Hindustan Unilever Mulls over E-Grocery Market Option

HUL mulls over e-Grocery Market Option        

1. E-grocery field is the toughest battle of the e-commerce market as the current players such as BigBasket, Zopnow are yet to figure out a business model that can consistently provide profits as well as create value to customers. With e-commerce picking up in India, India’s largest FMCG Company, HUL is looking to enter into e-grocery field.

Below is assessment to be looked into before HUL entering e-grocery business:

• Indian consumers had evolved with technology and lifestyle changes to become more demanding and value conscious.
• Deeper internet penetration and subsequent rise in number of online transactions has resulted in number of people shopping online.
• For increasingly time-starved consumers, ordering online works very well as Urban Indian customers had very little time for socializing and spending time with family.

• The supply chain is disjointed and cannot be operated and standardized at a national or global level but had to be customized at local level.
• The growth potential of hyperlocal startups is lower. Also, the risk with online stores with an inventory model is higher and margins are low single digits.
• The competition in e-grocery cannot be on pricing front as the margins are already thin for grocery products.
• The focus on providing convenience and constant reduction of reducing delivery time will benefit the customer but will add high costs of operating business.
• In order to attract more customers, many players need to compromise on margins and provide discounts.
• Order frequency will have significant bearing on logistics costs and economics of business is influenced by it.
• Customers might choose to buy everything from under one roof instead of buying HUL products from their site.
• Existing e-commerce channels of companies such as Dabur, Coke2Home and Marico tried to maximize margins by providing customer support, minimum basket size and by selling niche products respectively.

Based on the above assessment, it can be suggested that HUL can acquire customers ordering products online using different ways as below.

• Instead of building its own e-grocery field, HUL can partner with giants like Amazon grocery channel, KiranaNow and can have exclusive format only for HUL products so that supply chain cost and risks associated with it can be shared with partners and subsequently minimized.
• As customers choose to buy everything from under one roof, HUL can also partner with local providers of fresh produce in each region and provide an e-channel of buying products in a single platform but procurement and fulfillment needs to be taken care by respective providers of the product.  
• As smaller baskets are non-profitable, HUL can target weekly or monthly shopping basket which is customized for each individual based on his or her product preferences and consumption facilitating repeat purchase and retaining of customers.
• While HUL is trying to attract customers online, there would be potential conflicts between online retailing and traditional retailing. So, HUL needs to maintain a delicate balance regarding trade terms in order not to arise any conflicts with traditional dominant trade partners.
• Moreover, the products purchased online need to be fulfilled by procuring from nearby traditional store thus minimizing the loss of traditional sales to other online grocery providers.

1. If HUL enters e-grocery field and implement an online viable model,

• The last-mile logistics and procurement are the two important things which need to be addressed and handled effectively in order to generate profits.
• As the margins are razor-thin, the repeat purchase and minimum basket size needs to be ensured in order to generate volumes resulting in breaking even in the business.
• Over all costs of supply chain are high as the supply chain is entirely local and completely new operation needs to be set up while expanding the business to new region.
• Transportation of products to remote areas would be challenging in India if a warehouse model is employed by HUL.
• Security of online transactions is still a problem in certain areas where enough security measures are not taken by internet providers in tier-2 and tier-3 cities.
• Penetration of internet is tier-2 and tier-3 is minimal and just picking up. Moreover, the penetration of smart phones is also low in rural areas.
• Convenience is a value to urban customers in tier-1 cities than that of rural customers.
• People in tier-2 and tier-3 cities would rarely have an online bank account in order to make online transaction and cash on delivery is not a viable and scalable option in all the areas as profits can be rarely made.

Based on the above analysis, it can be suggested that HUL need to implement viable online model in metropolitan cities initially as mentioned in answer 1.

Once the company acquires and retains customers in tier-1 cities, it can expand to tier-2 and tier-3 cities in order to meet the demand but only a customized solution is viable in those cities as there are many challenges which need to be addressed before entering into rural areas and semi-urban areas.