IMPACT OF E-SHOPPING OF GROCERIES AND

VEGETABLES ON LOCAL KIRANA SHOPS

THROUGH DEMAND AND SUPPLY ANALYSIS

GROUP VI
MEHER SETHI, MRINMOY GHOSH,
SANHITA BAGUI, SHEETAL KUMARI,
UPASANA SANYAL.
 ACKNOWLEDGEMENT
Wewould like to express our special thanks
of gratitude to our teacher and guide Ms.
Minu Harlalka who gave us the opportunity to
do this insightful project on the Study of the
impact of e-shopping of groceries and
vegetables on local kirana shops through
demand and supply analysis, which also
helped us in doing a lot of Research in the
process of which we came to know about so
many new things.
 INTRODUCTION
We have made an attempt to highlight the impact of the increasing trend of online
shopping of groceries and vegetables over the various local kirana stores. Retailers
comprise of a large section of the population and a larger population is dependent upon
these retailers. But the advent of e-stores with their attractive incentives and wide
varieties has had certain impacts on these local shops. This study looks into the various
aspects about how the local businesses are being affected and also the various recovery
mechanisms they are coming up with to counter those e-stores in their race of survival.
The effect upon the profitability of the various concerns due to increasing trend for
online shopping has also been discussed here.
Purchasing products or services over the Internet, online shopping has attained
immense popularity in recent mainly because people find it convenient and easy to shop
from the comfort of their home or office and also eased from the trouble of moving from
shop to shop in search of the good of choice. Online shopping is a form of e-commerce
which allows consumers to directly buy goods and services over the internet through a
virtual shop. Some of the leading online grocers currently in India are Big basket and
Grofers.
Mom and Pop Store (also called Kirana Store in India) - Mom and Pop stores are the
small stores run by individuals in the nearby locality to cater to daily needs of the
consumers staying in the vicinity. They offer selected items and are not at all organized.
 ABSTRACT
The size of the retail business in India is close to about 500
billion dollars. Out of which 70 per cent is food and
grocery, that is, close to 360 billion. It is expected to grow
about 500 billion by 2020. The online grocery space today
is just scratching the surface which is close 150 million and
is expected to reach 10 billion. The retail market is largely
dominated by the local shops while online segment is still
at a nascent stage. The number of Internet users in India
is expected to reach half a billion by 2020, and 1,044
billion households are expected to purchase food
andgrocery online. Currently, 144 million households buy
more than Rs 5,000 worth of food and groceries per month.
The overall online business is expected to reach $20 billion
by 2020.
 Price and Competition in Food
Markets
Basic Economics.The notions of supply and demand are fundamental to economics. The general logic
here is that consumers will be willing to buy a larger quantity of goods at a lower price than they would
at a higher price. As we will see, this assumption is sometimes violated, usually when consumers use
price as a cue to quality and assume that a higher priced product is better. Similarly, sellers are
generally willing to sell a larger quantity when a higher price is offered. Thus, we have the traditional
supply and demand curves:
Several things are evident from this chart:
Each curvesupply and demandindicates the quantity supplied or demanded at the prices offered.
At a price of $4.00, for example, buyers would be willing buy about 85 units. However, at that price,
only about 10 would be supplied.
Where the two curves intersect, the equilibrium, or market, price is found. The quantity supplied at
that price is the same as the quantity demanded at that priceabout $7.50 in this chart.
When the market price changesbecause of a change in supplythe demand curve is not directly
affected. If the price decreases, there will be an increase inquantity demandedbut not a change in
overalldemand.
Supply and demand curves often have a curvedas opposed to straight lineshape since there is no
reason why the same change in pricesay, $1.00will have the same impact at high or low prices.
For example, if the price of heavy cream were reduced from $3.00 to $2.00 a pint, quantity demanded
would increase. However, if heavy cream sells for an already low price of $1.00 per pint, reducing the
price even further would have little effect. This product simply contains too many calories for
consumers to consume more even if it were free.
 As we will see in examining research on consumer response to price, real life demand is not always as smooth as it is portrayed in theoretical
demand curves. For example, sharp changes may occur when certain critical price points are reached. Consider the following hypothetical quantities
of cereal boxes demanded:
It is clear that the dramatic drop in quantity demanded as we go from $3.95 to $4.00 is likely not due so much to the small 5 cent increase in price
as it is to our reaching a critical price of $4.00 that consumers are reluctant to pass. That is, suddenly when the price reaches $4.00, it appears as
expensive. If we increase the price another 5 cents, the additional drop in quantity demanded is small.
Price elasticity refers to the extent to which quantity demanded is affected by changes in the price. By definition
% change in quantity demanded
Elasticity = ________________________________
% change in price
Research has found that at prices normally charged in supermarkets, the price elasticity appears to be around -2.0 for many different product
categories.That is, if prices are raised by 1%, sales will tend to decline by 2%.
Demand Curves. Total demand for a product results from adding the demand for each consumer. Some consumers will have high levels of demand,
or low elasticity, and others will be highly price elastic. As a practical matter, it is usually most convenient to consider total demand as the sum of
demand from different segments. Here, again, certain groups of consumes will value the product more than others. For example, in the case of steak,
followers of the Atkins diet will value the product highly. These consumers will buy large quantities even at high prices. Since they have already bought
all they can eat anyway, they may not buy much more if prices are lowered. In contrast, those following a low fat diet may not buy much beef no
matter how cheap it is. Certain consumers are very price sensitive. They will tend to buy whatever is cheapestif beef is cheaper than chicken, they
will buy beef, but they will not buy much beef if it is more expensive. Finally, the largest segment probably consists of consumers who are somewhat
price sensitive. They will buy some beef at high prices, but they will buy increasingly more at lower prices.
Supply. In the short run, supply is determined by what is available. If there is a glut of beef, prices will come down, and prices will increase if there is a
shortage. In the long run, producers can adjust their production levels. Often, adjustments take a long time. To increase production of beef, you first
have to raise stock. You may also have to build barns or acquire more land to hold the livestock. By the time production has been increased, prices
may be on the way down. It may also be difficult to decrease production since a lot of resources have already been invested in production capacity. If
prices of wheat go down, it may be difficult for a farmer to sell land that he or she no longer finds useful to plant.
Costscome both in fixed and variable categories. Fixed costs are costs that are not affected by the quantity produced. The mortgage on a farm costs
