Grofers to invest US$ 15 million in 'own brands' over the next year

Grofers, one of India’s largest low price online supermarkets in the grocery space, uses its in-house technology platform to manage a network of over 5,000 partner stores that enable the company to run a fast and lean supply chain – from manufacturers straight to customers in 27+ cities.
The brand utilizes its efficient supply chain to deliver over 25 million products to customers every month. A majority of these products belong to the company’s 8 in house brands namely Grofers Happy Day, Grofers Happy Home, Grofers Mothers choice, Grofers Happy Baby, G Fresh, O’range and budget brands Savemore and Havemore.
“Over the last six years, we have dealt with a range of experiences like euphoric highs, temporary setbacks, and a lot more satisfying comebacks. While some part of it is fortune, our team was able to figure out what lurked beneath the surface and eventually what it took to open up online grocery to middle India. It happened to us when we moved to an inventory led model in 2017,” says Saurabh Kumar, Founder, Grofers.
“After realising that the consistent areas where we generated the highest customer loyalty were home to the lower middle class and middle class consumers, who were dependent on savings, we decided to serve these price-sensitive consumers without making them compromise on the quality of products,” adds Kumar.
Shifting to an inventory-led model was also an important decision for Grofers to strengthen the supply chain capabilities, and over the last two years, the brand has grown at a staggering 800 percent to be on path to profitability.
In a candid conversation with Progressive Grover, Kumar shares the journey of the brand, product and categories, strategies and learnings, impact of COVID-19 and the future course of action.
Excerpts from the Interview:
What is the USP of Grofers?
While others in the category work on a hyperlocal model, we work on an inventory-led model to cater to a large number of audiences who make planned purchases. The inventory-led model helps us to strengthen our supply chain capabilities and keep pace with the growth.
With our grocery specific supply chain built over the last six years, we aim to provide value to our customers through savings and value for money, lowest prices and quality items across various categories. We also have a wide portfolio of our ‘own brands’, which include quality household products across multiple categories such as staples and kitchen ingredients, FMCG items, personal hygiene products like soaps, shower gels, face wash, household needs like cleaning products, furnishing items to name a few. Close to 90 percent of our users are already using our ‘own brands’ (G-brands).
Tell us about your market presence. How many pin codes are you serving currently? Any plans to increase this number?
We are currently operational in 27+ cities namely Agra, Ahmedabad, Aligarh, Allahabad, Asansol, Bengaluru, Bhiwadi, Chandigarh, Chennai, Delhi, Durgapur, Faridabad, Guwahati, Hapur, HR-NCR, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Lucknow, Meerut, Modinagar, Moradabad, Mumbai, Panipat, Pune, Rohtak, Sonipat, UP-NCR, Vadodara and Zirakpur. During the lockdown, we began serving 3-4 new cities and have plans to expand in concentric circles in the locations where we have strong warehousing capacities.
What is your warehouse capacity?
We have 48 warehouses in over 27 cities. Our warehouses store approximately 3,000-4,000 items.
Tell us about your proprietary initiative, BrandFarm.
Grofers has introduced BrandFarm, a proprietary initiative, with small and local businesses in order to support and promote them. The company is already working with 800 MSMEs under the BrandFarm initiative and is providing support and financial assistance to the small manufacturing ecosystem and partners. With this initiative, the company has deployed more than Rs 50 crore as working capital support and advance payments to support its small manufacturing partners recently. The identification of the potential products, which can be a part of BrandFarm is initiated once a quarter. BrandFarm also helps in expanding share and improving profitability of a particular product during its initial 90-day launch phase.
With players like Jiomart, Flipkart, Amazon entering the business, what steps are you taking to combat competition?
This is a tipping point for online grocery. We are witnessing new players venturing into the grocery segment. However, we find ourselves in a unique position. Having built a grocery specific supply chain over the last 6 years, we are ahead of our competition and foresee increased capital allocation in online grocery.
PRODUCTS & CATEGORIES
What is the range of products that you offer? Which is the fastest moving of these? How many SKUs do you have on offer?
We offer products spread across categories like kitchen staples, FMCG products, personal hygiene products, and household needs. We currently hold 1,800 SKU’s pan-India. We are also adding approximately 400-500 SKUs in general merchandising, including tablecloths, mats, runners, and other household items. The top-selling products are staples such as atta, chawal, dal, detergent, shampoo, and soaps.
Tell us about your private label products. How much do they contribute to the overall revenue?
We have over 1,200 products spread across categories like kitchen staples, FMCG products, personal hygiene products, and household needs. Since products are made in-house and sold on the app itself, there are no commissions for middlemen, therefore resulting in low product prices i.e. 30 to 40 percent cheaper than national brands. Currently, our own brands constitute 40 percent of the business, and we are expecting to grow this to 60 percent in the next six months. The private label business constitutes more than half of the sales. We plan to invest US$ 15 million in our ‘own brands’ over the next year.
