After $220 mn from SoftBank and others, Grofers to raise another $50-70 mn

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Grofers, the  online grocery start-up, which had raised around $220 million from various investors including SoftBank, is set to get another $60-70 million within a month or two. A large chunk of the money will be used to create warehousing and capacity at the company's partners manufacturing facilities. Grofers may also go public after three years.

Last month, Grofers announced $220 million fund infusion from various investors. Nearly 60 per cent came from SoftBank Vision Fund, and the rest from South Korean investment firm KTB Ventures and existing investors Tiger Global and Sequoia Capital. This was the biggest fund-raising exercise in India’s online grocery delivery industry. 

Today, Grofers is valued at around $800 million and the money raised recently would support it for the next two years.

While refusing to comment on the additional $60-70 million, which is expected to come in the next one or two months, Albinder Dhindsa, Co-founder and CEO, Grofers said the funds raised will be used to create warehousing facilities and manufacturing capacities at partner units.

Dhindsa, an IIT-Delhi graduate, founded the company along with Saurab Kumar, from IIT-Bombay in 2014. Initially, Grofers' model was express delivery, or reaching the groceries to the customer in less than two hours. The idea was backed by Sequoia, Tiger Global, Soft Bank, which pumped in $165 million in 2015.

As the model was not sustainable due to high costs and increasing customer complaints, Grofers switched to the inventory model. 

A major thrust was also given to private labels. Today, Grofers' average monthly sales are around Rs 260 crore, with 40 per cent from private labels. The company aims to increase monthly sales to around Rs 350 crore, and expects around 60 per cent coming from private labels.

Grofers is banking on its low-priced FMCG (fast moving consumer goods) private labels to drive the current growth rate, which is twice that of the industry.

Today one of the major challenges for Grofers is capacity, including warehousing space and manufacturing capacity, at partners ends. With this fund raising the company plans to address these challenges.

Dhindsa sees nearly 60 per cent of the money raised going towards creating this infrastructure. Grofers' warehousing capacity is around 2.1 million sq ft currently and the company plans to increase this to 2.5 million sq ft by end of this year and to 3.5 million sq ft next year.

Grofers, which claims its FMCG products are 30-50 per cent cheaper, can be more competitive once this infrastructure goes on stream, as it will address the logistics cost.

Major chunk of the infrastructure would come in southern clusters -- Chennai, Bengalaru and Hyderabad -- which is expected to be the fastest growing for the company and will help achieve Dhindsa's break-even target of 2020-21. Today, Grofers operates in 10 cities. Delhi, its biggest cluster, and Kolkata have achieved break-even. The firm also plans to go public in three years.

According to RedSeer Consulting, the online grocery segment is growing at a CAGR of 60-70 per cent and is expected to touch $4-5 billion in 2020 from $1.2 billion currently. Grofers competes with BigBasket, Amazon, and Flipkart's Supermart.

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