Tata Group is venturing into online grocery business under Starquik brand, taking on Amazon and Bigbasket in a nascent yet rapidly growing market.
A pilot venture will be rolled out within the next two months as an online channel for Trent Hypermarket, an equal joint venture between Tata and British retailer Tesco, said two people privy with the development.
Tata Group runs three formats under Star banner — Daily, Market and Hyper — and has around 42 stores. One of the officials said, “Trent plans to shut its smaller format Star Daily, which will help them cut costs in rentals and at the same time serve those catchment areas through online.”
Foreign direct investment is not allowed in retailing of multibrand non-food products offline or online, hence, Tata’s latest initiative will be through Fiora Hypermarket (FHL), a subsidiary of Trent that acts as a separate service providing entity in terms of sourcing activities, warehousing and distribution.
Trent had said in its latest annual report, “FHL is also pursuing on a trial basis online retailing of food & grocery in limited catchments in the proximity of select Star banner stores.” In June, Tatas bought the management team and technology infrastructure of Gurgaon-based GrocerMax which has been helping its omnichannel project take off in catchments of Trent hypermarkets.
For Tesco, the world’s third-largest retailer that has nearly 6,800 stores globally, its online business earns roughly Euro 3 billion in sales and is one of the rare such ventures that’s profitable. However, the Indian business is minuscule. The Indian retailer saw a dull sales performance last fiscal — growing by 2.1 per cent to INR 892.57 crore during FY17.
Online food and grocery penetration is still less than 1 per cent, suggesting the infancy of the category and its potential opportunity. Offline players such as Reliance Fresh and Godrej Nature’s Basket have launched omnichannel initiatives, though the scale is not too big right now. But the opportunity offered by the $500-billion retail market is attractive for any player, foreign or local.
Food and grocery accounts for almost 50 per cent of the overall retail basket in India, although general merchandise, personal and home products fill up a bulk of retailers’ profit pool. Ruchi Sally, director at retail consulting firm Elargir Solutions said, “Online grocery is no longer just volumes or convenience as the real differentiation has to be quick delivery.”
The challenges include handling perishable products like food and the high cost of having numerous facilities located close to consumers. Tata Group also owns and operates online marketplace Tata CLiQ that is mainly into lifestyle products.