Indian Grocery

Why has someone not disrupted the Indian Grocery store in the US

There are over 4 million Indians in the United States and this includes those who are on business, work and other visas, besides American citizens of Indian origin.

Over 50% of Indians in the US are in the top 5 states: California, New York, Texas, New Jersey, and Washington.

There are over 750 Indian grocery stores in the US as well.

The typical Indian grocery store is about 700 Sq. Ft, located in the suburb (not the major cities) and tends to operate on 21% net margins, with some items (biscuits, Indian vegetables) topping over 50%.

It is not unusual to see 100% markup on items such as masalas, basmati rice etc.

The stores are small, cramped, usually not in the best shape, in highly trafficked neighborhoods, and offer pretty poor customer services.

They all thrive though. The average ethnic grocer will experience a 29% closing ratio in the first 18 months, whereas Indian grocers experience < 10%.

The average Indian grocery store also makes about $350K to $1 Million (Sunnyvale, Santa Clara) in profits.

Most of the produce and the packaged food is rather old, some way past their sell by date and many products are rarely replenished quickly enough to categorize them “fresh”.

Indian Grocery Store
Indian Grocery Store

They all make money though, and are pretty profitable.

So why have they not been disrupted?

There are some attempts: Increasingly Wal Mart and Costco are offering Rice, some Dal and some packaged foods such as Ready to eat meals (MTR, Gits). The “Asian Foods” aisle at your local Safeway and QFC is also a good source of some spices and masalas.

There has been no large scale attempt to cut out the expensive Indian Grocery store. I can easily imagine the 100% monthly subscription model online store doing well, but of course, I am neither a supply chain expert, nor an expert in Groceries.

I am curious though, to learn why none of the ethnic stores have been replaced or are being threatened by Internet distribution and discovery.

7 thoughts on “Why has someone not disrupted the Indian Grocery store in the US”

  1. Mukund,

    It does seem like a fairly large addressable market if one can aggregate demand nationally. 4 Million Indians, 1 Million Indian households (assuming a family size of 4 on avg), assuming a $50/weekly avg. spend and $200/month, $2.4B TAM! If the avg. spend goes down to $25, then its just $1.2B TAM.

    So, I suspect VCs are probably not that interested given the TAM. What do you think?

    1. I think most Indians spend < $25 / week at most. I suspect the average family spend per year at the Indian Grocery store is about $300 per year, so about $300 million for the 1.5 million households (Indian family average is less, since 33% are single.

  2. they are run by close knit groups that control supply and imports – tough to break in..

  3. Perhaps, the “local” grocery stores are focused on the Indian diaspora and are able to supply the requirements of this diaspora, which is Indian food items. This is what brings the diaspora back to these stores, month after month, despite the higher pricing. This is something which is not being done by the big boys, who may not be focused on any particularly ethnic groups.

  4. A real good article and a food for thoughts… From where I see it may have 2 possible resons which are well mentioned in article…
    1. The typical Indian grocery store located in the suburb ( Where the speed of life is not as fast as that of major cities, people do have time in hand for these purchases)
    The stores are small, cramped, in highly trafficked neighborhoods ( The customer coming in these stores are not too worried about custmer satisfaction but about availability and reach of it from the travel perspect.)
    2. In all such stores the soft aspects of sales process like relationship, trust, understanding about the what custmer need as well as what they are selling and habits of buying etc plays some role as well. I belive this could stand as an exmple of people buy from people they like (or i can say they do not dislike )

    If i would have been a store owner and had no worries on supply side of the CHM due to these Internet distribution and discovery modules, I would only care about the basics of customer relationship alone (at least for coming 5 year aspect) Let me know your thoughts….

  5. Not unless Indian stores go more mainstream, cater to Americans and other ethnicity. Which is slowly happening though. Last saw in California, you see about 5% non-Indians (Asians, mostly) shopping there.
    The biggest thing that drives the traffic to Indian stores are its competitive pricing. Indians don’t mind not-so-organized isles, not so perfect looking vegetables. Thats the reason, the Safeway Asian isle hardly gets any traffic (people buy from Costco again for the price advantage).

    So the only solution (and I hope that happens) is to make Indian food, groceries more mainstream, thus increasing the total addressable market. Give a permanent seat to chai-biskoot on the American breakfast plate 🙂

  6. I iive in Northern Virginia – where the count of Indian grocery stores are dwindling and their business is slowing. This is mainly because, Korean grocery stores (H-Mart, Lotte) started providing fresh indian produce, along with Indian groceries 5 years ago at a price point that standalone Indian grocery stores can’t compete with. Furthermore, these K-Grocers now have Indian carryout restaurants and chat corners (taking a page out of Indian grocers) pretty much pulling out the one differentiator that the indian grocers had. This combined with the death of the DVD business has the existing Indian grocers running for the exits. The wane of indian grocery stores can also be attributed to the fact that the first generation Indian American business owners are now retiring and the next generation of kids are not inclined to take over the business.
    So, why have we not seen an online Indian grocer emerge?. This is a great question – as I think the market is very much there and if K-grocery stores can break the mafia stronghold of supplies anyone else can. However, the addressable market seems to be low for anyone to come out and be viable unless as Satyajit suggested if the addressable market becomes bigger then there may be more interest. As such, I also think the second generation of Indian Americans are probably more inclined to subscribe to Nature box than an online Indian grocer.

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