CityMall joins hyper-competitive fresh grocery space

This is the second attempt by CityMall to enter the fresh groceries space.

The startup had struggled with supply chain issues despite attracting demand the first time around, a person aware of its plans said.

CityMall is now working toward building a decentralised supply chain closer to the source and integrating its backend for dry staples and fresh produce, the person added.

The Gurugram-based startup, which focuses on delivering fast-moving consumer goods, fashion, and electronics through a community group-buying model in small towns, is backed by General Catalyst and Elevation Capital.

The company is present in 15 districts across Uttar Pradesh, Haryana and Delhi-NCR.

Citymall’s bet on fresh groceries comes at a time when it is in talks to close a $70 million funding round from new and existing backers, sources said. The company has picked up $36.5 million so far.

New ecommerce startups bet big on grocery

A set of young ecommerce companies is getting into fresh groceries, which they consider to be a high-frequency category, or one where a major chunk of the consumer’s wallet share is expected to come from.

People tracking the sector said these companies want consumers to be hooked to their platforms through a low-ticket size, high-frequency segment and later trade up for larger ticket size items like electronics.

“If you want to crack the tier-II and III markets, you have to get to the non-discretionary part of the customer’s spending,” said a person privy to the developments at CityMall.

The largest players among these new-age e-commerce companies include DealShare, backed by New York-based investment firm Tiger Global and SoftBank-funded Meesho, which are trying to differentiate themselves from the older generation of horizontal online retailers like Amazon and Flipkart.

Vidit Aatrey, cofounder of Meesho, told ET that it will expand its grocery offering Farmiso by investing significant capital into the vertical next year. Grocery is a priority offering for the unicorn.

While both DealShare and CityMall are investing in building their own warehouses and supply chain capabilities, Meesho has rolled out Farmiso through a marketplace model.

Marketplace versus own supply chain

According to experts tracking the fresh groceries space, a marketplace model can become a dumping ground for produce as there is no standardisation in this category.

They said that deep supply chain capabilities will be among the decisive factors for the company that wins.

“There will have to be a significant number of investments that these startups will need to make in terms of strengthening their supply chain, overall customer experience and also ensuring quality and standardisation. At the same time, they will have to increasingly advertise,” said Kartik G Iyer, head of e-commerce consultancy firm Publicis Commerce.

In the short-term, Iyer added that these players are not looking to make money in this category but tap the massive opportunities that non-metro towns and cities present.

Walmart-owned Flipkart is ramping up its capabilities in the tier-II and below fresh grocery market, as it recently invested $145 million along with Walmart in Ninjacart, a fresh produce supply chain startup. Its social commerce offering Shopsy entered the grocery segment this month.

Unlike traditional e-commerce where there are two parties – buyers and sellers –involved, social commerce startups like DealShare, CityMall and Meesho use resellers, who sell products through social media platforms like WhatsApp and Instagram by sharing curated catalogues in their local communities.

CityMall and DealShare leave the last-mile delivery to local community influencers to keep the logistics costs low.

In the previous fiscal year, DealShare
grew five times to reach $200 million in gross merchandise value (GMV) run rate, cofounder Sourjyendu Medda told ET earlier this year.

“In just two years, we have serviced more than 3 million consumers and over 20 million orders. We are confident of hitting a $1 billion GMV run rate by the end of the year and building a 10-million-strong customer base,” Medda had said.