What’s cooking in India’s e-grocery market?

Madhavi Gupta, 49, typically prefers shopping for groceries in person at her neighbourhood departmental store in central Kolkata. Gupta, a homemaker, likes to see a product before buying. But since the Covid-19 pandemic struck in March last year, she mostly does her monthly grocery shopping online. “I always look for the best deal and the best product. It doesn’t matter where I am shopping from. I typically shuffle between BigBasket, Grofers, and Amazon,” says Gupta, who still stays loyal to her local store, which now provides no-contact home delivery even for bill amounts as low as ₹100.

Gupta is no different from any other customer shopping online who seeks the best deal for the product of their choice and is typically vendor agnostic. A customer is unlikely to be loyal to any single retailer, be it online or offline—and is often swayed by the kind of brands they tie up with as well as the shopping experience and deals on offer.

But despite the fickle online customer, large corporations such as Reliance Industries Limited (RIL), Walmart-owned Flipkart, and Amazon are betting billions of dollars on India’s e-grocery market. One of India’s oldest conglomerates, the Tata group, is the latest to join the party after spending over a billion dollars to buy Bengaluru-based online grocery store BigBasket. In May, Tata Digital—a subsidiary of Tata Sons—acquired a majority stake (approximately 64%) in BigBasket for reportedly $1.3 billion. The pandemic has accelerated the pace of e-commerce adoption and growth in the country. And the Tata group, with its vast retail footprint, would not have liked to miss this opportunity.

“The acquisition of BigBasket is one of the smartest moves from the Tata group in a long time. It is one of the most attractive online businesses in the grocery space with strong sales and growth potential,” says Harminder Sahni, founder and managing director, Wazir Advisors, a management consulting firm. According to data firm Statista, BigBasket had a market share of over 35%, the highest, in the Indian online grocery space as of 2019.

The BigBasket deal, followed by Tata Digital’s recent investment of $75 million in healthcare and wellness startup CureFit and acquisition of 1mg, an online healthcare marketplace, is crucial for the group. Experts say that Tata Digital’s recent deals could be a precursor to the group’s larger plans of building a super-app that would encompass groceries, healthcare, bill payments, and fashion, among other services. In June, Tata Digital—which set up operations in August 2019 to build consumer-centric digital businesses across multiple verticals—named Mukesh Bansal, co-founder and CEO of CureFit, as its president.

“Mukesh Bansal brings in not just credibility in building successful online businesses but also culture and passion to grow such entities. He understands very well how to scale up an online business,” says Ankur Bisen, senior vice president, retail and consumer products, Technopak, a retail consultancy firm. Myntra co-founder Bansal started CureFit in 2016 with Ankit Nagori, his ex-colleague and former Flipkart chief business officer.

Sahni argues that, to date, most of the Tata group’s online initiatives such as e-commerce platform Tata CLiQ, e-grocery store StarQuik, clothing store Westside.com, and electronics retail chain Croma.com have been “disappointing”.

Concurs Bisen. “The Tata group has realised that they can’t build scale and compete with e-commerce majors such as Amazon and Flipkart through the organic route. The BigBasket acquisition allows the Tatas to leapfrog to a leadership position as far as online food and grocery are concerned.”

BigBasket declined to comment for this story.

There are at least a dozen other online retailers that are tapping into India’s e-grocery potential. Amazon in February integrated its Pantry within its Fresh store, giving its customers the convenience of two-hour deliveries. “At Amazon, we are committed to be an ‘everything’ and ‘everyday’ store for our customers and constantly focus on increasing selection, convenience, ease, and speed of delivery across the country. There is a significant surge in demand for groceries seen during the pandemic and together with lakhs of sellers and associates across our network, we are working hard to serve customers while following stringent safety measures and government guidelines,” an Amazon India spokesperson tells Fortune India.

SoftBank-backed Grofers—one of India’s biggest online grocery players— also witnessed a 46% rise in demand in April-May when compared to February-March. “We have also witnessed a 102% growth in first-time online grocery shoppers. We believe this surge in demand is driven by a behavioural shift towards e-grocery through the last 12 months,” a company spokesperson says.

The online grocery market in India is expected to touch $24 billion by 2025, accounting for just 3% of the total grocery market, noted a recent report by RedSeer Consulting. Grocery, on the other hand, is about 66.5% of the retail spend in India, with 95% of the grocery market being left to the unorganised players (local or kirana stores). This presents a massive opportunity. No wonder that RIL, the oil-to-telecom conglomerate led by billionaire Mukesh Ambani, has built its own e-commerce platform JioMart—a joint venture between Reliance Retail and RIL’s digital services arm Jio Platforms. JioMart delivers grocery and daily essentials through a scheduled delivery model from nearby stores.

Experts argue that both online retailers and large companies have understood the virtues of an omni-channel existence rather than a pure e-commerce presence. “In future, BigBasket could also become a mix of an online and offline platform as the Tata group can acquire an offline player and put all of them under one umbrella,” says Sahni.

“Grocery is one of the largest components of an individual’s consumption basket in India, and BigBasket, as India’s largest e-grocery player, fits in perfectly with our vision of creating a large consumer digital ecosystem,” Pratik Pal, CEO, Tata Digital, had noted in a statement.

Today, the e-grocery space in the country is a play for mature players who can deploy capital and scale the business fast. Therefore, large companies don’t mind shelling out money for online assets that will give them some edge over competition and capabilities.

The time may be ripe for the next disruption in India’s online grocery business.

(The story originally appeared in Fortune India's July 2021 issue).