Online grocers are raising funding rounds and investing in fulfillment centers to accelerate growth and lead the e-commerce race in India

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Spurred by cheap data plans and budget smartphones, the internet penetration rate has increased substantially over the last three to four years in India. This has resulted in millions of new online shoppers in the second most populous country in the world. The global pandemic outbreak has further accelerated the trend of online shopping, and with the growth momentum projected to continue from the short to medium-term perspective, online grocers are seeking to capitalize on the high-growth potential of the Indian e-commerce industry. As part of their growth strategy, online grocers are raising funding rounds to further expand their presence across India.

• In December 2022, BigBasket, one of the leading players in the segment, announced that the firm had raised US$200 million in a funding round from Tata Digital and other investors. In 2021, Tata Digital acquired a 64% stake in the online grocer. The capital round is part of the firm’s strategy to expand its presence in more cities across India. The online marketplace, which sells everyday essentials, operates in more than 30 cities.

To attract more shoppers onto its platform and to further drive its monthly order volume, the firm is planning to use part of its funding to provide discounts and offers to customers in India. This strategy has been widely adopted among other online grocers as well, thereby leading to a rush in customer acquisition in the e-commerce market. However, with inflation pressure and liquidity conditions tightening, the strategy to offer discounts and offers can lead to a negative impact on many players in the segment.

BigBasket, unlike many others, is in a strong position to weather the storm of rising interest rates and a slowdown in funding. Being profitable, the firm is in a better position to attract venture capital and private equity funding, while it continues to explore initial public offering to raise more capital over the next two to three years. In addition to its competition with the offline grocery providers, BigBasket is also competing with big names such as JioMart, Flipkart, and Dunzo in the online grocery space.

• Dunzo is also seeking to raise up to US$100 million through convertible notes. The firm is planning to use the fresh capital for expanding its quick commerce segment, Dunzo Daily.

Amid the ongoing funding winter, many of the late-stage startups have been seen raising capital through convertible notes as opposed to equity rounds. While BigBasket and Dunzo are seeking capital rounds to drive their growth in the online grocery space, others are investing in fulfillment centers to expand their reach and drive business growth in India.

• In January 2023, Flipkart announced the launch of its third fulfillment center in the country. The facility will provide consumers with over 400 regional category products across more than 100 categories. The fulfillment center, Flipkart’s third in Uttar Pradesh, will enable Flipkart to cater to the grocery demand of more than 300 pin codes in the region.
• Currently, Flipkart delivers groceries in more than 1,800 cities and 10,000 pin codes in the country. With 24 fulfillment centers across India, the e-commerce giant has been strengthening its foothold over the last two years. Furthermore, to enable greater inclusivity, Flipkart has also made its mobile application available in 11 Indian languages.

With voice-enabled shopping and buy now pay later flexibility, Flipkart aims to lead the growth in the Indian e-commerce industry, including in the online grocery space over the next five years. Along with fundraising rounds and expansion of the logistical network, players are also launching new platforms to diversify their grocery delivery business, amid the slowdown in growth and revenue.

• In January 2023, Swiggy, which operates the online grocery platform Instamart, announced the launch of a new platform, Handpicked. Unlike Instamart, orders placed on Handpicked will be delivered the next day. The online grocery service deals in premium products, which are hard to find in local stores and e-commerce channels. The firm has launched a new service to revive growth and consumer spending in India. Currently, Swiggy is piloting the service only in Bengaluru. However, it has plans to expand the platform to more cities across India.

As competition continues to intensify in the segment, more and more players are expected to raise funding and launch new fulfillment centers over the next three to four years. From the short-term perspective, PayNXT360 also expects mergers and acquisition activities to rise amid the growing consolidation in the online food and grocery delivery service in India.

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