Food or non-food – which category is a winner at Grofers and why?
We are in the business of essentials, so the food category has always been the winner for us. In the wake of the pandemic, we have observed a pattern where consumers are buying the essentials that they need and are not going after indulgences. People are stocking up for essentials staples, laundry detergents, and snack items. Health and ayurvedic products and RTE/ RTC meals and snacks have also shown a higher penetration than pre-COVID era. The furnishing and home needs category along with the home and kitchen category are seeing lesser purchases. This is also because groceries remain a non-discretionary spend and people are opting for essential over non-essential products.
Which are the new emerging categories at Grofers?
In our food and essentials segment, we are ramping up categories such as snacks, baking essentials, immunity products, and RTE products (ready to eat) due to a spike in in-home consumption. Some MSME brands we have recently introduced in these categories as a part of our BrandFarm initiative include Midas Food – bakery needs (Cakes & Cookies), Chokhi Dhani Food Pvt. ltd – ready to eat, DSD Speciality Food – ready to eat (Non-veg), Kabir Foods – snacking range (Paani Puri combo), Gustora Foods P Ltd – Instant Pasta, and Aadirshwaaad Food Products – potato wafers.
STRATEGIES & LEARNINGS
What is your marketing strategy and what steps are you taking to promote the brand?
Due to the natural demand and shift towards online grocery, ROI on our media spends has improved 4x. Keeping this in mind, we have budgeted for moderate media spends this year as we are able to get more with less. This will continue for our festive promotions as well, as ours is already a discount platform. We believe in everyday low prices as a part of the brand’s strategy. We have witnessed an increase in digital media consumption, and keeping that in mind, digital has now taken a central role in our media mix with 70 percent share. With customers across India shifting to shopping online during the lockdown, we have witnessed a shift towards online grocery shopping, and expect it to remain that way.
Our priority is to keep our customers in the loop regarding our initiatives, all with a large focus on digital. Furthermore, our focus will be on digital-led mediums as consumers are turning to digital devices to keep themselves entertained, engaged, and informed while indoors.
Share some key learnings that you have gleaned over the years in this business?
Resilience to overcome unexpected hurdles, agility to execute fast, and building transparency with the customers have been the most important learnings for us. It is important to put systems in place to develop agility within networks and build long term trust with the customers by innovating and solving real problems for them.
Give us some insights about your sourcing strategy?
We have tie-ups with several brand and manufacturing partners from whom we source products based on the market demands and requirements of our customers. We also empower our partners with funds, manpower assistance, and R&D to make it a win-win for both the vendor and the company. We source directly from the manufacturers while being a direct channel for consumers and operate with a lean supply chain.
Any noticeable consumption trends over the years?
Over the years, internet penetration has driven e-commerce growth which in turn has enabled the sale of products online and an exposure to a wider set of options. This has led to growth in consumption of several categories of products and availability of quality groceries at affordable prices. Furthermore, we have also seen a growing trend for private label products as they fill the gaps in consumers’ need for quality products and are affordable for price-sensitive Indian buyers.
BUSINESS POST COVID-19
How has the pandemic impacted brand Grofers?
We faced an unprecedented surge in the demand on our platform and initially operations were tough during the lockdown. However, we realised that during such a crisis, continued operations is a national duty for a business like ours. Not only we are doing more with less but have also channelled our efforts towards the safe delivery of essentials to those millions of households who were counting on us in this time of need. We worked with local authorities and police administration to get all necessary permissions and curfew passes to continue operations during the lockdown situation. We shortlisted essential products based on consumer demand and prioritized high demand essentials such as atta, rice, dal, spices, etc along with canned and ready to cook food so that customers don’t run out of basics. We also took a hard approach to hoarding of essential items and requested customers to opt for considerate shopping so that shelves remain stocked for everyone. Promotions for essential commodities were also temporarily discontinued. We ensured the availability of sufficient stocks from our brand partners and manufacturing partners. When FMCG brands didn’t have trucks to deliver goods to our warehouses, we started reverse picks on our own trucks and got the goods from their warehouses. We also revamped our safety and hygiene practices for item storage and delivery and are practicing social distancing.
This period has made us realize that continued operations are a moral obligation for a business like ours; it has energized the entire team to do more with less. We are now deploying new features every day and looking for creative answers that will persist for the long term. Case in point, the implementation of stock levels, temperature checks and zero touch overnight deliveries are projects that were implemented within a single week while most teams were working remotely.
How do you propose to tackle the concept of contactless deliveries?
