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In a Fireside Chat with Soham Chokshi, Supratim Banerjee, Chief Product and Technology Officer of More Retail, candidly shares his views on the changing customer expectations in the on-demand age and why there is more to grocery delivery than 10 min shipping. Here’s the interview.
Soham: The retail industry overall is seeing a significant disruption. Large retailers have made a major shift in their business model to facilitate on-demand deliveries by leveraging advancements in technology and infrastructure. Being at the center of this, what is your view on all of these trends impacting the retail industry?
Supratim: Quick commerce is raising the bar for all of us in the food and grocery industry. It’s driving us to adopt tighter SLAs. The first step to this transition is the rapid adoption of non-walk-in channels spurred by the pandemic. This online business has been virtually less than 1% of our total revenue as a billion-dollar enterprise. It has now gone up to 30% in large stores and 10-15% of total revenue for small stores. This trend is seen beyond Bangalore, Delhi, Gurugram, which are well-studied cities. In fact, Mysore has emerged as a very interesting case study for us. As we got our online delivery together, the hypermarket in Mysore just took off. The takeaway was that in non-urban regions the adoption of these channels is quick.
Quick commerce is a game-changer in tier-1 cities. But a majority of the population lives outside metro cities. Food and groceries in modern trade is not more than 15-20%. So, a large part of the consumer base that’s willing to adopt the combination of modern trade and online channels is in tier-II markets. We have seen both phenomena, which drives us to conclude that each market has a different cadence of SLA. There could be a ten-minute product in Whitefield or Gurugram because they are one of the densest and most affluent pin codes. But equally, in some of the other tier-II locations like Vizag, that SLA could easily go from 2 to 4 hours as there is no other alternative. Therefore SLAs are important but not just a 10-minute one across all markets. Broader SLAs could still cater to a vast market/country.
Soham: You gave an example of Mysore. Can you share more details, like once you launched the online channel, how did these numbers change?
Supratim: To begin with, there is no reference point to this growth as our online business didn’t exist before. Karnataka had one of the most stringent lockdowns over the second wave. So, much of this learning came somewhere between the first and the second wave.
The trigger for a city like Mysore was that although we have a combined network of small and large-size stores there, it had very few options for consumers to buy groceries online. Today, the order rates for these stores have jumped to about 35-40% online, for a simple reason that 2 to 6 hour delivery in these markets is a game-changer.
We believe that our vast network comes in all shades and hues of consumers. Two-hour delivery in Mumbai and Delhi may not pass muster, but it can be incredibly valuable for a small place like Mysore as they have lesser alternatives. This is my message to everyone with a network in the country. In fact, one of our largest selling online stores is in an even smaller city, Mangalore. We have a good modern trade proposition in Mangalore, plus there is some pent-up demand in some of these locations, which has worked well for us.
Soham: According to you, what other factors are critical to customer experience other than delivery SLAs?
Supratim: There are three variables consequential to customer experience. First, to win in grocery delivery, one needs to get the assortment right. Getting the right selection for the catchment (a locale) is critical. For instance, if Punjab uses specific cooking oil, you cannot play as a grocery brand if you can’t provide it. Similarly, for other states and categories. It becomes a critical decision point since we deal with thousands of SKUs.
Second, comes the pricing. The reason why it falls second on priority is, going by our observation, customers are very keen on first building their basket, making sure that they get what they want in the pantry; and also no consumer wants a bad deal. It is not the other way around, at least as per our data and experiments that we have run on millions of customers.
The third would be convenience, which is an important part of the SLA. In grocery, we observe that 30-40% of the baskets typically comprises fresh produce. These include fruits, vegetables, chicken, dairy products; all these short shelf-life fresh products, and staples like lentils, flour, rice, oils, etc. Our experience is that you have to get the product quality right. If it is not good, then there is no proposition in grocery. Packaged grocery is one part of the business, but the pantry comprises many things. It is essential to get the right quality staples, produce, and meat or fish in markets where they are relevant.
So, everything is important and not just the delivery SLA. But the way we approach the business, we have to consider: selection, pricing, specific handling of fresh produce in addition to SLAs, which is just one part of the overall consumer experience. For instance, getting rotten bananas to the customer within 10-minutes will not help. Our job is to meet all these other factors well. Especially in our business, consumers typically adopt a store when they physically walk into them. We see omnichannel consumers trading much more than single (offline or online) ones. These consumers need to experience products inside the store. So a store has to be of the right standard to that catchment.
