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September 20, 2017

Tata Group to take on Bigbasket and Amazon in online grocery retail

Tata Group is venturing into online grocery business under Starquik brand, taking on Amazon and Bigbasket in a nascent yet rapidly growing market.

A pilot venture will be rolled out within the next two months as an online channel for Trent Hypermarket, an equal joint venture between Tata and British retailer Tesco, said two people privy with the development.

Tata Group runs three formats under Star banner — Daily, Market and Hyper — and has around 42 stores. “Trent plans to shut its smaller format Star Daily, which will help them cut costs in rentals and at the same time serve those catchment areas through online,” said one of the officials.

“FHL is also pursuing on a trial basis online retailing of food & grocery in limited catchments in the proximity of select Star banner stores,” Trent had said in its latest annual report. In June, Tatas bought the management team and technology infrastructure of Gurgaon-based GrocerMax which has been helping its omnichannel project take off in catchments of Trent hypermarkets.

For Tesco, the world’s third-largest retailer that has nearly 6,800 stores globally, its online business earns roughly £3 billion in sales and is one of the rare such ventures that’s profitable. However, the Indian business is minuscule. The Indian retailer saw a dull sales performance last fiscal — growing by 2.1 per cent to Rs 892.57 crore during FY17.

Online food and grocery penetration is still less than 1 per cent, suggesting the infancy of the category and its potential opportunity. Morgan Stanley expects online food and grocery segment to become the fastest-growing segment, expanding at a compounded annual growth rate of 141 per cent by 2020 and contributing $15 billion, or 12.5 per cent, of overall online retail sales. Offline players such as Reliance Fresh and Godrej Nature’s Basket have launched omnichannel initiatives, though the scale is not too big right now. But the opportunity offered by the $500-billion retail market is attractive for any player, foreign or local.

Food and grocery accounts for almost 50 per cent of the overall retail basket in India, although general merchandise, personal and home products fill up a bulk of retailers’ profit pool. “Online grocery is no longer just volumes or convenience as the real differentiation has to be quick delivery,” said Ruchi Sally, director at retail consulting firm Elargir Solutions.

“It should work well for Tata if they have the strong logistics and supply chain capabilities.” Most retailers are trying to provide a multichannel offering that meets the demands of customers who easily switch channels to buy products. So far, the omnichannel strategy is mostly restricted to a few lifestyle retailers including Shoppers Stop, Arvind and Aditya Birla Retail as grocery delivery is more complex than supermarkets.

The challenges include handling perishable products like food and the high cost of having numerous facilities located close to consumers. Tata Group also owns and operates online marketplace Tata CLiQ that is mainly into lifestyle products.

Text by The Economics Times
 

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