Grofers eyes fashion segment for higher margins, to stick to private labels

Online grocer Grofers started selling apparel and footwear for better margins. Grocery forms the largest chunk of consumer spending and highly competitive but fashion offers better profits, according to ecommerce experts.

“From a scale and stickiness perspective grocery as a segment is very attractive but from a margin perspective, it is quite competitive. In all of food and grocery sales across the country, even in large cities where internet penetration is high, grocery still remains focussed largely on offline. This segment also requires deep pockets,” said Devangshu Dutta, Chief Executive Officer of Third Eyesight.

The SoftBank and Tiger Global-funded company has started selling low-priced items in apparel, footwear, non-clothing and travel accessories categories to expand its basket size. It has already seen a 40 per cent increase in its overall basket size as compared to the pre-Covid era.

“This category is important as it is the second largest after electronics in online shopping and attracts new customers on board. While there is good margin in fashion, it grows further when it comes to private labels,” explains Satish Meena, Senior Forecast Analyst at Forrester Research. The private label brands have been providing an opportunity to make fashion more affordable to the masses and these changes in pricing are driving more customers to online platforms, said a RedSeer report.

 

Grofers, which has a strong play in the private labels segment across categories, is likely to follow this strategy in the fashion segment.

With 1,200 products across all categories, the private labels segment constitutes more than half of the company’s sales. Currently, its own brands form 40 per cent of the business, and the company is expecting to grow this to 60 per cent. 

Grofers is replicating this BigBazaar kind of model giving more options to increase the amount of spending they get from households, says Meena. Apart from fashion and lifestyle products, it has also forayed into the winter assortment category selling blankets, comforters, room heaters, beginning mid-October. 

According to RedSeer, while the fashion market is growing at a CAGR of 11 per cent in the country, online fashion is growing the fastest at a CAGR of 32 per cent. With players such as Myntra and Ajio already having a stronghold in the segment, it will be challenging for Grofers to make a mark in this new category.

“We don’t expect this to be a great strategy as category leaders like Myntra outperforms Grofers both in offering (variety) and price,” says IDBI Capital in a note. 

Currently operational in 27 cities, Grofers claims to have acquired 1.8 million new customers since the lockdown. “We have seen a spurt in demand from non-metro markets as online grocery has become a mass household phenomenon. We have witnessed an increase of 54 per cent in orders in smaller cities like Indore, Agra, Panipat,” said the Gurugram-based company.

According to reports, the company is also in the process of raising up to $60 million from investors as marquee players such as Tatas, Reliance, and Amazon make big bets in the online grocery space. 

Customer trends during Covid-19 pandemic

* 1.8 mn new customers

* 40% increase in basket size

* 54% rise in orders from Tier II/III

* 64% first time online grocery shoppers

* 20% first time online shoppers

Source: Company