i) Rice, Aata, Daals and Lentils (16.81%) followed by (ii) Edible Oils
(13.70%) and (iii) Coffee, Tea and Cocoa (9.69%).

The paths to purchase for

different categories was also studied for various categories, 49.42% of the people who
bought Biscuits and Cookies also bought Snacks. Similarly 36.32% of the people who
shopped online for Rice, Lentils and Daals also bought Laundry supplies
Food categories bought online (Malik, 2012)

Rice, Atta,
Lentils & Dals
17%

Others
48%

Edible oils
14%

Baby and
Child-
care
products
5%

Coffee, Tea,
Milk and Dairy Cocoa
10%
products
6%

Un-organised food retail industry

The Kirana shops and other un-organised retail stores that sell food groceries are an
important stakeholder to understand consumer behaviour as these make 98% of the food
retail industry. Semi-structured interviews were carried out with Kirana stores in the Bopal
area of Ahmedabad, and the following were the salient features that emerged post textual
analysis of the transcripts/notes of the interviews:
1. Customers havent forgotten local kirana Stores
The proprietors of Kirana stores felt that inspite of many modern retail chains being
opened their sales havent really taken a hit. Even in the Bopal region new stores such
as Reliance Fresh, D-Mart have opened up in the near past, however according to the
shopkeepers, they still have a loyal customer base who keep visiting their store.

27

2. New age customer servicing techniques need to be started

The Kirana stores have had to evolve with the times in order to keep up with their
customers. One of the steps they have taken recently is deliver in housing localities
since a lot of customers call and place their order. While phone delivery was always
around, the number of customers who call and place their orders has increased
substantially over the past few years. Another new practice that is visible is that
people place orders from work and pick up monthly groceries while on the way home
at the end of the day. There are also a large number of consumers who take food items
on credit, which has substantially increased from the past.
3. Kirana stores have had to offer wider range of products
Earlier it wasnt necessary for the store owner to stock all variants of a shampoo or a
biscuit but with consumers becoming increasingly picky about their choices in food
items, the store owners need to ensure they stock all variants and packaging SKUs to
match the wide varieties offered in supermarkets and hypermarkets.
4. Look and feel of the store
According to the kirana shop owners, it has become important for them to improve
and maintain the look and feel of the shop since customers associate cleanliness and
orderliness of a shop with the quality of the products they are selling. According to
one shop owner who owns one of the largest kirana stores in Bopal, earlier he used to
stock a lot of items in a limited space and there was no orderliness but when he saw
that a lot of the customers were demanding cleanliness like the newly opened
Reliance Fresh, he too changed the interiors of the shop to improve lighting, displays
etc.

Existing e-commerce stores selling F&B products online

In depth interviews were taken with executives from current e-commerce websites in India,
selling food groceries. This has been coupled with findings from literature review on the

28

subject. The following are the recurring themes and observations from these sources. (The list
of questions posed to the e-commerce companies has been is added to the Appendix)

Problems faced by online food grocery stores

a. Working Capital Issues
The industry is still in in its initial stage and there are a lot of problems faced by the players.
According to Mr. Anmol Agarwal from Mangoshopper.com, one of the problems faced by
new entrants into the market is issues with working capital. Hardly any wholesaler is ready to
sell food items on credit to a new player and on the other hand the website has to tie up with
organisations such as Sodexo, to boost sales. These cannot be encased immediately and takes
15-30 days for the e-commerce store to see positive cash flow from a sale. This has led to
issues in inventory keeping and logistics, which are very capital intensive. Large e-commerce
stores in this space such as Bigbasket or Aaramshop.com have overcome this problem
because they have been operating for a long time plus they are very cash rich due to multiple
rounds of investing. Bigbasket has also tied with wholesales like Metro Cash and Carry to
have a dedicated team of individuals working on processing their orders. This is further
compounded by the fact that the e-commerce stores have a very low entry barrier, new ecommerce stores have popped dime by the dozen in India. This makes it harder for a new
player to raise investments and compete in a very competitive space.
b. Wafer Thin Margins
Unlike the electronics or books category that demand margins in the range of 30-40%, the
food and beverage category has very low margins. According to an interview with Mr.
Ashutosh Malik (COO, Aaaramshop.com), the margins in the food and beverage industry are
in the range of 10-15%. With such low margins it becomes difficult for e-commerce websites
to offer substantial discounts that can be offered in other categories. Since of the main
reasons that consumers shop online is discounts offered on products which make up for the
lack of touch and feel of the product (Kiran, Sharma & Mittal, 2008), lack of substantial
discounts lead to slow adoption rates. Research by DEssence Consulting has also mentioned
that the wafer thin margins are one of the biggest issues faced by food grocery online stores

