🛒Is the $3.95bn E-Grocery Space in Trouble?
Did you know that Meesho had entered the grocery delivery business recently? And before a lot of people got wind of it, the company is shutting down 90% of the business. Here's what's going on.
Necessity is the mother of invention, and there was no bigger necessity than the pandemic.
Businesses across the world were forced to innovate.
But it seems most e-commerce players had the same idea: Launch grocery delivery services.
And while this idea seems to have worked out for some companies, it has turned out to be somewhat of a disaster for Meesho.
Meesho has fired over 300 employees from its grocery vertical, Meesho Superstore. Why? ReadOn!
↩️ Meesho’s Grocery Pivot
We all know Meesho as the poster child for the growth of social commerce in India (You can read more about Meesho here and here).
Its continuous ads and reseller model has helped fuel the company's insane growth.
But this insane growth came at a heavy price: losses worth Rs. 498.6 crores in FY21.
Reasons behind these losses? Crazy marketing spends and the toll of competing with e-commerce giants.
Plus, the company relies on resellers for selling products. These resellers are often housewives who are not well-versed in selling. So, sales directly depend on their ability to convert customers. This means, resellers often have to be trained to ensure higher conversions.
This comes at a cost. To save itself from all the hassle, Meesho slowly began reducing dependence on resellers and shifted focus on the B2C business model.
In the middle of all this, Meesho identified an opportunity.
It noticed that the online grocery business was picking momentum.
So, it too tried to enter this segment with Farmiso (later rebranded as Meesho Superstore).
Farmiso began early in the pandemic as an app that would source veggies and fruits directly from farmers and deliver them to customers.
But it soon pivoted to the grocery delivery model.
The move made sense on paper.
Thanks to the pandemic, people had gotten used to ordering groceries online – so, it was the right time to enter this space.
The online grocery market is set to grow from $3.95 billion in 2021 to $26.63 billion by 2027.
Meesho was targeting Tier-2, Tier-3 audiences, which spend 35% of their total household budget on groceries.
This is also a segment that most other grocery delivery services are not targeting, giving Meesho an advantage.
So, it made sense for the company to enter this space.
💰 Meesho’s Business Model
Now, Meesho’s grocery delivery model is a little different from that of Zepto and Blinkit and similar to companies like JioMart.
Its offering is simple: get local kirana stores online where customers already are. Then take a commission from these stores and provide them with inventory as well.
This would kill two birds with one stone: it would be able to acquire more customers (because everyone needs groceries) and it would get local kirana stores as customers as well.
Sounds easy-peasy?
It isn’t.
You see, a lot of players like Metro Cash & Carry, JioMart, KhataBook and others have tried to take local kirana stores online.
But none have succeeded (yet).
That’s because a lot of these stores simply don’t want to pay a commission or subscription to go online.
Because going online poses a whole new set of problems like:
setting up new tech for online transactions which is costly
managing inventory as they cannot predict demand accurately
Not wanting to show/document all their transactions (probably to save on paying taxes)
So, onboarding stores was a herculean task for Meesho and it ended up spending a lot of money to get stores on its app.
Moreover, Meesho’s online grocery play was focused on low prices rather than convenience.
So, the company didn’t offer home deliveries. Customers had to pick up their orders from the local kirana stores.
Now, online grocery shopping without home delivery is kind of like chai without Parle G: pointless.
If I have to go to a store or a local pick-up point to get my groceries, I would also rather shop then and there, picking up the best produce according to my preferences.
The model may have worked in Tier-1 cities where people are out working the entire day and don’t mind collecting their groceries on the way home (probably why the pilot launch in Karnataka worked out well).
But for the audience it was targeting, the model simply didn’t work.
Which is why Meesho has shut down grocery deliveries in 90% cities, keeping the business alive only in Mysore and Nagpur.
It just wasn’t sustainable to run it.
And Meesho isn’t the only company that is facing trouble in the grocery delivery business.
You see, groceries have a razor-thin margin. The added expenses of customer acquisition costs and deliveries (that too quick deliveries) have become a burden on several companies.
For instance, Dunzo had a monthly burn of Rs. 100 crores in the June quarter and in July (including IPL spends), losing Rs. 230 per order.
Blinkit also faced similar problems earlier, causing it to shut down stores and merge with Zomato.
In fact, many of these companies have now stopped promising quick deliveries all together, because they have understood how costly they are to deliver.
Some like Dunzo are now incentivising customers to choose 60-minute deliveries instead of 15-minute ones.
These problems kind of highlight why Amazon, despite having the bandwidth to deliver high-ticket items in a day, hasn’t yet entered the quick commerce game.
But this isn’t something Meesho can take solace in.
With its grocery vertical tanking and its social commerce vertical facing tough competition and losses, the company could be in trouble.
Especially now during a funding winter.
Some reports suggest it is having difficulty raising funds and may have to reduce its valuation to attract investors, but Meesho has denied these claims.
The company now wants to enter the branded goods market as well, probably in a bid to attract a larger audience.
But this move could also fail, given that the majority of its audience currently only wants cheaper-ranging products.
So, what does the future hold for Meesho?
⚡In a line: Meesho, like multiple other startups, tried its hands in the E-Grocery space, but tough competition, thin margins, and major cash burn have led it to exit the space.
💡Quick question: Will Meesho be able to survive the funding winter?
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