How SoftBank-backed Grofers is preparing to take on India’s online grocery market

Grofers ended FY 2019 with USD 360 million in revenues.

Photo by Wonderlane on Unsplash

At a time when India’s USD 600 billion grocery delivery market  has become the new battleground for e-commerce giants Amazon and Walmart-owned Flipkart, SoftBank-backed online grocer Grofers may just turn out to be the dark horse as it eyes USD 1 billion in revenue by FY 2020.

To achieve this aspirational target, Grofers has deployed a three-pronged strategy by bolstering private labels, expanding branded stores and cost-cutting. It it now aggressively getting into O2O (online to offline) play as it partners with offline stores to convert them into Grofers branded outlets.

“In the first phase, we associated with 100 stores. Currently, we have 300 stores under the programme and this will be scaled to 1,000 by year-end, all in Delhi-NCR (National Capital Region) region,” Grofers co-founder Saurabh Kumar told wire service Press Trust of India (PTI) in a recent interview.

Grofers is looking at using its network of neighbourhood stores to sell its private label products, known as ‘G-brands’ that are usually priced 30-40% cheaper than branded products. Kumar said G-brands contribute 40% to the company’s current revenue, and it plans to increase it to 60% in the coming years. According to media reports, Grofers ended FY 2019 with USD 360 million in revenues.

Based on a revenue-sharing model, Grofers takes care of the sourcing of products for the stores it partners with. It also provides these stores other services such as  inventory management and technology support. Grofers plans to expand these so-called branded outlets to Mumbai and Bengaluru by year-end, while the long term plan entails 50,000 offline stores in three years.

“We are aggressively growing our business and aiming to clock USD 1 billion in revenue by the end of this financial year, with a significant focus on our in-house brands,” Kumar told PTI.

This is not the first time that this Gurugram-based grocer is trying its hand at the O2O strategy. In 2017, the start-up had piloted partnership with Oyo to open small shops near the latter’s properties, but wrapped up the pilot within a couple of months.

In November last year, the company took a shot at it again and started working with mom&pop kirana stores in Delhi-NCR to convert them into Grofers branded outlets. The offline strategy has not only helped the company expand its customer base, but has also given a leg up to its private labels which it launched  in 2018. Under its private label it currently provides over 1200 products in categories such as staples, kitchen ingredients, FMCG (fast moving consumer goods), personal hygiene products, among others. By 2020 end it plans to quickly expand to have 1,500 products in the private-label fold.

“Our private labels are operated very locally. It’s like a marketplace for merchants and manufacturers,” Albinder Dhindsa, co-founder and CEO of Grofers, told KrASIA. “We partner with wholesalers in each city and put our brand name on their packages. We have worked a lot on reaching better price points while adding new products and this is our effort to make products available a little cheaper for customers.”

He said the company caters to the buyers who are looking for pocket-friendly goods instead of expensive and branded products.

For instance, the startup has recently launched diapers at Rs.5 (USD 0.070) and sanitary pads at Rs.2 (USD 0.028). Private label products account for 50% of the entire inventory by the number of units, he added, while by gross merchandise value (GMV), it’s a little north of 40%.

On a roller coaster ride

Founded in November 2013 by Albinder Dhindsa and Saurabh Kumar, the company has seen its fair share of pivots as it struggled to gain market share while its competitor BigBasket was showing steady growth. To survive, it shut multiple operations and services in 2016 including wrapping up business in nine cities as it realized demand wasn’t growing in these markets.

Further, in the same year it shut down its on-demand 90-minute delivery and shifted to the warehouse-model, compared to its earlier marketplace strategy wherein it used to fulfil customers’ orders from nearby stores.

The multiple pivots and time taken to bounce back to its feet, costed the company dearly while raising fresh funds in 2018, where it managed to raise USD 61.6 million from its existing investors but at the valuation of USD 240 million, approximately 40% lower than its previous round in 2015.

Last year, rumours of it being acquired by its rival BigBasket were also doing rounds. However, Grofers managed to walk out of it and raised USD 220 million in Series F round from SoftBank Vision Fund, Tiger Global Management, Sequoia Capital at a valuation of around USD 800 million earlier this year. This brings the total money raised so far by the startup to USD 531 million.

