A number of ecommerce companies in Dhaka have made active pivot to online grocery amid the coronavirus pandemic. Ride-hailing company Pathao launched its on-demand delivery service Pathao Tong. PriyoShop, the ecommerce marketplace, launched a grocery delivery service. Evaly launched Evaly Express offering on-demand grocery deliveries across Dhaka city. Others with limited online grocery operations have expanded their coverage and service. And there are location specific grocery delivery services being launched and operated.
The coronavirus pandemic has fundamentally changed the business across the world.
Relevance has become an important aspect of every business amid. High flying businesses are suffering because they have little relevance amid lockdown and widespread decline in consumer demand. This has inspired a pivot to ‘anything that works’ among companies.
It appears grocery has become the business of choice in quarantine time. There certainly is consumer demand. As people spend their days locked in their homes and shops near homes are closed, people need deliveries of essentials to survive. Similarly, companies across board are struggling these days to shore up demands as the pandemic ravages through our cities and demand falls across verticals.
For many companies, grocery and essential deliveries offer a lucrative opportunity to pivot and survive the pandemic fall out as well as possibly find a business opportunity that may help in the long run. Grocery seemingly offers a quick life line and everyone seems to be more than eager to capitalize on it.
However, grocery is a difficult business. The supply chain is complex and is unlikely that a previously fashion-ecommerce company will be able to set up a grocery supply chain in a span of a week or so amid a global pandemic that has virtually stopped our lives.
Second, grocery is a thin margin business. Making money out of a grocery business which is established in an emergency is unlikely to be an easy feat.
Third, on-demand delivery is difficult. Most grocery delivery companies, even the established ones, have been suffering from a lack of an established delivery process and a network of delivery personnels resulting in terrible customer service and rampant complaints from customers since the pandemic lockdown began in Bangladesh in March.
Why companies are pivoting to grocery
Pandemic has caused a widespread fall in demand across verticals. While ecommerce as a sector has gained due to the changes in consumer behavior amid the lockdown, the overall business for almost every vertical except daily essentials has suffered decline in business.
Grocery as an essential vertical offers a viable opportunity for many companies to shore up demand and recover some growth which led to many companies jumping on the opportunity.
Companies everywhere are pivoting to whatever they could get hands on amid the coronavirus pandemic. However, in most instances it is unclear how companies are thinking about the long term consequences of these pivots.
Challenges of a pivot to grocery
Relatively thin margin: Grocery does make sense at scale, in most instances, however, grocery does not offer much margin. Companies that are looking for viable pivot opportunities are looking for two things: 1) relevance that will drive demands amid a widespread decline in demands for goods and services across verticals. 2) short term sustainability to survive the pandemic fallout. While grocery offers relevance, a thin margin does not ensure sustainability, at least in the short run.
Complex supply chain: Grocery supply chain is complex involving multiple layers and players. The general logistical needs are higher. In order to have an efficient supply chain and ensure competitive prices, one has to work either directly with farmers or wholesalers. Both of these are a challenge, at least in the early days.
Working with either farmers or wholesalers is unlikely to be an easy deal given that in order to have a bargaining power and get meaningful deals with farmers you need to offer them volume which most companies are unlikely to offer on day one.
There is a chicken egg problem here. In order to have power in the supply chain, you must have the volume of orders, which you can’t have on day one. Contrarily, you need to start somewhere to get to a volume in orders. The only way to overcome this chicken egg problem is time. When you are operating in the market for a long time you gradually accrue orders and volumes and relationships with farmers that eventually drive to market power.
Unfortunately, most players who are into online grocery as a pivot amid the pandemic don’t have the luxury of time, which makes it challenging for these companies to optimally manage a grocery supply chain.
Take, for example, Chaldal. The leader in online grocery in Dhaka has been working in the space since 2013. The company is just having some advantage of operating for a long time in the grocery space. Through Chaldal Venegatable Network it now has a better relationship with the suppliers and can offer greater price advantage to the customers. In fact, Chaldal offers competitive prices to the extent that it's often cheaper or at par with the most competitive price in the market. But in order to get here, the company had to work for a long time.