We have collaborated with societies and RWAs (Resident Welfare Associations) of over 1,000 societies across markets to undertake group deliveries. Furthermore, we ensure zero-touch deliveries via ‘leave at gate’ feature, which enables social distancing between customers and delivery executives to the maximum possible extent.
How are you maintaining hygiene and sanitisation in the supply chain?
At Grofers, the safety of our customers and our warehouse and delivery teams come first, and we are taking strict measures to ensure that. We understand that delivery is the safest option in this time of social distancing, and to ensure the same, we are following multiple safety and preventive measures across our warehouses, delivery fleet, and production of goods as well as for our customers. We are conducting a mandatory screening of the staff using infrared contactless thermometers every day. Use of Aarogya Setu is mandatory for contact tracing. We practice social distancing apart from disinfecting and sanitizing the warehouse every 3 hours to keep the entire inventory virus free. Our crates are also being washed and disinfected after every usage. While we have introduced zero-touch deliveries, we are also training our delivery and warehouse staff to create awareness around the best hygiene practices. Our delivery and warehouse staff is being asked to use hand sanitizer after every delivery. Wearing masks, hairnet, gloves, and usage of sanitizers is mandatory, and all our employees are instructed to change their face mask every 2 days as the safety of customers as well as our delivery and warehouse personnel is paramount for us.
Have your HR policies changed in the wake of pandemic?
Yes, certainly. We have introduced ‘emotional counselling assistance’ in association with ICAS India. We have also partnered with Mindhouse to conduct a meditation live webcast for stress management, yoga courses as well as various productivity-enhancing tools to help employees while they work from home.
For our warehouse and delivery personnel, we are extending fixed pay-outs and medical benefits, in case they test positive. As a part of this initiative, we will bear medical expenses and hospitalization fees for anyone who is affected. As a token of appreciation for the selfless efforts by delivery and warehouse personnel, we have collaborated with Ekincare, a health benefit start-up, to provide 24*7 telemedicine services at zero cost. In case any of our delivery partners are identified with the virus, we will provide Rs 500 per day from the day of hospitalization until discharged. In addition, all the medical expenses will be borne by the company
How many new customers have you acquired since the onset of COVID-19?
We have acquired 16 lakh new customers since the lockdown. Over 70 percent of the customers who came in the first month of the pandemic are still shopping on our platform.
TECHNOLOGY ADOPTION
Share with us your top 3 technologies.
At Grofers, we have technology embedded across our value chain which helps us in streamlining our operations and is also one of the primary levers of cost control, growth and efficiency. Be it for pricing, product, warehouses, we apply technology in a variety of domains, all of which tie back to enhance our consumer experience. We also use tools such as geo-coding, Google optimisation to solve the logistics puzzle and build an optimal route for deliveries.
Have you adopted new technologies since the lockdown to extend your reach?
While the current scenario is hastening e-grocery adoption, technology is further paving the way for new models which will enable safe, efficient and secure deliveries. During the current scenario, bringing technology into the play has helped us with data analytics and algorithms to meet the surge in demand through inventory planning and forecasting. Furthermore, forecasting tools and data science provides insights into consumer demand and product stocking, POS adoption for inventory planning and forecasting and back-end sourcing on a revenue sharing model.
Throw some light on the technologies that you want to bring in over the next one year.
Apart from the technologies we already have, we will drive more investments into DevSecOps, data intelligence and market automation.
THE FUTURE
What are your plans and targets for the future?
We, at Grofers, are focussed on providing value to Indian households by offering the best quality products at the lowest prices. Over the next two years, we will be investing US$ 25-50 million in both ‘own brands’ and supply chain. In private labels, we are aggressively ramping up categories such as baking essentials, immunity products, and ready to eat due to their increasing demand. We will also launch newer categories like health supplements, general merchandise, and fashion. In the supply chain, we already have a network of 12,000 partner stores. We will continue to enhance our supply chain efficiencies with the technology to enable superior customer experiences.
By when can we expect an IPO?
Our path to profitability has accelerated during the lockdown, and after achieving operational profitability in January, we are on track to become EBITDA and cash positive by the end of this year. We are observing market sentiments and aim to hit the capital market by the end of 2021.
Any plans to raise funds? If yes, then how will you be utilizing them?
Grofers is fairly comfortable in terms of capital and is operationally profitable. Right now, our focus is to support the small manufacturing ecosystem which has been hit due to the pandemic.
What is the next big change that you see in grocery retail in the wake of the pandemic?
The current situation has led to a natural demand for online grocery in the country, and more people are gradually moving from offline shopping to online. This will lead to a mass scale adoption of online grocery in the long run. We are seeing 64 percent first-time online grocery shoppers and 15 percent first time online shoppers. Additionally, there is a higher disruption in cities like Lucknow, Jaipur, Agra, Faridabad, Panipat and Indore etc.