Indian online grocery market that has received millions of dollars from high profile venture capital funds such as SoftBank, Mirae Asset, CDC Group, among others, is projected to become a USD 10.5 billion market by 2023—which will still be just a fraction of the overall food and grocery opportunity.

Riding on the back of increase in consumption, higher spending power, and deeper penetration of internet and smartphones in tier 2 cities, online grocery in the country will see a tenfold spike in 2023 compared to 2018, according to a new report by research firm RedSeer.

It said between 2011 and 2013, online grocery was in the “infancy phase” with a handful of e-grocery startups like Bigbasket, ZopNow, and Grofers mushrooming during this phase. From 2014 to 2018, came the “initial growth phase,” wherein VCs got more confident about the sector and poured in money. It was also the time when e-tailers like Amazon India and Flipkart made their debut in the segment.

Currently, the e-grocery space is in the “accelerated phase” showing a growth rate of 55% CAGR, with new players like food delivery startup Swiggy and personal concierge service Dunzo also seeing value in entering this space. Companies such as Swiggy, Flipkart, and Amazon India that showed no interest in grocery when they started, got piqued by the rate of growth this space started to show. Moreover, this is one of the few sectors that promises recurring orders from customers which has got every stakeholder to take a deeper look into it.

From contributing mere 0.2% to the USD 525 billion worth food and grocery market in 2018, online grocery will grow to account for 1.2% of the USD 880-billion total grocery market by 2023, the report said.

The report mentioned that since 2015, India’s online grocery space has gone through a significant evolution. It saw explosive growth and funding in calendar year (CY) 2015, quickly slid down to face growth challenges and funding winter in CY 2016, only to kick-start and accelerate growth 2018 onwards.

“In this stop-start journey, many new business models have evolved, many themes have been proven and disproven,” the report stated. In 2018, Grofers stopped selling fresh vegetables and dairy to focus on private-label products that later proved to be a life-saving step for the company. Its biggest competitor, Bigbasket recently merged two arms to accomodate more products for a shorter delivery time.

Global venture capital firms are appreciating these changes made by online grocers that shows maturity and are not shying away from betting on this growing market opportunity. This year alone, investors have poured in over USD 665 million in online grocery startups, which accounts for 40% of the total funding in e-commerce, shows the data from research firm Tracxn.

“Grocery is one of the most interesting sectors for investors because it has the biggest total addressable market,” Manas Gupta, head of investor relations at Grofers told KrASIA in an earlier interview. “India is very unique, in terms of grocery, because the supply chain is so broken and the market is so disorganized. We are talking about a market where 95% of groceries still being sold through the local mom-and-pop stores. The next nearest example is Indonesia, where that number is 75%. So it is very, very unique in that sense.”

Gupta said investors are looking at India with a very unique lens. “They are looking at what works in India, rather than assuming what has worked globally will work here as well,” he said.

While Bigbasket became the first grocery unicorn in March 2019 after raising USD 150 million from Alibaba, Mirae Asset, and CDC Group. Two months later, Grofers landed USD 200 million funding led by SoftBank Vision Fund on a valuation of USD 800 million.

Meanwhile, the Department for Promotion of Industry and Internal Trade, a part of the Ministry of Commerce and Industry, has written to major e-commerce firms asking them how they can work with small retailers to boost neighborhood stores including  mom-and-pop stores.