Grofers sets up seller structure similar to Flipkart’s to comply with FDI norms
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Bengaluru: Grofers India Pvt. Ltd has identified at least three large sellers who will sell products on its platform so as to comply with India’s foreign direct investment norms even as the grocery delivery start-up tries to move from a hyperlocal delivery model to an inventory-led one, two people aware of the development said on condition of anonymity.
Grofers, which is backed by SoftBank and Tiger Global Management, has identified Commoncity Retail Pvt. Ltd, LA Super Retail Pvt. Ltd and 90Minutes Retail Pvt. Ltd as the sellers, the people mentioned above said on condition of anonymity.
The company has set up a wholesale entity called Hands On Trades Pvt. Ltd, a unit of its parent, the Singapore-based Grofers International Pte Ltd, to procure products from brands and manufacturers. Hands On Trades sells products to the sellers, which in turn sell them to consumers. This is similar to the model followed by large e-commerce firms such as Flipkart Ltd and Amazon India.
Documents filed with the Registrar of Companies show Commoncity Retail was incorporated in Kanpur in June last year. LA Super Retail was incorporated in Delhi last May. 90Minutes Retail was incorporated in Haryana in April 2015. Hands On Trades, set up in September 2015, has Vipul Gupta and Srikumar Nair as directors. The company received Rs66.57 crore from Grofers International Pte Ltd in January 2016, according to documents filed with the Registrar of Companies. Gupta is associate vice-president, operations, at Grofers.
Grofers co-founder and CEO Albinder Dhindsa declined comment. Gupta of Hands On Trades confirmed that he is employed by Grofers but declined to divulge more details.
Over the past six months, Grofers has been gradually moving away from the hyperlocal model, where it used to collect items from neighbourhood grocery stores and deliver them to consumers, charging the stores a certain percentage of the order value as delivery fee. As the cost of delivery far exceeded the commission earned per delivery, the company started shifting to the inventory model and launched high-margin private brands.
Grofers has started selling staples and snacks under its private brands Freshbury and Best Value. “The big push to inventory came about six months ago and since then we have been pushing the inventory model. Today, more than three-fourth of the orders are serviced through our own inventory and the rest through the hyperlocal model, which has certainly led to improvement in margins,” said one of the two people cited earlier.
Founded in December 2013, Grofers has so far raised $165 million from Tiger Global Management and SoftBank, among others. As cash burn skyrocketed because of the hyperlocal model, the firm halted operations in nine small cities in January last year, besides laying off about 150 employees and cancelling job offers to 67 graduates in June.