This website requires JavaScript.
Lead Story/Feature

Grofers Mulls Private Label Plans To Win Over BigBasket

"Our philosophy is to deliver the best possible price in every category to our customers without compromising with the quality."

Nov 2, 2018 by Avanish Tiwary
Grofers Mulls Private Label Plans To Win Over BigBasket

The online grocery market is going to get much more crowded and exciting as it already is. The locally grown players, BigBasket and Grofers are getting fierce and daring even with Walmart and Amazon entering this segment late in India.

Flipkart, with the backing of Walmart launched Supermart in May, limiting it to its Bangalore customers, while Amazon re-branded its grocery business to Prime Now earlier this year in May. It also has the government nod to open physical stores in India and already has 15 warehouses.

The presence of these two global players might also have triggered a possibility of acquisition of Grofers by BigBasket according to media reports. However, earlier this year, Gurgaon based Grofers raised USD 62 million from Japanese internet conglomerate SoftBank, with participation from Tiger Global and Russian billionaire Yuri Milner’s investment firm Apoletto Managers.

After a year of lull in 2017, with Big Basket almost emerging as a market leader in the grocery segment, Grofers made a comeback this year. It took several difficult decisions such as severing operations in tier 2 and tier 3 cities, putting a brake to its express delivery and removing fresh vegetables and fruits from its selling cart.

Now, it has decided to go 100% private label in the next two to three years. The company with its presence in 13 cities, claims to clock an average 50,000 orders a day. We talk to Albinder Dhindsa, co-founder of Grofers about how he plans to become a 100% private label online grocer and the challenges he will have to combat in the process.

https://cdn.thepassage.cc/filters:quality(70)/public/image/2018/11/02/albinder.png

Edited excerpts:

Why is it that you plan to go 100 % private label?

The short answer is: this is the only way we are able to provide better prices to our customers.

Our philosophy is to deliver the best possible price in every category to our customers without compromising with the quality. We realised, the best way to achieve that was for us to work with smaller manufacturers and trying to build our own portfolio brand. We have been working with these small businesses since May of last year.

We have been pushing it for a really long time now. We have built a separate team as well for a lot of products. The idea is to our own brands as substantially as possible over the next two years.

Take us through the process of how a private label for an online grocery business materialises.

Our approach is a little different than what Flipkart and Amazon did with electronics. They had made different products of their own brands whereas we are aggregating small manufacturers and helping them access the market quicker.

We realised that many of the small manufacturers in different cities, who were contract manufacturers for FMCG labels, also have their in-house brands. But in order for them to make their brands more acceptable to customers they don’t really have the know-how. Usually, they make their products and try to sell it in some whole-sale market. The customers will buy these products because they are cheaper than branded products, but quality is more or less the same. But these manufacturers lack in terms of how the packaging should look like, what exactly customers want, in terms of quality.

We partner with these guys and help them in the process of getting regulatory approvals from FSSAI and other government bodies. Moreover, we also help them with product formulation and product packaging. We put Grofers brand on these products because for customers that’s a more acceptable brand.

What are the categories in which you have your in-house brands?

We sell about 180 categories. We have launched private labels in only about 30 categories. In these 30 categories, we have launched a total of 700 products so far. Staples itself is a really big chunk. Category-wise, we are still under-penetrated, but we have large variety of products within these categories. We have built our own brand of detergents, house cleaners, etc.

How do the customers get benefited because of your in-house brands?

We mostly cater to middle-class customers. So if they get a better pricing with good quality, they don’t mind if it’s not a premium brand. For the customers there are two things that matter—pricing and assurance from Grofers.

In India the FMCG branded products are fairly expensive. I will tell you an anecdote: We have come up with in-house cereals, and as it was cheaper compared to the brands that are available, we saw many customers who were buying cereals for the first time. So people do want to eat and feed cereals to their kids, but not at the price point of Rs.180 (per KG). But when it was Rs.100 (per KG) they were more than happy to buy.

The price difference between an FMCG product and our private labels is anywhere between 4-30% depending on the category and size of products.

What were the challenges initially?

India’s manufacturing market has not matured from the perspective of certainty. As regulations keep changing more often than not, a lot of money is siphoned from other areas. We found there are a lot of guys who are manufacturing, but they are just doing it without gaining much scale. They have not made any investments as such in the system.

Usually, how it happens is when one gets a contract, they put up a factory and based on that they get bank on loan as well. A lot of NPA happens as the loan that these guys get are used for their own use.

Even with the honest manufacturers, the ability to invest in their own brands gives them more stability. But the problem occurs when they suddenly get a contract of say 10,000 units when they can actually produce only 5,000. The system runs into a shock. So their up and down cycle is very acute.

We had a manufacturer of pickles in Delhi. Over the 22 years he didn’t bother to change the packaging. We told him you want to sell pickles to the customers of 21st century and your branding is of (the) 70s, customers will get turned off. They have not invested in ancillary marketing as they are also wary of regulations.

What is the driving factor for you to get into in-house brands?

Our core customer is from the middle-class who is trying to look for cheaper alternatives and is not necessarily going for branded products. They are the urban equivalent of sachet-buying customers. In order to find cheaper alternatives to branded FMCG products, most of our customer base goes to wholesale market. Our aim is to provide the same product and price to their homes.

The challenge in doing this is that a specific local brand that is available in one market will not be available in another wholesale market, even in the same city. The tea sold most in Gurgaon’s Sadar Bazaar for example, is not available anywhere else. The customer who has once tasted that tea has to come here to buy it.

So to make products like these available at a mass scale, we thought it would do us and the customers good, if we start creating private brands.

But, what is the benefit for you to get into this hassle of partnering with small manufacturers?

Because FMCG branded products are very expensive. It is not possible for the customers who we are targeting to buy these products. So we are taking the effort from our side to reduce the price for them without compromising on the quality. It’s very simple. We recently launched a shampoo and in two days it was sold out.

The driving factor for us is lowering the price point of the product. The supply chain of grocery involves so many players and middlemen that the actual selling price becomes very expensive for the middle and the lower middle-class.

Now since we have our own channel, we can directly talk to customers and thereby keep these extra costs at bay, due to which customers end up paying for the product itself and nothing else.

What is the competition in grocery when it comes to private labels?

There is not much competition in private labels because we are also launching private labels in segments that no one else has done. We are also targeting different type of customers, so it is giving us the chance to build this private label business easily. But let’s see what happens in the coming years.

Why did you remove vegetables and fresh foods?

Our customers were not buying fresh vegetables and milk from us. Our customer demography prefer to buy their everyday consumption products from local vegetable seller for Rs.50-100 and not more than that.

In the next 2-3 years will Grofers replace all FMCG products with in-house brands?

No, both will exist. Seeing our advancement in private label, FMCG companies have agreed to work with us to create products for our customers at lower price points. But they wouldn’t want to dilute their branding by creating cheaper products. So they will manufacture products for us at lower prices but branding will be Grofers’. We are soon going to launch two products from two separate FMCG companies.

This is a way for them to cater to the lower income customers also without diluting their own brand presence. They are happy to make products for us of similar quality with direct distribution for which they will never advertise also.

Will you also partner with other big retailers such as More, Nature’s Basket, Reliance Fresh, etc?

We have the advantage of having our own distribution channel so it doesn’t make sense for us. The moment we try to go offline, the distribution channel will again increase the cost of the product. We are happy doing it through our own channel.

Two years ago we had done a pilot with offline shops in Gurgaon and it didn’t work out for us.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

Follow Avanish Tiwary