Preferences vary; consumer needs remain the same, says Albinder Dhindsa

Albinder Dhindsa Co-founder & CEO, Grofers
You had to tweak your business model as recently as in 2016. What were the key insights that made you relook at your business model/operation?

In 2016, we pivoted our business to an inventory-led model. The biggest reason that made us pivot to an inventory-lead model is that it was difficult to control user experience. Very few merchants had technology to give inventory visibility to us, which lead to customers either not receiving all the products they had ordered, or not receiving good quality products.

 

It was an important decision for us to make this change and keep up the growth. We set up warehouses in 12 cities in a span of six months and since then, we have grown over 4X in the last one year with a 10-15 per cent month-on-month growth, while simultaneously decreasing our operational costs. We have been able to achieve this growth while also improving the customer experience as now we have better control over inventory and we can extract better margins from the manufacturers.

 

What are prerequisites to succeed in the food and grocery retailing segment?

There are two key things one needs to crack to succeed as a grocery retailer. One, understanding the customer. What a customer wants, what he/she values the most, what is the monthly purchase cycle of the customer, the barriers and the triggers that will lead to a purchase, how she makes a decision of shopping through a platform are some of the most important things a retailer has to understand to become successful. Two, reducing cost. The key to building and sustaining a grocery retail business is to manage costs, and technology plays an extremely important part here. Less cost enables you to deliver more savings to the customer. Our business model helps us work with a shorter supply chain with expenses that are lesser than our offline partners, as they have high fixed costs.

 

With increasing competition, how do you scale up to stay competitive?

I think online grocery is a very important category, especially in India where consumption is still primarily along non-discretionary spends. This is the reason all the large horizontal players are now looking at expanding into this category. If their core markets were providing enough value they will not be looking at expanding into a specialist category with operational complexity. Even a player like Amazon still doesn’t have a coherent grocery strategy in the US market where they have been operating for almost 25 years.

 

Overall, the entry of these players means there is a lot more focus on the segment. However, I think they will try out their own hand at this segment before eventually aligning in this vertical. Unless the horizontals are willing to change their business and product to match the expectation of the grocery customer, I don’t see them flourishing in this category. While it is nice to think in terms of market dynamics among large corporations, the customers and their expectations are what is going to make or break a segment (or company).

 

For us, the number one priority is to keep growing in our target group while making sure we are moving more and more markets towards profitability. Even if you look at our track record in the last year, we became the biggest player in the segment while all the horizontals came along with their own grocery players and other competitors also spent a lot on marketing. Our segment focus and commitment to building a specific use case for the customer has meant we haven’t really been bothered by what the other guys have done in the segment and even managed profitability in our largest market. We will continue to do better for our customers and sharpen our value proposition — its the best way to stay in the fight.

 

Which other markets did you study to strengthen your business? How similar or different are Indian consumers from consumers say in China or the USA?

We have studied a lot of supermarkets from India and other countries that have build their businesses with a core proposition—savings. DMart, Costco, Wal-Mart are one of a few great examples to look at. Customer behaviour doesn’t change a lot as per geographies when you talk about shopping for daily needs. Their wants or preferences might vary from valuing convenience to organic foods but the needs generally remain the same. A majority of the customers across geographies seek savings in their daily shopping and the biggest grocery businesses in the world are those that have successfully managed to deliver savings to their customers.

 

You have a handful of private labels also. Which are the categories you cover and which of them are performing better than the rest? 

Yes, we have launched two private label brands so far. The first brand, Best Value, was launched in 2017 with products under the staples category. Starting this year, we have launched another brand called SaveMore for a range of non-food products. We plan to launch more than 15 private labels in 2018 for more FMCG food and non-food categories; which would have over 500-plus stock keeping units. Being the older brand Best Value has penetrated more with very good reviews. It is the highest selling private brand on our platform currently.

 

What are your immediate concerns and how do you hope to spend the money you  have just raised?

We set ourselves on a very strong growth path in 2017 and we are confident that 2018 will bring even faster growth for us. We understand that online grocery as a category will accelerate and real value creation for the end customers will matter more than anything else. We expect the convenience benefit fading away and the value benefit coming to the fore.

 

Building for scale will be our theme for this year. That’s where a majority of the spends will get directed to. This will be the time where online grocery will start to seriously compete and make a dent in the offline pie. Each market we are currently present in has enough potential left for us to focus on penetrating further into more customer segments. We’ll also be focusing on making Smart Bachat Club—a loyalty programme that enables consumers to shop at wholesale prices, something no other competitor provides—a much bigger subscription service than what it is today. Also, launching more private label brands to delivering more good quality products at best prices is going to one of the key focus areas for us.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel