Locodel Solutions Pvt Ltd, which runs hyperlocal grocery and fresh food delivery platform Grofers, has raised a total of $165 million from marquee investors such as Japanese Internet conglomerate SoftBank Corporation, Apoletto Managers, Tiger Global Management and Sequoia Capital. The startup, which was founded in 2013 by Saurabh Kumar and Albinder Dhindsa, grew rapidly and was one of the most heavily funded grocery startups. However, the expansion took a toll on the firm, and in 2016, it exited nine cities, laid off employees and tweaked its business model to an inventory-led one. Since then, Grofers has managed to sustain itself. In a recent interaction with VCCircle, co-founder Dhindsa said that the grocery startup is targeting middle-class customers and helping smaller brands reach more consumers through data analytics. It is also looking to increase its monthly revenue Rs 100 crore. Edited excerpts:
How has your journey been after 2016?
The majority of 2016 was spent strengthening our supply chain as we wanted to hold more inventories. We are working with merchants and brands in 22 cities as we continue to develop our in-house built technology stack along with building custom warehouses. The effort is to improve customer experience and drive growth threefold. We are working with small brands to help them scale faster to support our growth.
When we were a marketplace, we had order sizes that were close to Rs 540. We later invested in supply chain and the order value went to Rs 740. From July last year to February this year, we opened 22 warehouses, focused on marketing, partnered with FMCG companies to raise orders to Rs 1,300 and switched from bikes to vans for delivery.
How are you doing financially?
I think the way the financial metric has moved for us is very interesting. We started as a supply-chain company, which gave us more control over our margins and the costs that we incurred. While we will continue to be loss-making, we are investing a lot towards automation and building warehouses.
We wanted to make the unit economics of the business sustainable. The biggest data point is that customers spend Rs 1,300 to Rs 1,400 per order and this helps us pay for the supply-chain cost of the delivery. We operate on decent margins that help us recover costs. We are already breaking even in Jaipur and Noida. The challenge for us is to break even in bigger cities such as Delhi, Mumbai, and Bengaluru.
Helping small brands reach out to customers in a short time has helped us grow last year. We were thinking of building efficiency first and then scale. However, the scale seems to be kicking in as we have moved from a monthly revenue of Rs 30 crore to Rs 80 crore in nine months.
What kind of automation is Grofers working on?
The automation is being put to use both in processing orders and in warehouses. Our in-house technology stack helps us make a truly mobile solution. Our warehouses are not like traditional ones. The picking process for orders is automated, which saves time and help us offer better prices.
In our old model, we would pick up stuff from local shopkeepers and [store them in] dark rooms. As demand went up, we had to switch to a warehouse model. We store 2.5 million units in one warehouse with a total space of 8 lakh square feet in 10 cities. In the next quarter, we will have 1 million square feet of warehouse space, and by December 2018, we will have 1.5 million square feet of space.
How have you chartered the growth of Grofers?
We are working with small brands to extend their reach or make them more efficient in any way. We have already launched 70 to 80 small brands exclusively on our platform. We charge these companies for advertising them.
We share our customer insight data for a fee to help brands understand what kind of products consumers are looking for. Besides this, we have private labels that we introduce in partnership with contract manufacturers who are often some of the brands present on our platform. These private labels are introduced after identifying gaps or niches present in the FMCG segment.
We help small brands expand to more cities as they don't get retail space and find it difficult to build a distribution channel in India. The brands pay us for warehouse and delivery and operate on a fixed and variable cost model.
The other strategy is to slowly build up the order size from Rs 1,300 to Rs 1,500. We are also looking at capturing the entire grocery budget of middle-income households, which is typically around Rs 6,000.
How do you see the competition?
We are not very far away from our nearest rival BigBasket. While they are doing Rs 120 crore a month, we see ourselves getting to Rs 100 crore a month by March. We see a clear differentiation as we are strong in the northern region and they are strong in the southern region.
BigBasket also has a different customer segment. To illustrate, while we cater to Big Bazaar customers, they cater to Nutri Basket ones.
Are you looking to raise funds?
We first want to get to Rs 1,500 an order before raising fresh funds and will only look at it in the next year. However, we are always on the lookout for a strategic investor who can help grow our business.
How do you see the online FMCG business growing? Do you see consolidation?
The online FMCG delivery business is insignificant right now. We see consumption increasing and post GST, smaller merchants are not at a disadvantage even though the sector is getting more formalised. While large brands will find more retail space in offline stores, the smaller ones will excel online.
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