the same regardless of how much is planted, and the loan payments on manufacturing equipment are the same regardless of how much it is used.
Variable costs, in contrast, depend on the quantity produced. If a farmer produces less wheat, he or she will need to buy less seed. Some costs are in a
gray area. Labor costs may or may not go down with decreased production, especially in the short run. Because fixed costs cannot be changed in the
short run, firms may find it optimal to produce a product even though it will lose money. If variable costs, but not all fixed costs, are covered, the firm
will lose more by not producing. Even if revenue is less than variable costs, farmers may be forced to produce due to pre-existing contracts.
 The Major Player-BigBasket
Founded by Hari Menon in December 2011, Bigbasket is one of the largest online food and grocery companies with
operation in 18 cities across India. By 2016, it is planning to expand its operations to another eight cities. The Bangalore-based
online grocery startup deals with over 15,000 products comprising groceries,fruits and vegetables,dairy products, personal
products, kid products, and wide range of household products. Bigbasket expects to achieve breakeven in the next two years and
increase revenue to $2 billion from the current Rs 1,000 crore (about USD 150 million) on the back of expansion of network.
According to Hari, 20 per cent of the value of Bigbasket comes from fruits and vegetables and this is about three times higher than
what a physical chain does. A physical chain typically contributes about six to seven per cent. He added For us, fruits and
vegetables are the largest margin drivers. He said, "The online farm to fork gives us the best experience because we source either
from the mandis of the farmers which essentially come to our warehouse and get processed and goes directly to the customers.
Fruits and vegetables play a very key role for us. The BigBasket model is different. The biggest among the online supermarket
retailers, it has 500,000 customers across seven cities and gets around 20,000 orders a day7,000 of these from Bengaluru alone.
Its sales figure for the last financial year:Rs.250 crore. BigBasket is investing in infrastructure such as warehouses and farm
collection centres, and on products under its private-label brandsFresho for fruits, vegetables, meat and bread, and Popular
and Royal for staples.
Online supermarkets have proved to be a challenging category worldwide, and there havent been too many profitable ventures. As
Raja Kumar, CEO of Ascent Capital Advisors, and an early investor in BigBasket, explains: Grocery is a logistical nightmare and an
implementation game. From the outside, it may appear like the largest vertical with room for many, but 99% of the time, ventures
fail. Models that have worked elsewhere in the world wont work here, says Kumar. He does believe that Menons team, with its
years of experience in retail in India, has the edge.
What people like about BigBasket:
They deliver:Oh yes they do. I am talking literally (products delivered on timeproducts delivered on time in certain parts of
Bangalore and delivered atrociously late in other parts of Bangalore) and metaphorically (deliver a great experience). Since we
dont take the car out too much, most of our grocery shopping offline happens at Star Bazaar (which is also great) or Big Bazaar
(little more downmarket in our area). However, lugging home cartons of milk and heavybottles of oil isnt the most enjoyable
experience.
Free delivery:Yes, I prefer free delivery (on purchases over Rs 1000) vs. delivery charges (Rs 20 for less than Rs 1000). But I have
now come to the realization that Rs 20 is not that much.
Flexible schedule:They let you choose when you want your goods delivered. They give you 4 time slots within the next
36 hours, so you have the flexibility of deciding when you want the guys to come over. Moreover, even if you arent at
home, they are flexible enough to call you and say can we come tomorrow morning then? Its pretty awesome.
Great team:When the red Big Basket van comes rolling into our apartment complex, there is excitement on ourfaces.
The delivery men are cheerful, wearing Big Basket uniforms, and work efficiently. Upon delivering theyask for the pin
code (to ensure that theyve delivered to the right house). Overall, you feel secure ordering from BigBasket.
Related products:I bought soil, pots, seeds, and a khurpi from Big Basket!! Yes, I did. The first step towards
homegardening can now happen online and its great!
Great vegetables:Everything is clean and hygienically packed. Also, you get a range of organic and pesticide free
veggies.
Cash back schemes:They have a 2 to 4% cashback scheme running currently as well other promos (Big 5 sale 5%
off). These promos are easy to find (button viewable on the checkout page, which is great).
What people dont like that much about BigBasket:
Out of stock:A lot of things are perpetually out of stock. Like mushrooms. Which means I have to go to my local grocery
store anyway
Limited range:I was looking for a particular brand of milk, couldnt find it on Big Basket. Also was looking for a particular
brand of biscuits, couldnt find. Looking for Keggs eggs. Couldnt find. Wish they would increase their range soon.
Under-ripe bananas:Some veggies, especially bananas, take a week to ripen after Big Basket delivers. So now were
buying our bananas from the local shop. This is a common fruit syndrome, weve noticed.
The App:Mr. T tried using it several times; its quite buggy (not sure what exactly doesnt work well.) The website is
pretty simple to use, but could improve. Especially product details and photographs.
Meats & Fish:Yesterday we cooked the fish we ordered from Big Basket (Rohu) only to discover that 1 fish came with1
head and 2 tails!! We chucked away the pieces, obviously, and came to the conclusion that we are no longer going to
order fish or meat with bones from Big Basket. Quite disappointing!
 How Big Basket Works
Big Basket's warehouse shift begins as early as 6am. In just under an hour, each
tempo is ready for its first round of deliveries. Stacked inside, in 40 green and red
crates, are fruits, vegetables, groceries, toiletries, even frozen foods.
They source every day, 365 days of the year to ensure supplies at competitive rates.
The wholesale mandis open early, at 4am, and they have a man there who sends an
early morning report on all the prices. Once they get the report, they decide Big
Basket's offer price for the day to farmers in the belts around the collection centre.
In the hyper-local business model, delivery boys stationed in each local market get the
items ordered online from local kirana shops and deliver these within a few hours.
Companies like Big Basket make their money by charging neighborhood shops a
commission. It has 500,000 customers across seven cities and gets around 20,000
orders a day.
They use the network of delivery boys with two-wheelers for the 1-hour express
service.
Online supermarkets have proved to be a challenging category worldwide, and there
havent been too many profitable ventures. Grocery is a logistical nightmare and an
implementation game. From the outside, it may appear like the largest vertical with
room for many, but 99% of the time, ventures fail. Models that have worked elsewhere
in the world don't work here.
 The Comparison
Customers dont wish to pay for convenience.
However, India is a country where grocery stores, called kirana,
are present in almost every neighborhood. Often, these stores
have delivery boys who deliver goods bought to your doorstep,
free of charge. The local store owner usually takes orders on the
phone and even provides you credit and discounts.