Soham: Grocery delivery companies are burning a lot of money, and consolidation is happening. Since you own both stores and inventory, do you think your model is more feasible for an omnichannel kind of play than going purely the last mile from dark stores?
Supratim: We have experimented with dark stores. Grocery is the only business where you need forward inventory deployment. You cannot work with a single location catering to the entire city, and we have also looked at the economics of partners. The headline view is to get the time SLA and assortment sorted.
The grocery shopping basket ranges from instant consumables, two-hour products, and monthly baskets. For instance, a 25 kg rice pack consumes a lot of physical real estate. Although it can be delivered to the customer, it is very different from the picture of quick commerce we have in our minds. Looking at the entire set of products, the various shopping occasions we cater to, an omnichannel approach allows you to capture a comprehensive demand stream. So if 30% of our large store sales come through online, we don’t want to make it 100% and lose out on these varied demand streams.
Capturing multiple occasions allows you to deal with the forward deployment of inventory. That is where fragmented inventory models won’t work. Why omnichannel beats eCommerce is because a lot of inventory turns for the same sale that consumes more physical real-estate and so on. So having your store makes the economics work.
Also, compared to quick commerce players, our starting points are slightly different. We already have a substantial consumer base to begin. We are offering online as an add-on. If we consider delivery, rental, and the whole unit economics of an omnichannel platform, it is far better than running either of them. If it is only offline, then there is a clear customer loss. If it is only online, the economics don’t work. Even produce wastage is very high for both the channels. Our omnichannel model makes money, it’s a profitable business, and we are looking to scale it.
The debate over this model is ongoing in the world. Creating a macro view, we see a clear shift towards omnichannel. But a bad online experience by an offline retailer is not the answer. We have to be at the table stakes with the market but omnichannel makes the economics work better.
Soham: What other aspects of SLA adherence should people keep in mind?
Supratim: Our first job is to keep consumers at the center and try to cater to as many of their shopping occasions to be the single window for all customer needs. We have to get the assortment right. In a small store, we typically carry 5000 SKUs and 100-150 fresh produce, and so on. In a large store, the SKUs go up to 10,000-11,000, which is a wider grocery basket, wider assortment, and larger bags. It will be very hard to be a meaningful proposition without the right assortment compared to traditional Kirana because it is a 2000 SKU game. What makes us stand out in this space is the assortment and the shopping experience. But the day our produce quality is bad, a roadside hawker beats us. We have to get some of the basics right every day.
We have run many experiments on the product side and have observed that customers are willing to pay a slight premium for consistent and better quality when it comes to produce. Therefore, the assortment — catering to the needs, quality, and the price has to be table stakes for us, over and above the delivery SLAs.
Then, there are other aspects of SLAs. One has to properly manage delivery for produce, eggs, seafood, ice cream, etc. We can easily do a bad job of not setting up the infrastructure to deliver all these. We have to take a holistic view of the customer’s basket. We do not believe that a 10-minute delivery window is the only window that will exist even in urban areas. It will raise the bar for us to compete in large markets, but that doesn’t take away some of the fundamentals we still need to consider.
Soham: Can you share your perspective on customers’ willingness to pay the delivery fee for an omnichannel player like you and pureplay quick commerce ones?
Supratim: By and large we are catering to the existing customers. Depending on the order size and experience, we decide the delivery fee. Not all orders are paid for. We are looking at the lifetime value for consumers for both channels. In my view, it is good to have a delivery fee because consumers who want convenience will pay for it.
We run large format stores that are big box and have small-format stores that are supermarkets. Because the latter is a convenience store and set up in proximity to customers, the pricing is higher due to the higher cost to serve. Big box retailers can have operational, logistics, manpower efficiency, and so on, but fragmented businesses are more expensive to run.
Over the years, consumers have paid for convenience. Kirana has always been more expensive than these two formats if we go back. The only problem is that we are not personalized enough or catchment-specific. That is where technology has to play a role.
Soham: How do you ensure that your customer segments are well-defined? Given the highly volatile shopping behavior, like online price comparisons before purchases are made.
Supratim: We are also perpetually trying to find the trend based on analytics.
The notion of customers checking the price for every item, even across the apps, is not what we have seen. The price has always driven consumers as it should be. However, this price perception is around just a certain set of products. We have consistently seen people pay a premium for quality because they value it. One can compare prices for packaged goods but not for quality. Like ITC’s Ashirwad has done a spectacular job of taking commodity products and making them like packaged groceries. Especially, when a large part of the pantry is unbranded, like spices.