29

(Nextbigwhat.com, 2012). As a result of low margins, the growth has to be funded by capital
investments thus making the company very capital dependent (Mitra, 2013).
c. Last mile delivery costs
Food groceries, unlike other categories have additional issues of cold storage, perishability
and size for larger volume SKUs. All this has led to problems at the last mile delivery, that
from the warehouse to the customers home. According to (BCG, 2013) new entrants should
avoid the delivery model and instead have a click and collect service. Studies in eight
countries (Brazil, China, Russia, France, Germany, U.S, U.K and Denmark) have shown that
customers are willing to drive up to 13 minutes on average to pick up food ordered online. In
France, the online grocery market has grown by 30% till 2008, from 2008 to 2013 the
industry grew 50% thanks to new entrants and an innovative click and collect model
employed by companies such as Groupe Auchan and Systme U. The main reason that the
last mile delivery is problematic is because maximum care needs to be taken at this stage.
Websites like Webvan, Home Grocer and PeaPod were some of the companies that bet big on
online groceries. However, as was demonstrated by the collapse of these websites there was a
big gap between theory and on the ground application. These companies discovered that the
last mile delivery was a substantial challenge with cost and logistical issues. There are three
major concerns faced while doing home deliveries: (Dr. Boyer and Dr. Frohlich, 2002)
(i)

Online grocery stores need to individually pick orders for customers as opposed to
a brick and mortar store where customers pick their own order. This leads to
additional time costs.

(ii)

These stores need to deliver goods to the homes of customers i.e conquering the
last mile or hold orders for pick up. Both of these also lead to incremental costs
and operations complexity.

(iii)

The third struggle is in convincing customers that the service is worth additional
cost. Customers in India have gotten used to Flipkart, Myntra and other stores
offering 30-35% discounts and will need convincing that these discounts are not
possible in the food grocery category as well as because of deliveries.

d. Customer Experience

30

One of the most important issues that e-commerce stores and in particular those dealing with
food groceries have to deal with is customer service. Right from the website interface to the
home delivery or pick up, it is important to give a good customer experience. For food
grocery e-commerce stores this proves to be slightly more difficult because of:
(i) Since there are a large number of products that need to showcased online and each
comes up many different variations and SKUs the website becomes cluttered which
leads to poor customer experience.
(ii) Another issue with the category is that as a result of the large number of SKUs of
different brands, inventory keeping needs to matched on the website. There are times
when a particular SKU is not available but is still visible online, that order needs to be
cancelled which again leads to poor customer experience
(iii) For a store like Aaramshop.com which has a retailer model wherein orders placed
online are delivered by their network of retailers, the customer experience cannot be
controlled at the delivery stage and hence retailer partnerships becomes very
important. According to Mr. Ashutosh Malik from Aaramshop.com, even retailers
will try and match customer standards because these same set of customers will visit
their brick and mortar stores in regular situations. Even for other online stores,
parameters like timely delivery, condition of delivery or how the delivery person
appears plays an important role in defining customer experience.
Business Models of existing e-commerce store

There are many different food e-commerce stores in India and abroad and they follow
different business models. This section will look at each of these business models and
identify advantages and disadvantages of each of these business models:

Click-and-Collect
This business model involves customer ordering online from an eBusiness Model

commerce store and then picking up the order from the

warehouse/brick and mortar store at a time of their convenience

31

No investments required in logistics and last mile delivery

Advantages

Disadvantages

Examples

Customers can collect groceries whenever they are free

Food groceries not delivered to doorstep and hence not as convenient

to customers
E.leclerc (France), Auchan (France)

Retailer Network
The store has a group of retailers in various cities. Orders placed
online are passed onto the retailer based on the location of the order.
Business Model

The retailer from where it was bought fulfills the order and delivers to
the customer. The online customer has the choice of choosing the
retailer from his neighbourhood. Such firms aim to leverage the
already existent large base of retailers (organised and unorganized)
rather than act as a single retailer themselves.
No investments required in logistics and last mile delivery

Advantages

Cash on Delivery service adds benefit to consumer

Customer already has a relationship with the retailer in his
neighbourhood and hence there is a feeling of trust

Disadvantages

Examples

Customer experience such as delivery and quality of products cannot

be controlled

Aaaramshop.com, MyGrahak.com

32

Limited inventory
The business model is similar to that of home delivery e-commerce
Business Model

stores. The only difference is that the online store does not stock all
categories. The limited number of categories can be due to ease in
delivery (Infibeam) or because of the fact that the website caters to a
nice sector, for e.g. Gourmet Goods (Natures Basket and
Yzury.com,) or fresh farm produce (Farm2kitchen.com).