Grocery retail chains are finding it difficult to penetrate Indias tier-

two and three towns for the same reason. The business operates
on wafer thin margins of one percent to two percent. Customers
dont wish to pay a convenience fee which makes each order incur
a net loss. High customer acquisition cost, or the money spent to
lure people into buying groceries with a click rather than a walk to
their local kirana store, has become a bane for Indias online
grocery which already operates on wafer thin margins.

Huge marketing costs. Over and on top of the negative margins,

grocery chains spend huge marketing costs. Some such as Big
Basket have paid Bollywood actors like Shahrukh Khan, millions of
. The discount-hungry, disloyal user. Indian users too have become
smarter. In order to keep availing the 20 percent discount, people
order groceries from 4-5 different mobile numbers they would have
in the same household.
Consumption patterns change in every city. Local grocers know what
a neighborhood loves to consume.

Lack of skyscraper neighborhoods. Most Indian cities, unlike Mumbai

or Gurgaon, are thinly spread. There are not many high-rises in
India. So the customers are scattered all over the city, taking the
cost and time per delivery high.
Competition from the wandering push cart. None of the apps have
yet been able to compete with the wandering push cart owner,
selling fresh veggies in Indias neighborhoods. The wandering
veggie vendor gives credit, knows customers by their names, and
often prepares orders before landing at the doorsteps of his buyers.
Fresh veggies at drop dead prices versus packed and sealed ones
delivered few hours later: customers usually chose the former.
Inertia of breaking the age old shopping pattern. The average
grocery order in India is placed by the homemaker. Most
homemakers in small town India are not app savvy.
 Survey

The moment vegetables are added to this list of groceries, the

preference shifts towards local markets. The respondents emphasized
on these factors such as Timeliness, Familiarity with their local
vendors, Credit transactions and Being able to pick and choose their
groceries.
When it comes to buying just the vegetable local market hands down
beats all the other players. The factors that make a person prefer
local markets are already mentioned above. In tier II cities many small
vendors traverse through residential areas and sell vegetables on
 personal, efficient, customized and most economical.
Also, it cannot be forgotten that these vendors are the
part of the big unorganized chunk of the food industry
in India.
To conclude, one can see that there is a part of the
working population within urban India is realizing and
appreciating the comfort and convenience provided by
the e- grocers. Still, it would be a Herculean task for
them to compete with unorganized local vendors in
tier II cities.