This contrarian isn’t selling to just urbane shoppers5 min read . Updated: 10 Nov 2019, 07:23 PM IST
- Grofers co-founder Albinder Dhindsa explains that he sees real opportunity in urban India’s underserved mass market
- Dhindsa saw that new users behaved quite differently from the wealthy set in South Delhi and Gurugram where the startup began
Her weekly routine is to go to Sadar Bazaar, Delhi’s largest wholesale market, load up an autorickshaw with groceries and head back home to the crowded Shahdara area across the Yamuna. The ₹300 she saves on that 20-km round trip is more valuable to her than the four hours she spends. This East Delhi homemaker would not be on the radar of most e-commerce companies, but for Albinder Dhindsa, CEO and co-founder of online grocer Grofers, she’s the ideal target customer.
“More than half of our customers have a household monthly income of less than ₹40,000," says Dhindsa. That’s a different set from those living in upmarket South Delhi for whom time is precious. Express delivery, a wide choice, niche products—these are conveniences that online businesses strive to provide to the creamy layer of 50-100 million consumers in India.
The next level, the so-called Bharat, usually connotes tier-2+ towns. But Dhindsa believes there’s a vast underserved market even in urban India. And he has made bold bets to go after this mass market.
The first call was to cut back drastically on perishables. Today Grofers lists only 30-odd fruits and vegetables. The East Delhi housewife is more interested in staples and household items at wholesale prices than in fresh produce that she can pick up daily from her nearby local market.
This goes against the supermarket logic of providing everything in one place to pull in consumers. But the data showed that “fresh" as a category was not growing in Grofers even as other baskets became bigger. This seemed peculiar at first, but Dhindsa realized that newcomers who were using Grofers the most were behaving quite differently from the affluent set in South Delhi and Gurugram where the company started.
Stooping to conquer
“We were converting customers who were going to KR Market in Bengaluru or Khari Baoli in Delhi or Masjid Bunder in Mumbai. They were not like customers sitting in a PG and ordering Coke and a few other items. That was a shift happening in front of our eyes," recalls Dhindsa. “We had to figure out how to serve this new customer who was loyal to us."
It wasn’t an easy pivot. Grofers had invested substantially in supply chain, storage and sorting centres for perishables. But from 2016-17, it focused relentlessly on products that the mass market wanted, hacking away everything else, including the long tail of niche products. Dhindsa acknowledges it was a trade-off, but feels it was the only sustainable way to give his target customers value for money.
Grofers gained economies of scale by reducing SKUs (stock-keeping units) as the revenue per SKU rose. It drove down prices by launching private labels for anything that could be made more affordable at comparable quality to branded counterparts. Efficiency came from investment in warehouses as well as partnering with kirana stores for hyperlocal delivery even in places like Mumbai’s Dharavi slum that online grocery had largely bypassed.
Dhindsa says Grofers sales rose 20x even as it slashed its SKUs to 1,800 from 8,000 three years ago. Its gross merchandise value (GMV ) crossed ₹400 crore this August, making it the market leader, according to him.
E-commerce pioneer K. Vaitheeswaran, who co-founded Indiaplaza at the turn of the millennium, feels that Grofers’ strategy of limiting its SKUs to less than a tenth of its rival BigBasket is a smart play. “Eighty percent of grocery consumers want just 20% of the products," he points out.
Fewer SKUs and perishables are easier to manage, driving down costs. Nearly half of its business centres, including the national capital region, have turned operationally profitable, says Dhindsa, indicating that Grofers’ steep growth in the last couple of years hasn’t come from throwing capital at discounts.
Some hard lessons preceded the mantra of stooping to conquer. When Grofers launched in December 2013, it was a hyperlocal logistics provider, connecting distributors with retailers by aggregating local transport operators. But the biggest users ended up being the retailers, who were taking orders from end customers over the phone. This prompted Grofers to launch its customer facing app, which also helped retailers take orders and handle payments.
The app took off and Sequoia Capital became its first institutional investor in December 2014. Then came the boom year of 2015 when US fund Tiger Global and Japanese giant SoftBank pumped $165 million into the year-old startup which went from series A to series C in 10 months.
Investors loved the upstart’s asset-light model that was scaling superfast. From 100-200 orders a day in January, it trebled every alternate month to cross 10,000 orders a day before the end of 2015. “Every two months the business was at a scale which we could not have imagined six months earlier," says Dhindsa.
Then it hit a wall. The very thing that had helped it scale so fast proved its undoing. Holding no inventory, Grofers relied on small retailers to fulfil customer orders and they couldn’t keep up. “No matter how hard we tried, we couldn’t get them to invest more and expand. And the few who were willing needed too much hand-holding," says Dhindsa.
Customer experience deteriorated. Grofers was also over-extended with a presence in multiple cities. It was the worst of times, going from hero in 2015 to zero in 2016. “Everybody was saying we should be dead, if not dead already," recalls Dhindsa.
This persisted through 2017 when Grofers had a down round with lower valuation for its series D. But by then the sentiment had turned internally after pivoting to an inventory-led model with warehousing and shifting focus to the mass market consumer. Could it have done that earlier? Dhindsa feels he was six months late in seeing the writing on the wall.
Back to roots
An IIT Delhi graduate with an MBA from Columbia, Dhindsa was more attuned to upmarket consumers, as were his senior managers and co-founder, Saurabh Kumar. “Two years ago my understanding of why a housewife from East Delhi will go all the way to Chandni Chowk to shop in the wholesale market was a lot weaker than it is today," he says. There was a lot of unlearning. But now there’s a reconnection with his small town roots. Dhindsa hails from Sangrur in Punjab where his father was a farmer. The family lived frugally on a tight household budget often relying on a credit line with the local grocer. “The first time I ate in a restaurant was after coming to IIT Delhi," says Dhindsa. He recently visited Sangrur to shift his centenarian grandmother to Delhi. She would appreciate how her grandson is making grocery more affordable for those to whom a few rupees less matters.
Sumit Chakraberty is a contributing editor with Mint. Write to him at email@example.com