Every second online company being founded or being advertised nowadays seem to be running on some sort of an aggregator or an online market place model. Taxi, retailing, food ordering, furniture, hotel, ticketing, art, domestic services, jewelry, homes there are dime a dozen companies in each of these fields, albeit working in their so called niches. The only difference is that some got funding and others are desperately looking for it.
Someone asked me today, what I thought about the grocery aggregator and market places model and alluded to it being successful in the US. They themselves were planning to go ‘asset light’, the term in vogue for an aggregator or market place. I thought about it a bit and told my point of view, “the winner, in India, will need to have an extremely efficient supply chain and the rest will rot or perish like the fresh grocery they fail to sell.” Here are my reasons for the same…
- Consumer behaviour which is pretty unique:
- The Indian consumers are essentially, ‘touch & feel’ consumers. Especially, when it comes to grocery, they want the products to be fresh and want to physically touch and feel to assess it.
- Sell packaged grocery to these guys will take some time and a big behaviour change.
- Coming from the need to consume fresh, they are essentially small unit purchasers.
- One needs to keep the unit sizes small. And these unit sizes vary quite a bit. So, you are packaging as close to the selling point as possible. Then there is the angle of high relative packaging costs for such small unit sizes.
- There is a popular saying, ‘Kos kos pe badale pani, char kos pe vani‘ (taste of water changes every 3 kilometers, and the language changes every 12).
- The variety needed to take care of these unique tastes is a complete nightmare.
- The Indian consumers are essentially, ‘touch & feel’ consumers. Especially, when it comes to grocery, they want the products to be fresh and want to physically touch and feel to assess it.
- The existing Retail system:
- There are some 8 million super entrepreneurial mom & pops operating in a fairly organised manner in their own sense. They extend credit, supply to door steps and are generally at the beck and call of end consumers.
- No one has yet given any thought to the value you need to create or the CRM systems you need to build to beat these relationships yet.
- They also have an amazing demand estimation sense. If they misestimate demand, they always fallback on their relationships to promise, ‘kal laake doonga, chalega‘ (can I get it for you tomorrow)? And, they seldom fail on their promise.
- Most big companies are yet to get their act right on demand estimation at a broader level, forget getting it right at the store or customer level. Commit to delivering out of stock products later, and you might mostly incur a higher cost delivering than the profit on the low unit item.
- There are some 8 million super entrepreneurial mom & pops operating in a fairly organised manner in their own sense. They extend credit, supply to door steps and are generally at the beck and call of end consumers.
- The long and inefficient supply chain:
- The large manufacturing and marketing companies, the traders and the small time producers have tuned their systems, pricing models etc., to supply to this unique Customer and fragmented Retail. Tell them that you will take away their distribution headache and ask them for extra margin in lieu of it, they’ll not agree. You are small fry for them at this point of time. Taking away the distribution headache is easier said than done, apart from the systems put in place by these large manufacturing and marketing companies, the general supply chain and storage systems haven’t developed that well for you to ride on.
- The only option is to build one to your requirement which takes time and money.
- The large manufacturing and marketing companies, the traders and the small time producers have tuned their systems, pricing models etc., to supply to this unique Customer and fragmented Retail. Tell them that you will take away their distribution headache and ask them for extra margin in lieu of it, they’ll not agree. You are small fry for them at this point of time. Taking away the distribution headache is easier said than done, apart from the systems put in place by these large manufacturing and marketing companies, the general supply chain and storage systems haven’t developed that well for you to ride on.
- Market creation system, primarily based on ‘discounts’, is flawed and not sustainable long term:
- Check out the communication, pricing and promotions of these aggregators and market places, everyone is running a discount. The business they are essentially generating is by appealing to the ‘bargain hunters’.
- Most of these bargain hunters are gaming the system – they’ll only purchase discounted items from you or move to a bigger discounter when they find one.
- Once you start your pitch with a discount clubbed with good service (or any other proposition), both become the new norm.
- You can’t sustain discounts that you are giving cutting your own margins. You’ll have to cut one. Once used to it, Consumers will not accept if they don’t get both in future.
- Check out the communication, pricing and promotions of these aggregators and market places, everyone is running a discount. The business they are essentially generating is by appealing to the ‘bargain hunters’.
While the first three relate to the supply chain, I added the last very deliberately. I think it’s the biggest folly that every big online guy is doing right now. Am eagerly waiting to see one who has the guts to do something different.
