Unilever Assignment

What are the challenges faced by E commerce (and especially e grocery) retailers in India?

Discuss possible ways to handle these challenges.

Unlike other forms of e-commerce, e-grocery stores faced unique challenges because

of supply chain complexities and low margins on products. The process was complex and

involved managing a variety of inventories with diverse storage requirements, as well as

gathering products and ensuring/maintaining quality. Because most of these products were

perishable in nature, cold storage and other facilities became necessary, leading to an

exponential increase in the overall cost of the supply chain and the risks associated with it.

One of the biggest threats to e-grocery platforms was the inability to offer a tactile experience

to consumers, especially for perishable products.

In India, consumption patterns and supply chain issues pertaining to food and grocery

were complex in that different regions had different consumer preferences. For example,

pickles consumed in one part of India were completely different from those found in another

part of the county, and varieties of rice also differed from region to region (e.g. sona masuri

rice was primarily consumed in South India while basmati was preferred in North India). E-

grocery stores had to be city-specific because products could not be couriered from one city

to another and fast delivery of goods was mandated.

Furthermore, the value-to-weight ratio of grocery products was higher than that of

other products, which made it financially unviable to courier these products. Therefore, for e-

grocery firms, expansion of the business to a new city was akin to setting up a completely

new operation because the supply chain had to be entirely local. The nature of the business

meant that the supply included fresh produce and companies had to comply with local laws
that restricted the flow of agricultural produce across state borders. Warehouses, inventory

and logistics also had to be operated on a local basis, which made it very difficult to replicate.

Unlike items such as steel utensils (which had retail margin of 60 per cent), most food and

grocery products worked on single-digit margins (around 6 per cent), except for organic

staples at 30 per cent. Very few companies across the world had managed to crack the

economics of this low-margin space.

Even Amazon had spent nearly five years delivering groceries to only a few Seattle

neighbourhoods before expanding to more U.S. cities in 2013. Another problem was the

security of online transactions. Indian consumers were still concerned about confidentiality

and security of financial information while transacting online. Convenience was an important

factor for online buyers as well. Less than 18 per cent of the population had access to the

Internet, and the quality and speed of Internet connections in India were highly variable.

Thus, for the majority of consumers, a positive online shopping experience (especially

in light of increasingly sophisticated image- and video-heavy websites) was not possible. In

addition, attracting consumers to etailing sites in an era of extreme competition was a

significant challenge.

Should HUL enter the egrocery field?

Given the current competitive landscape and evolving customer preferences with

rising Internet user base of over 400 million, HUL should consider entering the e-grocery

field. They already have a large market share and with diversification in the digital world,

there’s a high chance of capturing more market by creating convenience for the current

customers or those not tapped yet.

Furthermore, there was considerable hope that NDA would relax policies and

regulatory framework to boost the economy especially from online selling perspective.
If HUL decides to open an e grocery store, what should it strategy be and which e grocery

model should it follow?

HUL can consider going with inventory-based model and partnering with the various

ecommerce giants in the country. Since the local dynamics are very diverse and logistics,

warehousing and inventory has to be managed locally, it is important that the UHL allows the

deeply penetrated local settlers to move their products to the untapped market.

Similarly, it is important to abide by local laws and other configurations which will be

hard for UHL itself as it does not hold much experience in the field of e-selling. At the same

time, there is a possibility of quality of product being compromised in the inventory level as

the final product delivery will go in the hand of local inventory distributers. In this case, HUL

will also have to maintain strong accountability mechanisms to ensure timely delivery and

best quality for consumers.

What kind of technical & digital capabilities would HUL need to be successful in the e

grocery sector?

HUL will need to track four things for its profitability: the SKU, the basket, the

warehouse and finally, the company. Focusing on these aspects, the company can ensure

growth and success in the online industry. At the same time, they will have to look the

payment methods, crack the economies of low margins for groceries, creating maximum

convenience for the customers and manage the complex consumer preferences and supply

chain issues.
Should HUL enter the e grocery arena with a full range of products or only a select number of

products?

HUL can enter the arena with a range of products which are high sellers for the

company. In this way, it can gradually start introducing more products but first sensing the

demand of each region and consumer preferences. This way they will be able to manage the

supply chain much more efficiently and will be able to deliver the right quantity at the right

geographical region.

On the other side, introducing all products at the same time can incur high costs and a

potential risk of failing the business altogether.