Banking on Indian mass market, Grofers carves out its own niche

Grofers recently raised $60 million from SoftBank’s vision fund along with funds from Tiger Global and Sequoia Capital. 

The company is now expected to raise more capital to the tune of $50-$100 million from SoftBank and another investor. 

The company refused to identify the second fund. But sources indicate the round is expected to close by the end of the month.

This round will put Grofers back in the race with BigBasket once again, which, too, is raising another round of capital, according to reports. 

But as this round closes, Grofers’ vision for the market is set to evolve. While BigBasket and Grof­ers have been raising cash almost simultaneously for a few years, they have seen significant competition from non-grocery companies such as Amazon and Flipkart.

But Grofers has pulled itself out of this race over the last year by changing its market segment. The company now caters only to the mass market segment. “We only cater to the middle class. We do not want to sell anything premium on Grofers,” said Albinder Dhindsa, founder and CEO. He argues that he has found his segment of beneath the top 10-20% of Indian spenders. “These 300-400 million people are my customers,” he added.

These customers are not BigBasket customers, nor are they Amazon or Swiggy’s. They won’t pay for paid delivery when it comes to Swiggy Store or Dunzo. But they want access to supermarkets. “Let’s take East Delhi as an example,” Dhindsa said. There are few malls there and the access to supermarkets is limited. “In Indian retail, barely 3-5% comprises supermarkets anyway, and in areas where spending power is low, there are even fewer,” he said. 

The customers rely on local mom-and-pop stores for their groceries and this is what he caters to. “These stores are relatively expensive when compared to a supermarket,” he said. And, Grofers bridges that gap. He delivers to those who are ignored by supermarkets. To build depth, Grofers has gone deeper and built out private brands. 

“For some of my customers, this is the first time they are buying a brand and our private brand is actually an introduction to a brand,” he said. He does admit that these private brands do bring in huge margins. But he doesn’t milk it too much so that he can create a clear demarcation between an established brand and his own private label. This market cannot be disrupted by his grocery competitors.

“It won’t be Dunzo or Swiggy or BigBasket who can eat Grofers’ lunch but Reliance Industries Limited (RIL),” said a senior executive at a grocery delivery company. He added that rumours have been swirling that RIL, through Jio, plans to launch a grocery arm in the next four months. “This middle income bracket is Reliance’s favourite target audience,” he added. He argued that while Grofers’ plan is smart, there is an ecosystem that Jio is building and majority of Grofers’ customers are already on Jio’s telecom service. “Very few people can claim that first mover advantage will work when it comes to RIL,” he said. Grofers does have time on its side. It has built out its supply chain and found that it has extremely high customer retention. It will expect to rise up to the challenge when the time comes.