We serve all types and stratas of consumers. Initially, we too had the notion that the price is compared aggressively. But where we are trying to deliver quality, and it costs a little money, we have been able to recover that cost because customers value that. This trend is not to be taken lightly. In our business, the consumer who is used to buying produce with us typically upgrades. Where we lose a consumer on bad quality produce, that is a very hard consumer to win back.
One more observation here is that grocery is also a basket-building product. The consumer typically buys 7-8 grocery items together. They cannot go around comparing prices for all those seven items. If 30% of that basket comprises produce, it becomes very hard to compare the price and quality online because you don’t have clear product specifications, and that’s the nature of this business. You can visualize it for an electronic item, but it is not that straightforward for a basket building product.
Soham: How do you ensure that the quantity shown to the customer while placing the order online stays available for delivery, given you cater to both ways of buying online and offline.
Supratim: It’s not easy. We are picking from the same aisle where the shopper is shopping from. We stream our PoS data to a central server to capture as many real-time sales as possible. But imagine someone walking through a store and just picks up an item that hasn’t been billed yet. That’s one challenge we have no answer to yet.
We have a common inventory management system. We stream sales on a near-real-time basis to compute inventory near real-time. So, if every distribution center is at a day’s distance from your store, you have to prepare an inventory list 24 hours in advance for daily replenishment. You have to assume about what gets sold today and what will get replenished tomorrow. There is a huge amount of forecast, time, energy and money that goes into it. There is a fair amount of inventory fidelity behind it.
For an omnichannel, the inventory movement happens instantly. But our consumer experience is not eroded if we don’t show it on the system. We can get the replenishment run tomorrow. You have to build this operating cadence.
Broadly, we focus on three things. Forecasting, building middleware to stream data in real-time from the PoS to a central database, and operation rigor to make sure that the system captures all the timestamps of inventory.
Soham: As an omnichannel retailer, what is your strategy around expansion?
Supratim: Our strategy is to go after more and more consumer catchments. When we say expansion, we think about the untapped markets. A very good example of a market with huge potential is Eastern India.
The eastern coastal region of India is relatively under-penetrated and displays huge potential. Parts of northern India such as UP and Bihar are badly penetrated. So, we first try and capture markets that are poorly served from a modern trade perspective. If the high streets of the top 5 metros present interesting catchments, we can go after them. We believe a very large part is under-served because finally, the modern trade comprises just 15%. So for the remaining 85%, we can spend a generation time capturing it.
Soham: When you say 85%, are you majorly referring to the tier-II and tier-III cities? How do you see the spread of this market that needs to be captured?
Supratim: There are two dimensions that we see playing. One is straight-up non-tier-I. For instance, we have a store in Eluru, a small town in South India. Our store is situated along with high marquee modern trade retail stores( not just grocery) and is doing well because of the interesting catchment in that tier-III city. Grocery itself is a multi-billion dollar market, and we believe there is enough for everyone to capture. If you’re in the right catchment, you get the consumer.
The other theme we are seeing overlaid is the Gurgaon-fication of most of these smaller urban locations. Their outskirts are also becoming suburban. There are well-developed urban pockets where the consumer expects a modern trade kind of experience.
Soham: What’s the key piece of advice you have for key players in the retail and quick commerce space? What are the key priorities they should consider as they go on for faster deliveries across their network?
Supratim: Delivery is one of four elements, but we have to get the product quality and assortment right to get an integrated online-offline experience from pricing to loyalty to other things. Yes, faster deliveries are important. We cannot consider taking our top 1000 SKUs in a small store and launching it on an app, as it won’t be the right consumer proposition. We cannot think about not having fresh produce, which is very hard as there is quality variation in the forecast. When you are projecting for tomorrow you need to know how much and what will get thrown away because quality is eroded, which is completely store-specific. Also, you don’t know what you’ll collect from farmers tomorrow because agriculture is less predictable and so on. There are numerous steps in the chain to get the product at the end of the day. These challenges also need to get solved because we don’t think we can deliver a good consumer proposition by just the speed of delivery.
As we look into the future, businesses will adopt smart technologies and tools to balance between delivery cost and speed and enhance customer experience.
Delivering under 10 minutes in the busiest bylanes is no small feat. While dark stores bring inventory closer to the customer, technology is the real protagonist creating this magic.