WWRR Vol.2.015

M
FOUNDATION
...with an epic >US$0.5tn battle for
grocery retail in India
...and some consumers are already seeking online fulfillment
options with home delivery... Online penetration of grocery in India
is amongst the lowest in the world. So should retailers make omnichannel
a key organizational priority?
Mom & pop (Kirana) stores in India offer a no-frills but
convenient shopping experience with limited SKUs (varies
but unlikely to be >1,000). They control over 95% of the
grocery market in India. However, some channel shift is
imminent – and here is why.
Consumers may gravitate to modern format retail in search of
wider assortment and better prices... Based on our price checks,
we observe that prices for modern format retailers (brick & mortar
as well as eCommerce) are 17%-19% lower than those in Kirana
stores. In addition, as aspirations rise, consumer preferences are
shifting toward a greater assortment of products based on such considerations
as aspirational traits, global brands/categories, health
and wellness, and natural ingredients. Modern sales channels are
well placed to capitalize on this emerging consumer demand.
Our view is that based on emerging global trends (Amazon's acquisition
of Whole Foods and Alibaba’s New Retail model), brick and
mortar grocery retailers will be wary of an accelerated shift in favor
of online retailing and amidst rising competition and ever increasing
customer expectations.
Against this backdrop, grocers must invest in online capabilities as
well as in-store experience (presentation, assortment, pricing) – or
risk falling behind. In the world of retail and food retail in particular,
if you lose even 10% of customers to a competitor’s online platform,
it makes a material difference to your profitability.
Based on our estimates, given the high fixed cost construct of storebased
retail, even a 5% loss of sales will have a 15% impact on profits.
In addition, online grocery (at least initially) attracts more profitable
customers – who shop in higher-margin categories and prioritize convenience
over price.
Exhibit 8:
e-Commerce and modern trade channels offer 17-19% pricing discount vs. General Trade
Rs/ SKU
Discount
General Trade (GT) e-Commerce Modern Trade (MT) e-Commerce vs GT MT vs GT
Lux soap (3*150g) 108 87 96 -19% -11%
Dove soap (3*100g) 172 146 151 -15% -12%
Pears soap (3*125g) 164 138 144 -16% -12%
Nivea shower gel (250ml) 199 160 129 -20% -35%
Rin detergent (2kg) 148 136 135 -8% -9%
Surf excel (1.5kg) 174 141 159 -19% -9%
Ariel detergent (1kg) 249 236 229 -5% -8%
Sunsilk shampoo (650ml) 355 240 177 -32% -50%
Clinic Plus shampoo (340ml) 165 137 136 -17% -18%
Head & Shoulders shampoo (340ml) 450 279 224 -38% -50%
Parachute Coconut Oil (200ml) 86 74 75 -14% -13%
Fair & Lovely Fairness Cream (80g) 145 133 139 -8% -4%
Colgate dental cream (400g) 176 158 144 -10% -18%
Colgate total (120g) 153 113 119 -26% -22%
Lipton green tea (100 bags) 450 346 349 -23% -22%
Whisper Ultra (30 pads) 310 252 239 -19% -23%
Himalaya neem face wash (150ml) 146 115 118 -21% -19%
AXE Deodorant (150ml) 190 127 124 -33% -35%
Set Wet hair gel (100ml) 100 71 90 -29% -10%
Everyday dairy whitener (400g) 169 157 158 -7% -7%
Good Knight adv(Machine + Refill) 45ml 85 85 75 0% -12%
Real orange juice (1L) 99 94 64 -5% -35%
Dairy Milk Fruit & Nut Chocolate (80g) 80 67 72 -16% -10%
Source: Company Websites
MORGAN STANLEY RESEARCH 13