Advantages

Disadvantages

Examples

Limited inventory makes inventory and stock keeping easier

For gourmet products, the average ticket size is higher thus margins
are also higher

Limited choice for customers can lead to low penetration

Natures Basket, Yzury.com, Farm2kitchen.com, Infibeam,

Homeshop18.com

Door to Door Delivery

This is the most common type of food groceries online stores.
Business Model

Customers place orders via the website and the orders are delivered to
their doorsteps. Usually orders are only delivered only during specific
times of the day or the next day.
Customers can get orders delivered to doorstep

Advantages

Disadvantages

Usually customers are free to choose time of their choosing which

increases customer satisfaction

Huge investments required in logistics and delivery

Same day delivery not possible in some cases
33

Examples

Bigbasket.com, Mangoshoppers.com, Zopnow

As discussed above, each business model comes with different advantages and disadvantages.
Which model to follow will depend on (i) the location of the business for example in a
densely populated market like a Mumbai or an NCR it makes sense to apply a delivery
model. In newer markets according to (BCG, 2013) the Click and Collect model works best
and has been successful in France when e-commerce started burgeoning in 2008. The other
dependent factor is (ii) Expertise. Amazon Fresh in the US as well as Tesco have been able to
leverage their logistics expertise in running successful door-to-door delivery models.
MyGrahak is an online grocery store from Rei Six Ten Retail Ltd., a retail chain network of
about 350 stores in the NCR, Punjab, Baddi and Nagpur. This is one of the first attempts
from a retail grocery giant to enter the online space and leverage their existing network of
offline stores (MyGrahak.com, 2014). Infibeam in India has just started delivering dry items
such as coffee and tea leaves because these are easier to ship as compared to other items such
as milk etc. This has helped them employ a national strategy rather than be curtailed in one
location only.

Sources of revenue for e-commerce players

As mentioned earlier, the margins in food and beverage products, unlike other categories
such as electronics, books or apparel is only in the range of 15-20% (Kiran, Sharma & Mittal,
2008). Various e-commerce players in India are following different revenue models to
monetize their websites apart from the small margins generated by buying in bulk from
wholesalers. Some of the common techniques used by these websites are:
1) Charging for deliveries
E-commerce websites have no option but to charge a certain premium for door-to-door
deliveries in light of the huge costs borne by them for logistics and transportation. Various
websites offer different packages for deliveries. For example Bangalore based Zopnow offers
free delivery for order above INR 500 (Zopnow.com, 2014) Yzury.com, which is also based
34

in Bangalore, offers free delivery over INR 1,000 in Bangalore and INR 2,000 anywhere else
in India (Yzury.com, 2014)
2) Brand and Retailer Services
Companies such as Aaramshop.com offer services to brands by which brands can have their
own pages on the website wherein they can showcase their products, the website also offers
advertisements for their brands on emails etc. from the company to customers. While the
company does not charge retailers to take their business online and list their products, it
offers premium services to these retailers by which they can create advertisements for their
store, have tools for increased interaction with their customers and be able to communicate
any discounts they might be offering (Aaaramshop.com, 2014).
3) Analytics and Reports
With the large number of shoppers visiting these e-commerce stores and browsing for
products, these sites leverage this data and create reports on consumer shopping habits in the
food e-commerce space. These reports are helpful to marketing and brand managers of the
FMCG products stocked by the websites.

