Mumbai: About a year ago, online groceries start-up Grofers changed its business model to replicate India’s most profitable and fastest growing large modern retailer D-Mart. The Gurugram-based start-up, which claims to have price savings at par with D-Mart, reduced its stocked items and now focuses on the lower middle class and middle class consumers. The result has been a 300% growth in topline and reduced losses, said Albinder Dhindsa, co-founder and chief executive officer, Grofers in an interview to Mint.

D-Mart (Avenue Supermarts Ltd), which replicated Walmart Inc, is best known for its “everyday low cost, everyday low price" strategy, and is India’s most valuable listed retailer.

Grofers ended FY18 with sales revenues of Rs700 crore, up from Rs250 crore a year ago. Losses have remained the same at Rs200 crore for both financial years 2017 and 2018, said Dhindsa. The revenues for the privately-held company comprise of seven to eight entities, said Dhindsa, but refused to disclose the registered names of all the companies.

In November 2017, Grofers completed its 10-month long transitioning to an inventory-led model from a hyperlocal delivery start-up. Last year, the company also decided to change its positioning to focus on the lower middle class and middle class consumer of India.

“We wanted to be the D-Mart for online consumers," said Dhindsa.

What this meant was reducing its stock-keeping units or items by nearly 40% from 6,500 to 4,000 units and quicker turnaround time per item at 15 days as compared to 35-40 days a year-ago. The online grocer also introduced its own private label brands and regional brands which were lower priced. These two categories—regional and private label—now account for 20% each of its overall revenues.

“In terms of savings and pricing we are now at par with D-Mart," claimed Dhindsa.

As a result, the profile of the Grofers consumer has changed. A Grofers consumer now comes typically from the “motorcycle families": 2-3 people per household with less than Rs100,000 monthly income, said Dhindsa, adding that they are less than 35 years of age.

Three out of four Grofers shoppers are women. That’s a change from the consumers shopping online a year-ago: 65% of them were men from the richest households of the country.

“E-commerce players like Bigbasket and Grofers have snatched market share from brick and mortar (B&M) retailers," according to a January report by Edelweiss securities Ltd. However, they are still making losses, the report added. Meanwhile, B&M retailers are launching their online groceries business.

In the first nine months of this fiscal, Avenue Supermarts Ltd posted a 28% gain in revenues and a 60% jump in net profit. D-Mart had last year launched a pilot e-commerce portal dmart.in. Consumers in certain areas of Mumbai can now shop online and get doorstep delivery or opt to order online and pick up from a DMart Ready Pick Up Point.

Meanwhile, all majority foreign-owned online grocers have raised yet another round of funding in February. Grofers raised Rs400 crore (around $62 million) in a Series E round led by existing investor SoftBank Group Corp. Rival BigBasket, operated by Supermarket Grocery Supplies Pvt. Ltd, had raised a much larger sum of $300 million in a Series E funding round led by Alibaba Group Holding Ltd.

The money will be used to fund its aggressive growth plans, said Dhindsa.

Grofers expects to end FY19 with revenue of Rs2,200 crore. It exited March with monthly sales of Rs120 crore, up from Rs26 crore a year ago. Bigbasket, on the other hand, has sales of Rs200 crore every month and expects to end FY19 with sales of Rs500 crore a month, co-founder and chief executive Hari Menon had told Mint in February.

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