How Grofers is gearing up to survive against Amazon & BigBasket

Priyanka Sahay

Moneycontrol

With an aim to drive profitability and reduce cash burn, Softbank-backed grocery delivery firm Grofers is betting big on next day shipments as it passes on the express delivery responsibility to the partner merchants.

In express delivery, the products are delivered, on-demand, within a couple of hours and is a highly capital intensive exercise.

In this case, the on-demand deliveries will be done by the kirana stores themselves, which will completely wipe off the delivery cost born by Grofers.

“Focus is to take customers away from express behaviour to just next day (delivery),” said Albinder Dhindsa, co-founder of Grofers to Moneycontrol.com

“We are trying to move people purely to scheduled delivery where people want Grofers to deliver. We are trying to create that demarcation that - you order from express (delivery), but then you are dealing with local merchants,” he added.

Competition from BigBasket

The move comes at a time when Gofers is preparing for a tough battle from Amazon which launched grocery deliveries in Bengaluru in February and plans to expand it to ten cities shortly. It has already expanded to Delhi and will start operations in Mumbai next. Most of the orders are delivered by Amazon’s own logistics service with an aim to ensure consistency.

Grofers is already facing competition from its bigger rival BigBasket which essentially was working on planned and bulk purchases which consumers order at the beginning of every month. These can also include weekly purchases which typically revolve around items with shorter shelf life such as milk, fruits and vegetables. However, now Big Basket too has flagged off its express delivery wherein it offers customers deliveries in 90 minutes.

Betting big on next-day delivery for survival

So at a point in time, when the others are experimenting with on-demand deliveries, what prompted Grofers to go back to the drawing board and device a new strategy?

On-demand delivery is a highly cash intensive model. It requires huge amount of patience as well as capital. Dhindsa cites lack of sufficient capital in the market as the prime reason behind the move.

“There is not going to be infinite capital in the market to build such a thing … if let us say, we had the capacity to extend the sort of the things that we were doing for the next four or five years, yes we could set up infrastructure which will be profitable,” he said adding that currently the startup ecosystem needs big exists which will unlock some of the investor capital and will give people confidence to invest in other sectors.

“The view we took in June this year is that dependence on external capital should go away by March, 2017. Even if that means we will be on a slower growth trajectory; that will be perfectly fine with us. Otherwise, survival will always be going to be a big question mark,” he said.

Thus, the company is targeting the two way model. It claims that in the express way even though the commission from merchants reduces, by around four percent, it is making money.

Currently, 27 percent of Grofers’ deliveries are express (self) deliveries. “Self-delivery used to be zero percent in July, two percent in August and it is 27 percent now and we are making Rs 31 per order,” Dhindsa said.

Grofers claims to have an average basket size of over Rs 900.

On the next-day delivery front, Grofers has made amendments too. Since the next day delivery gives it the luxury to combine orders, it has moved most of its deliveries to vans instead of bikes. This further helps the firm in reducing cost – both manpower and fuel expenses.

The next-day delivery was started in July, 2016.

We have been growing month on month in terms of gross merchandise value (GMV). It claims to have grown 16 percent last month and targets to grow 45 percent this month.

Last week, Grofers which essentially was an app only platform, shifted from its strategy to launch its website in a move to further drive volume.

Hyperlocal delivery segment has been struggling in India because of its high cost intensive model. Among other consumer internet businesses, grocery delivery is regarded to be the most difficult as retailers are already working on thin margins who in turn offer a percentage of that to the startups.

"For these orders (small ticket size), the players could play the role of a lead generator where the fulfilment will be purely done by the store nearby. The unit economics may not make sense for these small orders to be handled purely by the online player. On the other hand, for larger orders, they would want to ensure that the supply chain and the quality is robust and thus own delivery,” said Sreedhar Prasad, Partner, e-commerce at consultancy firm KPMG.

'Will make Rs 45 per order from March'

Earlier this year, Grofers had shut its services in nine cities – citing poor response. With the launch of the “self” express delivery model, it has re-launched Ludhiana and plans to start operations in two more tier-II cities Kochi and Vizag this month.

Grofers will just aggregate orders for merchants, while the delivery will be taken care of by the partners themselves.

“We won’t be losing any money on those orders because all the tier-II cities are purely on express self-delivery with local merchants. All the newer expansion will be purely on express,” said Dhindsa.

Grofers claims to have 8,000 merchants including 800 who have taken up express delivery.

Hyperlocal delivery firms lose money on almost every order, however Dhindsa claims that Grofers with all these cost trimming exercises in place, Grofers targets to start making Rs 45 per order by March 2017.

Grofers has raised around USD 165 million from Softbank, Tiger Global and Sequoia Capital, so far.

priyanka.sahay@network18online.com