Large F&B players in India

Apart from existing e-commerce players it would be interesting to note if large F&B players
would be interested in entering the space of online food groceries. Recently, HUL announced
plans to look into the e-commerce space in the new digital era. Coca-Cola India is running a
test run in Ahmedabad wherein one can purchase their products online (Coke2home.com,
2013). According to in-depth interviews with senior executives from these companies the
following were some of the recurring themes
1) Even for a large food and beverage player the last mile delivery is a substantial cost.
According to Mr. Swapnil S. Kumar (Global Brand Manager, Hindustan Unilever
Ltd.) the costs involved are substantially high even for someone with a distribution

35

channel in place. For a national level strategy, there is a need for multiple warehouses,
which will have to be maintained and delivery of fresh stock will be a major challenge
2) There is no special reason that a customer will prefer to buy from a player like ITC or
an HUL over any other kirana/e-commerce store since the products offered will be the
same.
3) The ticket size in the food category is very small for a large F&B player to be
interested. A retailer is better suited to crack the food e-commerce model because it
will be able to provide range unlike a single company. However, the one positive is
that a company such as HUL, which offer products across categories, can use their ecommerce stores to build loyalty about their products. For example, if a consumer
comes to
In light of these discussions, there are no substantial advantages for an F&B major to enter
the food grocery e-commerce sector.

Conclusions
As penetration of Internet increases in India, Indians are spending more and more time online
and as a result of which the number of online transactions is also on the increase in India.
One sector, which is taking advantage of this digital era, is the food and groceries ecommerce industry. Globally as well as in India people are becoming more and more open to
purchasing their groceries online. In order to save on time, lack of travel, cheaper prices,
home delivery options, websites such as Bigbasket, Aaaramshop, ZopNow etc. have build a
legion of loyal fans. The industry is plagued by many concerns such as logistical costs, or
low margins, last mile deliveries, but with the large investments made by VCs the industry is
flourishing. In order to understand the shopper behaviour online when it comes to online
shopping for food groceries, it is also important to study their shopping behaviour offline
which has been done through secondary research as well as primary research which included
a questionnaire and interviews with Kirana store owners in Ahmedabad. Each e-commerce
store in India has its own business model, some of them tie up with retailers and the retailers
is responsible for the final delivery, others directly deliver to homes while incurring logistical
costs themselves. Another model, that is new in India, is the concept of Click and Collect
36

which has been successfully implemented in UK and France. Some of the online stores do
not sell all categories under food and beverages and limit themselves to niche sectors. Today,
as a result of the thin margins these companies are looking at other areas such as brand tieups, analytics and reports, premium services for retailers for their revenues. The dissertation
also looked at why it does not make too much sense for an F&B major to enter the space.
HUL tried to enter this area in 2001, through Project Sangam, which it sold off in a few years
and not much, has changed even now. There is no business sense for them to invest in
additional warehouses and delivery infrastructure because the added benefit will be minimal.

37

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Appendix
1. Online questionnaire
Q1 Age
m Upto 20 (1)
m 21 to 25 (2)
m 26 to 30 (3)
m 31 to 35 (4)
m 36 to 40 (5)
m Above 40 (6)
Q2 Gender
m Male (1)
m Female (2)
Q3 Educational Qualification
m Graduate (1)
m Post Graduate (2)
m Diploma (3)
m PhD (4)
m Other (5) ____________________
Q4 Marital Status
m Single (1)
m Married (2)
Q5 Occupation
m Student (1)
m Working Professional (2)
m Self Employed (3)
m Homemaker (4)
Q6 Where do you stay ?
m Large Metro (Delhi, Mumbai, Bangalore etc.) (1)
m Tier I (Jaipur, Lucknow, Surat etc.) (2)
m Tier II (Gorakhpur, Aurangabad, Meerut etc.) (3)

41

Q7 How often do you shop online?

m Never (1)
m Less than Once a Month (2)
m Once a Month (3)
m 2-3 Times a Month (4)
m Once a Week (5)
m More than 2-3 Times a Week (6)
Answer If How often do you shop online? Never Is Not Selected

Q8 Which of the following websites have you shopped on?

q Amazon (1)
q Dominoes (2)
q Cleartrip (3)
q Ebay (4)
q Nature's Basket (5)
q Myntra (6)
q Food Panda (7)
q Aaramshop (8)
q Flipkart (9)
q Make My Trip (10)
q Other (11) ____________________
Answer If How often do you shop online? Never Is Not Selected

Q9 Arrange the following in order of importance when choosing an e-commere website

______ Low Prices (1)
______ Multiple Payment Options (2)
______ Quick Delivery Times (3)
______ Larger Selection of Brands (4)
______ Easy to use Website (5)
______ Good Customer Support (6)
Answer If How often do you shop online? Never Is Not Selected

Q10 What categories do you usually purchase online?

q Electronics (1)
q Shoes and Apparel (2)
q Books (3)
q Movie Tickets (4)
q Food Groceries (5)
q Fashion Accessories (6)
q Home Furnishings (7)
q Flight/Train Tickets (8)
q Fast Food (9)
q Personal Care (10)