Logistical challenges: Grocery delivery is a demanding logistical challenge. The challenge is on both ends - ensuring supplies and the delivery to the customers. If you are doing grocery delivery, you need to ensure fresh supplies on time. The process and the overall workload it takes to ensure timely and good quality supplies are humungous to say the least.
Similarly, ensuring on time delivery to the doorsteps of the customers is a problem that appears simple from outside but incredibly complex when you are doing it. There are multiple layers to it.
Preparing deliveries at scale is a complex technical challenge. To explain, when you are dealing with groceries you are dealing with a large number of items. Ensuring that customers receive all their orders and there is no missing product when you are packaging goods is a challenge and requires operational excellence. Companies like Chaldal use technology and human interventions to ensure accuracy of orders. Still Chaldal misses on delivering products. Missing product is a major challenge for almost all major grocery delivery services.
Then comes the ensuring deliveries on time to customers. Grocery is not fashion delivery. If you are a fashion ecommerce company, often a few hours or a day delay in delivery is acceptable. In fact, most non-essential deliveries take multiple days to reach customers and customers often order with keeping that timeline in mind. Not grocery.
In grocery and essential goods delivery, the needs are different and the time requirement is different. Customers want it on time. If you are committing that you will deliver within 24 hours, you better keep that promise. If you are promising a 30 minute delivery, you better keep it.
Most companies including Chaldal fail at that because delivery is tricky and grocery delivery is more so. Moreover, there is a hyperlocal aspect to it. Chaldal has built delivery hubs across Dhaka to ensure on-time delivery, which is likely to be a difficult ambition for most companies eyeing a short term pivot amid a pandemic.
Long-term commitment: In most markets, it is well accepted that grocery is a tough nut and takes a long time to crack. Since the margin is often thin, you are usually losing money in the early days. In order to get to a healthy business, it often takes years.
How to look into pivot to grocery
These are some of the major challenges companies have to deal with when we are talking about online grocery. Let’s take a look into strategic viability if you take grocery as an extension of your current business to survive the COVID-19 challenge.
Short-term pivot to grocery offers relevance but not sustainability: Companies across verticals are suffering from two challenges amid the pandemic: 1) an overall decline in demand. It means everyone is trying to shore up demands in some way. One approach to shoring up demands, we are talking about now is pivoting to a more relevant vertical for this time.
2) Companies are trying to reduce burn, conserve cash and extend the runway as much as possible so that you can survive this and upcoming downturn and come to see a more stable economic condition where you will get a chance to thrive.
If these are the two major challenges for most average companies, does pivoting to grocery make sense?
The answer is both yes and no.
Yes, if you consider the purpose is relevance alone. No, if you consider the purpose is both relevance and long term sustainability.
Grocery makes perfect sense as a relevant business amid a country wide lockdown. People do need to buy supplies when they are staying indoors and most people would like to rely on online deliveries. But is it possible to set up and run a sustainable grocery operation in a matter of a few days and that too if you are doing it for short term sustainability?
The answer is no. Thin margin, operational complexity, and supply chain challenges make it a less lucrative option if you are considering pivoting to a business that can help you find relevance as well as help drive demand sustainably in the short run.
Can pivot to grocery work?
But you can make a pivot to grocery work for your company if you are commiting to the pivot from a long term perspective. When you commit for the long term, everything changes.
You certainly win on the relevance and now since you are not looking for short term sustainability, you can also overlook the thin margin and eventually overcome the market power dynamics in the supply chain by amassing orders as you grow.
Grocery does offer an opportunity. In the coming years, the consumer behavior of ordering online accelerated by the COVID-19 pandemic is likely to offer a big consistent market opportunity for serious online grocery players. But the pivot has to be long-term not for surviving the COVID-19 pandemic alone.
What we are reading
As I mentioned earlier, a number of companies have made a pivot to grocery. It is unclear whether these companies will continue to stick to grocery as we slowly land into a post-pandemic world. Regardless, there are questions companies will slowly need to answer as we come out of the crisis and get to a post-pandemic world.
What will a pivot to grocery mean if we return to a normal operation and demands for old services resume? Whether they will need to find product-market-fit once again? How will these companies deal with the long term ramifications of these pivots?
These are some of the questions companies will need to consider while thinking about any pivot.