This E-grocery Start-up Uses A Lean Model For Its Online Supermarket; In Talks To Raise Series B Funding

Online grocery stores are gaining popularity in India due to sheer convenience, ease of shopping and a fast-growing market. Globally, online grocery retail is growing nearly 7 times faster than on-ground formats and the Indian market may soon catch up. For one, the Indian retail industry is estimated to be worth over $500 billion (one of the world’s top 5 markets) and 30-40% of the businesses will be in the online retail space over the next 7 years., This presents a great opportunity for any form of e-tailing, especially the e-grocery space.

As of now, grocery e-tailing in India is a largely unorganised space and poses a big challenge in terms of stiff entry barriers. The traditional methods of inventory and logistics management call for intense cash-burning – a business condition most of the bootstrapped Indian start-ups fail to meet. Moreover, a Series A funding crunch also compelled companies like Mumbai-based ShopVeg to shut down operations. Therefore, when another Mumbai-based start-up decided to start grocery e-tailing in the same year, things were not looking too exciting for the newcomer. But 22 months later, LocalBanya.com has managed to set up Mumbai’s first online supermarket and also raised Series A funding for the next level of expansion.

Although there were predecessors that attempted various models of grocery retail in the digital space and failed, LocalBanya has adapted a lean business model that relies on a convenient mix of warehousing and cash-and-carry. This has reduced the start-up’s dependence on capital-intensive operations and enabled it to put in place a thoroughly efficient supply chain. In addition, the company has adopted some unique measures to take customer convenience to the next level. Want to know more about LocalBanya and how it works? Here is a snapshot that captures the start-up’s vision and viability.

Who runs LocalBanya (www.localbanya.com): A team of three co-founders – Karan Mehrotra (CEO), Rashi Choudhary (COO) and Amit Naik (CTO). Karan is the brain behind LocalBanya and set up the entire infrastructure with just 14 employees. He is a computer engineer and prior to starting up, worked for his family business as a distributor for FMCG firms. He has 11 years of work experience in varied fields – from turning around a chain of restaurants to setting up metal fabrication plants to building a food distribution network.

Amit holds an MBA from IIM-Lucknow and he is also a Six Sigma Black Belt from the American Society for Quality. He had six years of top tier experience in ad-tech and earlier worked for Directi and Larsen & Toubro. Rashi holds a Global MBA from SP Jain School of Global Management and brings four years of experience in retailing, consulting and customer service. Prior to joining LocalBanya, she worked with the Raymond Group.

The trio had been working on the concept for some time and the site went live in May 2012. LocalBanya is now in beta and the e-grocer has over 130 employees operating across Mumbai, Thane and Navi Mumbai.

What inspired the venture: The desire to go one step ahead of your local grocer who accepts orders on phone. “Apparently, it was convenient but there was something lacking. You can’t browse the inventory when ordering on phone; the choices are not many (after all, a kirana or mom-and-pop store won’t keep exotic or imported items as those are a bit expensive) and finally, there’s no organised system (accountable, responsible and prompt),” says Karan. So up came LocalBanya, an online supermarket selling around 12,000 products across 17 categories and adding more every day.

What’s the pitch: LocalBanya.com is an online convenience store dedicated to YOU (customers). The e-grocer offers high quality products and hassle-free delivery that save time, energy and money. “If you are grocery shopping 4-5 times a month or looking for something special, imagine the kind of supermarket trips you have to make and how you have to run from shop to shop,” points out Karan. “But having the entire bulk procured for you and delivered to your place, at the time you want it, would make things extremely convenient and lure the customers,” he adds. Karan, however, feels that the industry is huge enough to allow kirana stores, large-format retailers and e-retailers to survive and grow in the same marketplace.

How it works: As of now, LocalBanya is targeting the urban population and the customer base varies from single professionals, working couples, nuclear families and students fending for themselves to new mothers, senior citizens and even large families.

“People come to us for a wide selection of goods (otherwise, they will have to visit 2-3 stores to make a purchase), convenience and great pricing. We deliver that convenience with exceptional levels of customer service, preferred delivery times, same-day deliveries, fresh produce and efficient & reliable suppliers. We also take product suggestions from our customers and ensure that the products are online in a fortnight,” details the LocalBanya team. The procurement model includes a convenient mix of warehousing and just-in-time (JIT) deliveries from a host of suppliers including FMCG companies, cash-and-carry outlets and other distributors.

Shopping for groceries on the LocalBanya platform is also kept simple. You just have to register or connect through Facebook before browsing the categories and the products. Once you make the purchase, the order is processed and ready for delivery within 6 hours. Delivery is done as per your time slot selection. The company offers 6 slots (of 2 hours each), from 7 in the morning until midnight, and one can choose any of those. Customers also enjoy Banya Points rewards programme and these points are redeemed for cash discounts on every purchase.

Claim to fame: Traction and business model. The start-up claims that it currently reaches over 10,000 homes a month and delivers 500-plus orders a day. Interestingly, nearly one-third of its orders are from institutional clients while senior citizens and NRIs constitute over 16% of the customer base. But what matters most is the lean infrastructure set-up for reducing asset liabilities.

Show me the money: Since its inception in May 2012, LocalBanya has done around Rs 15 crore in gross revenues. The start-up is projected to grow 40% month on month over the next 15-18 months and eyes break-even in the existing markets (Mumbai, Thane and Navi Mumbai) by June this year.

LocalBanya was initially bootstrapped, but has already raised two rounds of funding. It is now in talks with investors to raise a Series B round by March 2014. In January this year, the start-up secured an undisclosed amount in Series A funding from Karmvir Avant Group, a real estate developer in Mumbai. Earlier, it had raised funding from Times Group’s Brand Capital Springboard platform. “The Series A round will last us for a year and help fuel our growth at a faster rate as we scale up operations, hiring and marketing. We are also looking to start operations in a new city within a quarter,” says Karan.

Biggest challenge: Competition abounds in online grocery retail space but containing cash-burning is most crucial when it comes to inventory, supply chain and logistics. Streamlining the supply chain and inventory management is an uphill task but a lean procurement set-up, use of leased delivery vehicles, in-house delivery personnel (for ease of management) and a well-structured region mapping that enables effective coverage of the city have helped the start-up cut down on costs.

Five takeaways: In nearly 2 years of operation, LocalBanya has seen some interesting trends in online grocery shopping behaviour and Karan & his team want to share it with the budding wannapreneurs and all our readers. So here we go:

59% of the transactions on the site are done by women.

Senior citizens are a sizeable 14% of the customer base due to the convenience of online retail.

A sizeable 2.1% of transactions are done by NRIs to have groceries delivered to their relatives in Mumbai.

Institutional clients including restaurants, corporate houses, co-operative societies and any other organisation requiring groceries in bulk have seen the advantage of e-grocery and 29% of the business comes from these channels.

Around 11% of LocalBanya’s deliveries are done during the 10 pm-12 midnight slot. And the last trend brings us back to the convenience factor. How many e-grocers or physical retail stores in India would be doing that in a bid to break out of the pack?