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Q11 Do you purchase different food categories from different kinds of shopping outlets?
m Yes (1)
m No (2)
Q12 Where do you purchase the following food categories from (most often):
Q13 Daily Essentials (Milk, Bread, Eggs etc.)
m Nearest Kirana Store (1)
m Neighbourhood Supermarket (2)
m Large City Hypermarket (3)
m Online Store (4)
Q14 Fruits & Vegetables
m Roadside Vendors (1)
m Nearest Kirana Store (2)
m Neighbourhood Supermarket (3)
m Large City Hypermarket (4)
m Online Store (5)
m Sabzi Mandi (6)
Q15 Staples (Rice, Oil, Flour, Sugar, Salt etc.)
m Nearest Kirana Store (1)
m Neighbourhood Supermarket (2)
m Large City Hypermarket (3)
m Online Store (4)
Q16 Meat
m Nearby Butcher (1)
m Nearest Kirana Store (2)
m Neighbourhood Supermarket (3)
m Large City Hypermarket (4)
m Online Store (5)
m I am a Vegetarian (6)
Q17 Arrange the following in order of importance when shopping for food groceries
______ Prices (1)
______ Number of Brands/Categories (2)
______ Store Interior (3)
______ Travel Time to Store (4)
______ Store Experience (5)
Q18 Do you get your local grocer/butcher to deliver to your home?
m Yes (1)
m No (2)

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Q19 In case you have not shopped for food groceries online, what are the factors that prevent
you from doing so?
q Not aware of any website (1)
q Slow deliveries (2)
q Higher prices than my current shops (3)
q Limited delivery times during the day (4)
q Lack of trust (5)
q Does not stock all categories (6)
q I have shopped online for food groceries (7)

B. Interview Guidelines for Kirana Store Owners

1.
2.
3.
4.
5.
6.
7.

Has the large retail format affected sales in Kiranas

Do people usually buy monthty, weekly, or more than once a week?
Do you offer credit?
Do you deliver at homes? Do a lot of nearby Kiranas deliver?
Do you charge extra for home delivery?
Do you think people will continue to shop at Kiranas? Why?
In some cities, people can also buy food on the internet? Do you think it will be a
major trend?
8. What are the biggest factor affecting kirana store owners?
9. What is the credit cycle like for food category in Kirana stores?
10. How can you compete with large supermarkets and the substantial discounts they
offer?
C. Interview Guidelines for Kirana Store Owners
1. Do you think there are enough takers for food groceries through ecommerce?
2. A lot of websites that sell food groceries are limited to one city like Bangalore etc?
Do you think a national level strategy exists?
3. There are various models out in the market, ship from store, panel of retailers. Which
do you think can be applicable at a national level?
4. How has the adoption been in towns like Mumbai, Bangalore etc ?
5. What problems have led to the lack of adoption amongst urban consumers?
6. Currently, only certain delivery times are provided by existing players. Do you think
this is one reason for slow adoption?
7. What advantages do online sites provide over kirana stores who offer credit as well as
delivery to homes
8. There has been talk of Unilever looking at the online retail channel, do you think
F&B majors and retail outlets are positioned to crack this market
9. What are some of the challenges faced by ecommerce websites in selling food
groceries online?
10. Do you think current ecommerce players like Flipkart can build their current
inftrastructure and delivery channels to accommodate food groceries

44

D. Interview Guidelines for Major F&B company

1. What do you think are the prospects of selling food groceries through ecommerce
channels
2. Amazon sells food groceries online through Amazon Fresh, do you think a similar
strategy is possible is India
3. What are the unique challenges that the Indian market throws to an F&B major selling
through e-commerce
4. Recently, Coke sold their products online in Ahmedabad, what prevents other players
from following suit
5. Are F&B companies interested in the sector?
6. Would they want to sell their products directly, or will they go via online retailer
channel
7. Do you think current ecommerce players can build their current inftrastructure and
delivery channels to accommodate food groceries
8. How long do you think it will take for them to build capabilities for selling food
groceries?
9. Bigbasket, Zopnow and a few existing players operate at a city level? Do you think
there is opportunity for a national level strategy?
10. How much investment would be needed in the infrastructure for an F&B major?
11. Do you think Indians are ready to purchase food groceries online? What issues do you
think they face currently?
12. What challenges will online ecommerce players face in selling food groceries online?
Logistics? Space? Fresh Foods?

45