Online transforms traditional market place

In a strategic move, Amazon India has embarked on a pilot project to sell groceries and vegetables online through doorstep delivery to consumers.

For Amazon, this amounts to a diversification strategy to enter the grocery and vegetables segment and add to existing product lines. Over the years, the popular online store has developed the art of ecommerce to sell items as diverse as books and consumer electronics, to apparels and  white goods, to home appliances, to cosmetics and fashion accessories, besides innumerable other products. Amazon now seeks to apply its online marketing expertise to provide groceries to an online clientele who seek convenience.     
 
For Amazon, such a business strategy is beneficial due to zero investment on inventory, retail space and wastages. In such a venture, the online market store is able to leverage its strengths related to its brand equity, credibility, quality which stem from its vendor management, information technology systems to connect with customers and home delivery management. The major investment that Amazon has made is to build Application Interfaces (which are either web or mobile based platforms) for both mobile phones and desktops/laptops that enable customers to interact with the sellers.        
     
The popular online store Amazon now seeks to establish its presence across the country, especially in tier II cities like Agra, Ajmer, Amritsar, Bhubhaneswar, Bhopal, Bareilly, Chandigarh, Cuttack, Dhanbad, Durgapur, Dehradun, Gurgaon, Indore, Jammu, Kochi, Mysuru, Mangaluru and Vishakhapatnam, among others, through an entry into the groceries and vegetables market. Towards this objective, Amazon has tied up with large box format retailers, namely Big Bazaar, Reliance Fresh, Spar and Foodworld, who hold physical stocks to source groceries. 

Big Bazaar, Reliance Fresh, Spar and Foodworld face their own challenges in terms of business models, which prove to be unviable due to heavy rentals, employee salaries and higher operating costs. Invariably these organised retailers have their store spaces located at prime real estate locations in metros and other tier I and II cities due to the need for high visibility to attract larger footfalls.

Today organised retailers are able to attract footfalls only during the weekends and therefore their sales volumes remain low. Also large box format retailers tend to pull clientele, who are otherwise low tech savvy and not comfortable with digital devices, through advertising mediums like hoardings, newspapers and pamphlets. The chunks of consumers, who are office goers, limit their visits to malls during the week, because of overcrowded roads which characterises cities across the country.

To avoid the inconvenience that involves a commute from home to shop at retail outlets with weekend vehicular traffic on the roads, the consumer is likely to opt for online grocery shopping. This is the market opportunity that all the parties, Amazon, Big Bazaar, Reliance Fresh, Spar and Foodworld seek to encash. For Amazon, it is another route towards brand extension, whereas for the organised retailers it facilitates sales turnover throughout the week which means higher sales volumes. Clearly this amounts to a win-win strategy for all the parties involved in the business relationship.
 
Moreover, people, especially, couples in the DINK (double income no kids) and DISK (double income single kid) categories prefer to spend time at amusement parks, malls, movies, restaurants or family entertainment centres, rather than stand in long queues, to shop for essential items like food products, groceries, vegetables and personal grooming products. Time has become a scarce commodity for the young urban professionals. Therefore these customers prefer to shop for groceries and other household items only over weekends. For organised retailers, who generate low sale volumes through the week and remain dependent largely on weekend shoppers they are unable to achieve the required sales volumes to make minimum profit margins.

Clearly online marketing stores score over other marketing channels because they can showcase a far higher range of products. Unlike the other marketing channels, which have serious limitations in terms of physical space to display their product range, online marketing stores are able to visually project 90,000 items to potential customers. On the other hand, the downside to online marketing is that it lacks a personalised dimension to shopping owing to the fact that transactions are impersonal in nature.

Culturally consumers as normal people would like to socialise, especially those older, retired ones and the friendly kirana store owner tends to develop a rapport with them over time. Consumers also meet other residents from the neighourhood and exchange greetings and information. The kirana store owner knows regular consumers’ brand preferences and customises his dealings with them. These shops are also family-run or mom and pop stores.     

Perhaps a major flaw in this strategy to promote online sale of groceries is simply that the prices of cereals and pulses prove to be more expensive than kirana stores. Unlike kirana stores, the advanced kirana store, which resembles a mini departmental store offers superior shopping experience in terms of product display and visual merchandise, besides better inventory management which are based on stock-in/stock out techniques.

Amazon in order to strengthen online marketing even proposes to network with kirana shops and post offices across the length and breadth of the country to have better last mile deliveries to customers. Over the years, online marketing of groceries and vegetables is likely to become popular with consumers, provided it remains profitable for online retailers.  To that extent online marketing really has the potential to transform the traditional market place.

(Arcot Purna Prasad is Associate Professor and Lopamudra Panda is Research Associate with Institute of Management Studies, Christ University)