Why e-grocer Local Banya got it right while others failed

By SME Mentor

It’s a question that’s been asked many times before - what is it about the local kirana store that makes it almost impossible to replace or replicate online? Many an entrepreneur, both in the West and in India, has tried to crack this conundrum but crashed and burnt.

Retailing groceries is the Holy Grail of e-commerce with good reason - margins are miniscule, logistics is a potential nightmare and, worst of all, stocking and/or delivering a basket of perishable goods to customers, sourced from different places, ASAP. And if the fill rate is not 100 per cent - if the basket is not full - customers usually switch back to making their purchases offline.

Rowing against the tide, a trio of friends has taken the plunge with what they believe is a business model that will work this time around. Thus, Mumbai’s first online grocery store, www.localbanya.com was launched by Karan Mehrotra, Amit Naik and Rashi Choudhary in May 2012. Aimed at young working professionals who have no time to spare, let alone shop for groceries, Local Banya is especially popular among individuals aged between 25 and 40.

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The Opportunity

“I had been thinking of this venture for a long time, and the success of e-commerce sites like Flipkart and Bookmyshow encouraged me further,” says Mehrotra, adding that he expects his portal to break even by March-April 2013.

Mehrotra, a computer engineer, was willy-nilly involved with commerce early on, thanks to his family business which included distribution for Hindustan Lever and catering services to BPOs. It was only a matter of time before he roped in Amit Naik, a friend and classmate from engineering college; and Rashi Choudhary, who has an MBA in Service Management.

The three of them seed-funded their venture with close to Rs 70 lakh, which they raised from personal savings. “Even before we began, we had generated some interest in investor circles but decided against it as we wanted to keep the controls with ourselves,” reveals Mehrotra.

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The Revenue Model

Here’s the really tricky part - surviving in a failed market. After extensive market research, Local Banya decided against an inventory-based model, nor would it invest in delivery vehicles. “Instead, we decided we would hold a very small inventory and forge tie-ups with wholesalers and cash-and-carry partners across the city. This brought down our capital investment by 70 percent as we did not have to spend on warehousing or setting up a retail outlet. Our only major cost to begin with was our server,” reveals Mehrotra.

Today, Local Banya has just-in-time partners for fresh fruits and vegetables, and 100 strategic tie-ups with retailers across the city. They also partner with offline retailers such as Breadkraft, Bagelwala and Shor Sharaba, which are niche stores. Local Banya has a different revenue-sharing deal with each retailing partner, depending on brand and category.

The e-grocer currently offers 4,500 products and intends to take its product suite to 10,500 by March 2013. As for delivery and dispatch, it has 14 delivery boys and four vehicles that are outsourced. It operates out of only warehouse in the western suburb of Goregaon, where dispatch takes place twice a day. Delivery to customers takes place in five time slots, between 9 am and midnight.

The Edge

Local Banya offers, not just bargain prices but spectacular deals and discounts such as onions and potatoes for Rs 3 a kg. It also enjoys a distinct price advantage even over discounted retail supermarts such as D-Mart and Big Bazaar, as it does not spend on stocking or retailing inventory. So it passes on this price advantage to customers.

[caption id=“attachment_554591” align=“alignleft” width=“380”]  Local Banya also plans to expand operations to other cities in the next 12 months, and is is already talking to venture capitalists and other investors.[/caption]

The other edge over the competition is Local Banya’s strong customer service orientation. “Unlike other places, where operations drive customer service, we have customer-service driving operations. We have a core focus team that operates under Rashi. The team knows every last detail of the products being sold and also takes care of data management,” adds Mehrotra.

He draws attention to a section on the portal that asks for suggestions on products or perishable food items that are hard to find. “Once we had a customer putting in a request for kafir mint leaves. We managed to find it for him and now he is one of our loyal customers!” beams Mehrotra.

Naik, an ace engineer at the helm of all technology operations at Local Banya, is another big asset. Under his captaincy, processes are rapidly improving and the initial hiccups of excessive dependence on wholesalers and cash-and-carry partners have disappeared. Today, the start-up has systems in place to carry out live mapping of inventory and on-time delivery is 97 per cent.

Why Others Failed

Webvan in the US was a basket case and has, in fact, become a case study for failure in the e-grocery space. This start-up used a capital-intensive, inventory-based model, spent $1.2 billion on fully automated warehouses, and invested oodles in delivery vans so they could deliver online orders 24x7. The venture shut down less than two years.

In the physical domain, India has had its share of failed grocery store formats like Sangam Direct, which was bought by Wadhwan Retail in 2010. It was a doomed marriage as the Wadhvan Retail grocery outlets, christened Spinach, shut down very soon.

Success Stories?

In the virtual domain, the Bangalore-based BigBasket.com launched in December 2011 and has made brave strides. Using a combination of a marketplace-cum-inventory based model, the portal has expanded to Mumbai and Hyderabad. Delhi’s Aaramshop.com uses an altogether different model, not to mention some really smart thinking. The portal simply offers kirana stores a Web platform to sell their products online, somewhat like a a virtual superstore. Thus, with only 12 employees, this e-grocer operates in 25 cities across India. No sourcing, no stocking, no delivering!

The Road Ahead

Grateful to have got this far, Local Banya is making plans and projections for the new year. On the cards are four more warehouse-cum-distribution centres, in Bhandup, Govandi, Parel and Borivali, by March 2013. There are no plans to expand their team of 14 delivery boys, who deliver 75-80 orders every weekday.

Local Banya also plans to expand operations to other cities in the next 12 months, and is is already talking to venture capitalists and other investors. But, in the e-grocery business, 12 months could be a lifetime. So New Year wishlist notwithstanding, the start-up is keeping an eye firmly focused on your grocery list - a full basket of fresh produce delivered to your door, and delivered right now!