Operating in the $1 billion e-grocery market in India, Grofers clocked Rs750-crore revenue in 2017-18 and has set a business target of Rs5,000 crore for the 2019-20 fiscal. Grofers, which started operations in December 2014, is now launching private labels to increase its margins.
The four-year-old Gurgaon-based e-grocer claims to have broken even in key markets and aims to crack all 13 markets by March 2019. Its main focus is to shorten supply chains and build private labels.
In an interview with BestMediaInfo, Saurabh Kumar, Co-Founder and Ankur Ogra, Head, Brands Team from Grofers, shared the plans for the company’s expansion, marketing and growth.
In several key markets, you have discontinued fresh vegetable and fruit deliveries. What's the reason?
Saurabh: It is temporary. We are revamping our fresh operations completely. We are consolidating our supply chain and will be back with fresh food in a couple of months.
It, anyway, was commanding less that 2% of our total sales, which wasn’t big part of the platform. We would still want to bring it back because it is also about giving the customer a varied choice of products to order from.
Being perishable is a part of the problem. Running a fresh supply chain is much more difficult than running any other supply chain. That’s why we are investing a lot in actually building that supply chain properly, so that when we come back we are able to provide products at the minimum price point possible.
The margins are slightly better than the other grocery products.
Grocery delivery services such as Peppertap and Localbanya have shut down. What kind of challenges do you see?
Saurabh: Building the retail supply chain needs time and capital.Most of these companies you mentioned shut down in the early stages of the business. At that time, grocery e-commerce was at a very nascent stage in India. This is not a business that gets created overnight.
Are there any plans to launch in more cities and in what categories do you want to launch private labels?
Saurabh: Right now, our focus is not on geographical expansion. We now want to penetrate with our own private label into these categories. We already have our private label established in staple food such as sugar, flours, dry fruits, spices, pulses and rice.
We are now venturing with our private labels in home and kitchen care products, furnishing, packaged food, baby care and personal care vertical. We will have a play of our private label in all the categories that we operate in. We have earmarked an investment of $100 million in the next three years in building our private labels.
One hasn’t seen a lot of ATL marketing from the brand. Which are the most effective marketing techniques for this space?
Ankur: The most important medium of marketing for us is word of mouth. We are going after the value proposition, ‘saving’. We do a bit of BTL to do some brand awareness, but largely our focus is on marketing on our platform and through word of mouth.
How do you then intend to go for customer acquisition?
Ankur: Word of mouth tends to drive a lot of customer acquisition and it is organic. We have plans to build the platform and have better quality products at much lower prices. We will have a multitude of marketing activities that will include focus on app-level notifications, sms, e-mailers. Along with ATL level, we will reach out to consumer segments wherever they are – whether it is on digital, OTT, videos or any other traditional BTL platform.
Our marketing plans don’t leave any of these out, we have to take the positives of each of these mediums and leverage all of them.
ATL is still a smaller part of the marketing strategy. Is it?
Ankur: For us, we don’t differentiate it like that. Whatever you do is from long-term perspective. You might not get an immediate impact of TV when you do it for 10 days but we do realise that in the long run, we have moved up in the awareness and preference level. Digital and ATL go hand in hand. We optimise theseon the basis of the targets and plans that we have.
Have your marketing budgets increased because of private labels?
Ankur: Right now, we are in process of analysing these from the marketing standpoint. Broadly, it will be a very active push. It will astute a critical component of the plan.
Saurabh: All of our private label investments are going to go into product development and building a manufacturing supply chain for it. Because we are available on our own platform, most of our marketing will be focussed on promoting the platform. We need not spend extra marketing dollars to promote it. That helps us in pricing these products much cheaper than any other competitive products.
Are you looking at distributing these on other offline platforms?
Saurabh: I don’t think so. The demand on our platform is pretty high right now and we are busy coping with that.
Amazon has entered with Prime Now. Other e-commerce giants are competing in the same space. How do you cope up with that?
Saurabh: Most of the competition has been in the market for long enough time and we are still able to capture a much bigger share than anyone else. We differentiate from others in our proposition of ‘savings’. None of these platforms focus on that; their value proposition is ‘convenience’.
It is important to remove the layers of trade that are active in the market today for us to be able to keep giving quality products at lower prices. Building more private labels on platform will allow us to procure from the origin to our warehouse to the consumer’s doorstep. We want to shorten the supply chain by cutting all the layers of trade from between. This will give us the competitive advantage to price it at a much lower rate.
When you launched, you had a tie up with hyper-local stores but later you started holding your own inventory. Why this change?
Saurabh: We hold our inventory ourselves. When we had launched, we used to tie-up with stores who would then charge us for whatever products our delivery boys picked from them. But in two years, we decided to set up our own warehouses and hold our inventory.
This is more scalable model for us. In the earlier model, one starts hitting the supply barriers.
Frozen food and meat is a category that hasn't yet developed well in India yet. You also deal with that. What is your take on the category? How big is that market?
Saurabh: It is a very small fraction of the total volumes that we sell. It is evolving but it is very nascent. Anything that is fresh is at a very initial level in India today. But we are seeing that these categories are slowly getting traction.
You have a lot of tie-ups with digital platforms for content. Is the digital audience the only TG you have?
Ankur: We have done a lot of content integrations, online and offline. We had done these tie-ups during cricket world cup, Bhabhiji Ghar Par Hain, Rasoi Ki Jung-Mummyon Ke Sang on Colors among others.
Bhabhiji Ghar Par Hain was a very successful integration for us. We integrated the brand in a subtle manner and this is exactly the TG we wanted to target. Content integrations have always been a part of our core existence.
We have done some brand tie-ups like the one with Nestle for Raksha bandhan. We keep talking to brands and we keep evaluating all these options.
In almost all big cities, the local grocery shop is more than happy to deliver groceries at home. This has given the consumer an added advantage of home delivery and the trust that they already had in their kirana store. How do you compete with that?
Saurabh: Consumers are getting savvier about what they are buying and at what price. The kind of supply chain that the kirana stores go through doesn’t allow them to offer the prices that we have. We definitely agree this is a set of consumers that we can capture. If the kirana guys keep selling a product at Rs100, and we offer thesame quality product at Rs 50 then the consumer is ought to come to me.
All e-commerce businesses are bleeding. How long will it be before the industry starts realising profits?
Saurabh: There are two ways to make money. One is through running your operations and the other is through investments. We have already operationally broken even in Delhi and two other markets. By March 2019, we will operationally break even in almost all the cities that we operate in. Almost all the bleeding that happens for Grofers is on the capital that we invest. You have to keep investing in improving your supply chains.
What are the targets that you have set for yourself?
Saurabh: By March 2020, we are targeting Rs5,000-crore business. We have two million active users on our platform every month. We have over 3000 products on our platforms.
The total grocery space is more than $500 billion market. The e-grocery sector is about $1 billion. Grofers holds 40% of the market, followed by Big Basket.