Hyper Growth, but Profits?
Grofers' breakneck speed
is doing wonders to its valuation, but the viability of grocery delivery has
several question marks around it
In the 12 months till
November 2015, the valuation of Grofers, a Gurgaon-based hyperlocal grocery
delivery firm, has grown 10-fold to around $200 million. That was the month in
which it closed its latest round of funding of $120 million from Softbank,
Tiger Global, Russian billionaire Yuri Milner and Sequoia Capital. In those 12
months, the company which started as a B2B services provider for online
grocers, before pivoting to its current hyperlocal focus, has expanded to 26
cities and works with 10,000 merchants.“We are in the habit-forming phase with
consumers,“ says chief executive and cofounder Saurabh Kumar. “We have begun to
replace the phone call to the local grocer or kiranawalla.“ Despite this sharp
growth (Grofers has hired some 3,500 and plans to add several thousand more in
the next 12 to 18 months), Kumar, a civil engineer from IITBombay, believes the
company has only laid the most preliminary building blocks for its business.
“Of the overall market of $500 billion, roughly 70% is groceries and the amount
that has moved online is minuscule,“ he contends.
Instead, Kumar and his team
are working at breakneck speed to build a backend to keep pace with this
growth.“The winner in this highlycompetitive market is the one who is able to
build this robust backend to support this growth... we are doing around 30,000
deliveries a day and anticipate in the next few months itself this will cross
one lakh,“ he says.
It isn't just the delivery
net work that gives Kumar sleepless nights; he and the Grofers team are
obsessed with expanding the assortment -range of products -available to
browsers online. And, consumers appear to be biting. “We are overwhelmed with
the way demand has grown,“ Kumar says. Average order size has increased from
`400 to around `750, he adds.
Critics of the hyperlocal
deliv ery business argue that businesses such as Grofers are building ventures
mostly focused on sky-high valuations, with little focus on the bottomline. The
economics don't work out, these doubters contend, since order sizes are too
fractional to justify the cost of sourcing them (often from multiple local
stores) and delivering them to customers. “Everyone was chasing growth at the
cost of building systems to support this scale...there was and is a lot of
froth in the industry, but that is settling down,“ says Kumar. As some local
ventures have struggled, Grofers has grown as it has leaned on some old skills
learnt as a B2B player. “We are the largest player in the market today and we
think we also have the solid base required to grow this business into a billion
dollar entity,“ says Kumar.
Grofers doesn't expect to
make the journey on its own steam entirely. In the last cou ple of months, it
has made two acquihires of startups Townrush and SpoonJoy as it sought to
fatten its manage ment team and add local ex pertise. While growing and
managing a hyperlocal busi ness may be a part of Grofers' agenda, the other key
re quirement is convincing tech nology-averse grocers to come aboard. According
to Kumar, Grofers adds around 10% incremental business every month, but thinks
that as technology and systems improve this could go up sig nificantly. “It
used to be diffi cult in the beginning...but es pecially in this market your
reputation is built on word-of mouth marketing,“ Ku mar says. “We are re
placing an unreliable system with some thing more predicta ble and giving gro
cers incremental revenue for no cost to their own topline.“
ETM3JAN16
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