Grofers Bets On Private Lables, Smaller Brands To Boost Growth
SoftBank-backed Grofers will spend nearly $100 million in the next three years to build its supply chain.
Grofers is betting on private labels and regional brands to boost sales even as grocery is set to become the next battlefront for large online retailers like Amazon and Flipkart.
The SoftBank-backed startup will spend nearly $100 million in the next three years to build its supply chain to push smaller brands, Albinder Dhindsa, founder of Grofers, told BloombergQuint over the phone from New Delhi. “We are trying to build an online D-Mart (supermarket chain known for its value offerings),” he said. “Value proposition between (its bigger rival) BigBasket and us is very different. BigBasket is trying to build an online Nature’s Basket (Godrej’s gourmet grocery chain).”
The online grocery market is expected to touch $1 billion this year compared to $600 million in 2016, market research firm RedSeer Consulting said. Already, Amazon has received approval to invest $500 million in food and Flipkart has resumed grocery delivery in Bengaluru. Even Avenue Supermarts Ltd., the parent of D-Mart that Grofers is looking to emulate online, is running a pilot to deliver products. Listings portal Quikr recently joined the fray.
Grofers is focusing on smaller brands that don’t get the shelf space at most big retailers. We spent most of the last one year in bringing these brands online, and are looking to double down on the smaller brands.Albinder Dhindsa, Founder, Grofers
Private labels and smaller brands contribute 32 percent of its business. The e-commerce company plans to take products under its private labels from 90 to 500 and more than double the items from regional brands to over 1,000 by the end of next year. These are spread across categories like fruits and vegetable, meats and frozen, staples, FMCG, general merchandise and home furnishing.
To be sure, relying heavily on regional brands will not work across all categories, and volume could be a pain point, Satish Meena, a New Delhi-based analyst at Forrester Research, said over the phone. “The model is worth an experiment but in grocery, competition is not just at price point, but at multiple levels like brands and quality as well. So, it’s hard to say whether this model will work across all categories. Then there is also competition from Patanjali at a lower price point.”
To fuel its expansion, Grofers looking to add four new large-format warehouses in Bangalore, Mumbai, Lucknow, Jaipur each in the next six months— it has 22 now. “We are consolidating our warehouses and are replacing the smaller ones as we look to streamline the supply chain,” Dhindsa said. In the next six months, the company plans to increase its overall warehouse size from 8 lakh to 15 lakh square feet. It has already earmarked $25 million it.
Grofers, locked in a battle with its bigger rival BigBasket, says 2016 was a year of transformation, Dhindsa said. “There was a time when Big basket was much bigger than us, but in the last eight, nine months we have caught up with them ever since we got our supply-chain back.”
The number of daily orders has more than doubled to 25,000 with the average ticket size rising twofold to Rs 1,300-1,400. The Gurugram-based startup targets more than Rs 100 crore in monthly gross sales by March-end.
Grofers, which last raised $120 million from SoftBank, Russian entrepreneur Yuri Milner and existing investors Tiger Global Management and Sequoia Capital, needs funds for expansion. It’s looking to raise cash early next year but Dhindsa declined to share details.
And he denied reports of a merger possible with BigBasket, saying Grofers wants to stay as independent as possible. “That is the best way to build the grocery play. We might align with players who want to provide capital.”
(Updates an earlier version to correct the average ticket size in para nine)