That Grocer Online

One of the biggest casualties of the first dotcom crash of 2000/01 in the US was a company called Webvan. It was founded in 1997, and headquartered in Silicon Valley. It was envisaged as an online grocery business, taking orders and delivering on-demand fresh produce. It had a raft of big venture capitalists' backing, and was considered a business that would revolutionise groceries much the same way that Amazon was trying to revolutionise the book sales business. It raised almost $400 million from venture capitalists and then another $345 million in an IPO in 1999. At its peak, it was valued at over $5 billion. In 2000, it bought out a smaller rival called HomeGrocer.com, which had started operations one year before it did. Webvan spent millions on infrastructure and publicity and branding, but ran out of cash in 2001.

A number of reasons were put forward for the crash of Webvan by analysts in the aftermath of the dotcom bust. Most agreed it was an idea before its time. The Internet was still in the narrowband and at the dial-up connection stage, the technology platforms were buggy, the company was trying an inventory-led model, which was not very cost-effective, and an inexperienced team ended up burning too much cash while earning too little revenues.

Around the time Webvan shut shop, a few offline grocers, including Safeway, started grocery delivery to homes. This was roughly the time when a few supermarket chains in India, like Subhiksha, also tried to systematise grocery delivery. Safeway, while not unsuccessful, did not go on to become a big player in the online grocery or grocery delivery business. Walmart in the US has a vastly bigger online grocery business, while Amazon.com has also got into the grocery delivery game.

The history of Webvan is instructive, because grocery delivery and online grocery ordering are becoming a hot area for new entrepreneurs as well as big retail chains once again. In India, more than a hundred players are in the business. Some of them are considered veteran players - having survived for five or more years. Others are brash newcomers. A few have all-India aspirations while others are trying to service extremely local markets. The business models all these players are trying out also vary widely. Some see themselves primarily as specialised order takers and delivery businesses. They work with other offline stores to pick up goods once an order has been placed, and then drop them off to the customer. Others see themselves as true grocers, keeping a fair amount of inventory at all times. Still others essentially aggregate orders every day till a certain time, then go to the main mandis for shopping, and deliver to the customers in the evening. There are others who run big retail stores and are getting into the online order and delivery game to compete with new-age rivals.

While some players have managed to raise substantial funds, a few dozen start-ups, offering to deliver groceries, have also shut shop in the country. The mortality rate is probably higher than in other online businesses, because of the margins, non-standardisation of goods, and the fact that a big chunk of the orders involves perishables.

The grocery delivery business in India is somewhat more complicated than it is in the US because of one factor - in India, neighbourhood kiranas have always offered delivery options to regular customers, and the new businesses have to compete with them as well.

So, how will the new grocery delivery business play out? Our cover story on page 58 looks at all the issues in detail.