Saurabh Kumar, founder, Grofers, told FE that having savings and pricing at par with DMart is just the starting point.
By Asmita Dey
Tapping into the emerging trend of e-commerce platforms finding traction in the middle income segment, online supermarket Grofers, which has shifted to a low-cost inventory-led model, plans to compete with fast moving consumer players by catering to the desire for ‘aspirational’ products with its in-house brand of affordable consumer goods. “The next trend of growth in online market and in general will come from middle (income) India… so the focus is on affordability. Around 50 million Indians are very, very premium. The next 400 million is where the actual economy lies. Doing more FMCG is just a part of making products more affordable,” co-founder and CEO Albinder Dhindsa told FE in an interview.
“It is fundamentally unfair if people pay the same price here for FMCG products that people pay in the US. That is basically because we have poor distribution, they have better distribution. For example there is literally no reason why Axe deo is cheaper in US than it is in India. It takes away the ability of a large market to access these products. We want to solve these problems,”said Dhindsa. In July, Grofers forayed into the FMCG segment with launch of seven new brands under categories Budget and Popular G, offering both premium and entry-level quality products across various segments like food and beverages, personal care, household care, oral care, furniture and storage, kitchen tools and accessories among others.
Saurabh Kumar, founder, Grofers, told FE that having savings and pricing at par with DMart is just the starting point. The company seeks to capitalise on its cost-effective back-end infrastructure, lacking in most other brands to make cheaper consumer goods available to the masses. This is what Grofers calls its ‘market disruption’ game plan, which will drive its second phase of growth. Dhindsa said the online firm’s five-year plan is to ‘make products more affordable’. This will open up the 400 million market out of which Grofers taps 600,000 every month. East Delhi and old side of Gurgaon is the biggest market for the company and its strategy is to penetrate deeper into these areas.
The domestic FMCG market dominated by the likes of Hindustan Unilever, ITC, Colgate-Palmolive faced major disruption when Baba Ramdev-led Patanjali Ayurved leveraged the growing popularity of natural segment and filled shelves with cheap products. Many companies changed strategies and introduced their own variants of organic to counter Patanjali. “You need to fundamentally understand where the dichotomy of these FMCG brands lie. It is very difficult to come with products in all the ranges. Their fundamental structure does not change. Right from manufacturer to that product showing up on customer doorstep, in each of these steps, there are logistics costs involved, storage costs involved, margins involved. All of that goes away in our case,” Kumar said.
“We are working with our manufacturers where we are helping them become more efficient, so they are able to make products cheaper for us and then we are removing all the layers that exists between manufacturers to customers. In case of other FMCG’s all these entails additional costs which is passed on to customers”. Rival BigBasket has acquired a controlling stake in smart vending machine startup Kwik24 as part of its better customer outreach which helps them instantly stock up fresh produce and FMCG products.
Grofers is on track to meet its FY19 revenue target of Rs 2,500 crore, Kumar said. It is already breaking even in Delhi-NCR and hopes to become profitable in all 13 markets by FY20. However, Dhindsa said that the company’s losses will not reduce as it makes half of its losses from investments in warehouses. “Recently, our losses have gone down on the supply chain side but then we have spent aggressively on inventory, launching new products. At some point of time, may be we have to cut down on our marketing spend. But we do not take losses on products,” Dhindsa said. Losses rose to Rs 268.3 crore in FY17 from Rs 225.11 crore losses posted in FY16, according to data sourced from Tofler.