New Delhi: Online grocers Grofers and BigBasket are tapping hotels, restaurants, caterers and hospitals for their private-label offerings in a move which is likely to help them improve revenue as well as profitability.
Private labels are brands owned by retailers, and typically, the profit margins on these are higher than on brands that are owned by other companies. In the case of groceries, the margins could be as high as 30-40%, at least double the margins on other brands.
BigBasket (owned by Supermarket Grocery Supplies Pvt Ltd), the most well-funded home-grown online grocer with $220 million in funds from investors including Abraaj Group, Bessemer Venture Partners, Sands Capital and International Finance Corp., has had private labels from its inception. It owns brands such as Fresho for vegetables, meat and idli and dosa batter and Royal and Popular for staples. Last year, BigBasket launched Tasties, a private label for coffee and snacks. The company has started selling its private labels to hotels, restaurants and caterers.
BigBasket, which is eyeing revenues of Rs1,800-2000 crore by March 2017, expects institutional sales to account for about a fourth of that.
“We have launched a new business for hotels, restaurants and caterers about two to three months ago. Then we will look at how we can supply to larger stores going forward, built on our private label only. B2B (business to business sales) is already contributing close to about 15% to our revenues now and we think it will go settle at around 25-30% by the end of this financial year,” said Hari Menon, co-founder and chief executive at BigBasket.
Menon declined to disclose the names of the institutions buying from BigBasket.
Tiger Global Management and SoftBank-backed hyperlocal grocery delivery start-up Grofers India Pvt. Ltd launched its private labels— Freshbury for fruits and vegetables and Best Value for staples—earlier this year. The company now sells to about 20-25 institutions including hotels, hospitals and caterers, with an average order size of Rs3 lakh per month, said a senior company executive on the condition of anonymity. Hospital chain Fortis Healthcare is one of the company’s clients, he said.
Grofers chief executive officer Albinder Dhindsa declined comment.
According to experts, a sizeable B2B operation will help online groceries push private labels. “For a non-standardized category, it is difficult to push private labels. Private labels do well in categories which already have a brand. It (launching B2B operations) is a very good idea because if you have bulk orders coming in, it takes away the pressure on the inventory. Institutions anyway buy at wholesale prices, so they don’t mind getting quality products at a competitive price,” said Harminder Sahni, founder at Wazir Advisors, a consulting firm.
Both BigBasket and Grofers have also started selling their private brands through small neighbourhood stores. While Menon of BigBasket said the company sells its private labels through about 1,000 stores in eight cities, the Grofers executive cited above said the company has tied up with about 800 stores. This helps increase awareness of these private labels, this person added.
The online groceries business has turned out to be a particularly challenging niche. Earlier this year, Peppertap (Nuvo Logistics Pvt. Ltd) and Localbanya (Links Retail India Pvt. Ltd) shut shop, while Grofers scaled down its operations, retreating from smaller towns and cities and pruning its workforce.