However, it was not done with shutting operations that didn’t make sense for it anymore. In July this year, it pressed further to focus on its private-label business and pulled the plug on its fresh vegetable and fruit delivery business across cities including Delhi-NCR and Bengaluru. The company at the time said fresh products formed 2% of the company’s overall revenue.

“Now we occasionally do fruits and vegetables. If some seller tells us they have large enough quantity with a good deal, then we take it, else we don’t,” Dhindsa explained, adding that the segment is small and opportunistic for them.

In May, the company claimed it was fulfilling 60,000 orders a day across 13 cities with an average order value of Rs 1,450 (USD 20). Apart from 300 Grofers branded outlets, it has a network of 6,000 stores from where it sources goods to its 33 warehouses.

Competition closing in

Making inroads in the country’s complex grocery delivery business hasn’t been easy for anyone. Nonetheless, it remains one of the most lucrative segments.

With Amazon’s Prime Now, and Flipkart’s Supermart slow and steady entry in this space, Grofers and BigBasket will now have to deal with them to ensure they don’t eat into their market share. To add to this, Google-backed personal concierge startup Dunzo and food delivery unicorn Swiggy that launched Swiggy Stores last month also tip-toes into grocery delivery space.

Walmart-owned Flipkart re-entered grocery space by the first half of 2018–two years after shutting down its grocery delivery service Nearby–as India’s burgeoning online grocery market caught its fancy yet again. It launched Supermart in May 2018, initially for Bengaluru customers, but later expanded it to other cities. It is also planning to open self owned brick-and-mortar stores to sell food items to take on its arch enemy Amazon.

The US-based e-commerce giant first entered grocery delivery in 2016 with Prime Now (formerly Amazon Now), which was then open to all its customers and provided two-hour delivery service. However, by mid-2018 it restricted the service to Amazon Prime subscribers only and made it into a separate app. The same year, it launched Amazon Pantry on its main shopping app with the delivery time of one to two days.

In August this year, Amazon brought its 12-year-old global e-grocery offering Amazon Fresh to India and integrated it on its main website and app with a promise to deliver groceries in two hours.

However, Grofers CEO says he doesn’t see these biggies as direct competition since the markets they cater to is different from Grofers’ audience.

“Amazon’s grocery offering is for premium users which reflects in their products and price points. Then they have 2 to 4 hour delivery of fruits and vegetables, which is how we also started. But only once you do it, you realize if it’s sustainable for a long time,” Dhindsa said.

Seeing the kind of  strategic partnership of Amazon and Grofers in the offline space, it seems Dhindsa is on point in his assessment of Amazon. While Grofers is partnering with small and medium enterprises, the Seattle-based giant Amazon has partnered with large retail chains.

Last September, it acquired Aditya Birla Group-owned More retail in collaboration with Indian private equity firm Samara Capital. A year later, it brought 49% stake in Future Coupons Ltd., which operates retail chains such as Big Bazaar, EasyDay and Heritage Fresh.

“We are not worried about Amazon’s or Flipkart’s entry in this space,” he said. Taking a dig at them Dhindsa said, “They have ventured into so many verticals, let them do this also and see if it works for them. We don’t see a focused approach as far as Amazon and Flipkart are concerned.”

Dhindsa believes grocery space is not for everyone–even the ones with deep pocket can’t necessarily penetrate it by just throwing money at it. According to him, to reach even the basic level of scale one needs to excel in tech and market partnerships.

“You have to be good at reading and understanding the market. There are a lot of execution-related challenges to be solved,” Dhindsa said. “Since investment required is high in this category, you need both money and expertise. At the same time, micro-level knowledge of the market, execution, day to day problem solving, all of these things are required.”

“We know that someone might be able to do a better job of it than us. But this is what it takes to enter grocery space.”

Meanwhile last year, Alibaba-backed rival BigBasket ramped up its operations with the acquisition of milk delivery startups RainCan and Morning Cart and smart vending machines startup Kwik24. In March 2019, the eight-year-old grocery delivery firm became a unicorn company after raising USD 150 million led by South Korea’s Mirae Asset- Naver Asia Growth Fund, UK’s CDC Group, and existing investor Alibaba.

Talking about the rivals in the market, Dhindsa said it considers only BigBasket as the main competitor as of now. He said, “Even though media says, BigBasket has higher market share than Grofers, we currently own 50% market share, which is more than BigBasket.” KrASIA couldn’t independently verify this claim.